Unlocking opportunities
in payments.
2015 Annual Report
Unlocking Payment
OpportunitiesSM
In the dynamic and fast changing world of
payments, people expect how they pay for
things will be much different in the future
than it is today. TSYS® and our clients
will be on the forefront of that change.
Our brand promise is to unlock payment
opportunities for people and businesses so
they can thrive and grow. Through every
client interaction, both in the boardroom
and the back office, and in every one of
our products and solutions, you’ll find TSYS’
innovation and expertise, building momentum
and unlocking opportunities at every turn.
Our industry is ready and eager for
disruption, creativity and possibilities
some had never thought possible — for
payment providers, for businesses and
for consumers.
TSYS, with 2015 revenues of $2.8 billion,
offers solutions for payment providers,
businesses and consumers. This past year
was marked by strong execution both
strategically and financially, with robust
growth across our three businesses.
Sitting squarely in the middle of an industry in
the midst of unprecedented transformation,
we ended the year as a winning company
with unmatched scale, reach and distribution,
unlocking payment opportunities for our
clients and their customers.
Our Performance
Summary
1.
TOTAL REVENUES
$2.8 billion
INCREASE OF
13.6%
2.
EARNINGS PER SHARE
$2.46
adjusted EPS*
INCREASE OF
25.5%
12%
International
20%
Merchant
21%
NetSpend
3.
RETURN TO SHAREHOLDERS
#9
Highest Performing Stock
for 2015 in the S&P 500
$49.80
closing share price
(as of 12/31/2015)
REVENUES
BY SEGMENT
47%
North America
47.8%
TOTAL
SHAREHOLDER
RETURN
4.
CARDHOLDER TRANSACTIONS
5.
ADJUSTED EBITDA
23.1 billion
transactions processed
per year (excluding NetSpend)
$833.9 million*
INCREASE OF
17.1%
Financial Information
(in thousands)
(in thousands)
,
$
1
8
2
3
7
0
8
,
,
$
2
1
9
2
9
7
8
,
,
$
2
4
9
9
3
4
9
,
$
6
2
4
0
9
3
,
$
7
1
2
2
6
7
,
$
8
3
3
9
2
0
,
$
1
7
3
.
$
1
9
6
.
$
2
4
6
.
13
14
15
13
14
15
13
14
15
Revenues Before
Reimbursable Items*
Adjusted EBITDA*
Adjusted EPS*
(dollars in thousands, except per share data)
2015
2014
% Change
Total revenues
$2,779,541
$2,446,877
13.6
Revenues before reimbursable items*
$2,499,349
$2,192,978
14.0
Operating income
$534,107
$431,640
23.7
Net income attributable to TSYS common shareholders
$364,044
$322,872
12.8
Basic earnings per share from continuing operations
attributable to TSYS common shareholders
Diluted earnings per share from continuing operations
attributable to TSYS common shareholders
Adjusted EBITDA*
Adjusted EPS*
$1.97
$1.96
$1.48
33.3
$1.47
33.5
$833,920
$712,267
17.1
$2.46
$1.96
25.5
* Revenues before reimbursable items, adjusted EBITDA and adjusted earnings per share are non-GAAP financial measures, which are
explained further on pages 29-32 of this report.
1
Dear
Shareholders and Friends,
2015 was a record-breaking year for TSYS. We achieved
all-time highs in revenue, operating income, transactions
and volumes.
We worked hard to deliver on both strategic and financial
priorities — and it paid off. We saw double-digit growth
across all our businesses, which boosted total revenues
by 13.6 percent. And each of our four reporting segments
performed strongly against their peers.
M. Troy Woods
Chairman, President and
Chief Executive Officer, TSYS
2
Combined with higher margins, robust organic growth
made for superb consolidated results in 2015 — and
gave us the ideal launching pad for 2016.
And what a year it’s been! Most exciting of all has
been the announcement, on January 26, 2016, of
our intent to acquire TransFirst® for $2.35 billion.
That’s the largest acquisition in our history.
TransFirst is a leading provider of payment technology
solutions to businesses across the United States. What
sets TransFirst apart is its partner-centric, vertically
focused distribution capability — a capability that’s
sure to accelerate our position in the high growth
area of integrated payments.
The transaction, which we aim to close in the second
quarter of 2016, will strategically position TSYS in the
highly competitive, rapidly changing merchant
acquiring landscape.
Some of the greatest innovations in payments involve
both merchants and consumers. With our TransFirst
colleagues as part of the TSYS family, we’ll be
exceptionally well-positioned to deliver on these
evolving trends.
I want to share the highlights of this historic year
with you, along with how we plan to transform and
differentiate our company, and position ourselves to
lead the marketplace.
In this letter, I explain how our three businesses set
us apart in the payments space, and how we win on
scale, reach and distribution. We now service several
hundred payment providers, hundreds of thousands
of businesses and millions of consumers across the
payments landscape.
Today, that landscape is more competitive than
ever. But we’re confident that our strong, balanced
portfolio of businesses within TSYS will help us adapt
and evolve as often as this dynamic, fast-changing
industry demands. Disruptors and legacy players are
relying on TSYS to unlock the opportunities for growth
that payments can provide and keep the heart of
commerce beating strongly.
2 0 1 5 F I N A N CI A L P E R F O R M A N CE
It’s no accident that TSYS is operating from a position
of tremendous strength. We’ve achieved strong
financial performance because we’re able to foresee
the future of payments, and to execute and deliver
leading payment solutions at scale, with unrivaled
security and reliability.
Revenue and Income: Total revenues were
$2.8 billion, resulting in double-digit growth of
13.6 percent. Revenues before reimbursable items
were $2.5 billion: up 14.0 percent.
Earnings Per Share: Adjusted earnings per share
(EPS)* was $2.46, an increase of 25.5 percent.
Adjusted EBITDA* was $833.9 million, an increase of
17.1 percent. Basic EPS from continuing operations
was $1.97, an increase of 33.3 percent. Diluted EPS
from continuing operations was $1.96, an increase
of 33.5 percent.
Return to Shareholders: TSYS stock was ranked
ninth in the S&P 500’s list of the highest performing
stocks for 2015. Our closing stock price at year end
was $49.80. We bought 5.2 million shares, totaling
$242.1 million. These purchases along with our
dividends of $73.7 million, returned $315.8 million to
our shareholders. That’s more than 92 percent of
available free cash flow for the year — an increase
of 31.5 percent over 2014.
Let’s take a look at our three businesses, and the
solutions we deliver.
* Revenues before reimbursable items, adjusted EBITDA and adjusted earnings per share are non-GAAP financial measures, which are
explained further on pages 29-32 of this report.
3
Pay ment Providers
Our issuer processing business provides solutions
to payment providers such as financial institutions,
major retailers and emerging payment players within
our North America and international segments.
As payments move beyond plastic, “payment
providers” is a clearer way to describe the many
various parties who now rely on us to empower
payments.
This is an exceptionally strong part of our business,
reaching more than 700 million accounts and 400
payment providers worldwide.
In 2015, our market share reached approximately
40 percent of all Visa® and MasterCard® credit card
accounts in the United States*. We ended the year
with 415 million traditional accounts in North America
(excluding prepaid, government services and single-
use accounts, which can vary substantially and are
less correlated to revenue). We are now the
number-one provider of these services in the
United States, and ranked second in Europe**.
This year’s highlights included the largest single
cardholder conversion in the history of payments*:
the Bank of America® consumer portfolio. In 2015,
we also participated in the launch of mobile
payments in the United States for Android Pay™
and Samsung Pay™.
* Nilson Report
* * Based on Revenue and AOF
4
We achieved several milestones in our business and
IT strategy, Surround®, in 2015. These included a pilot
with Royal Bank of Canada®, the largest financial
institution in Canada.
Most importantly, we’ve initiated a strong customer
experience program, which will improve our ability
to offer more relevant products and greater value
to our clients.
In our international segment, the positive story
continued with stronger revenue growth and margins.
Four years ago, we announced a margin target of 18
percent, and I’m proud to say that we achieved that
goal — despite the somewhat fragile and uncertain
state of the European and Brazilian economies.
We’re still seeing transformation, cost-cutting and
regulatory changes across the industry. But TSYS
remains active in key international markets, thanks
to the strong foundation in our TS2® platform and
our PRIME
business solutions.
SM
We remain at the forefront of new mobile developments,
assisting major merchants in offering Apple Pay®
in the United Kingdom in 2015, following our initial
support in the United States for this easy, secure and
private payment method. Our collaborative effort
with China UnionPay® — CUP Data — continues to
exceed expectations, and we’re pursuing additional
opportunities to do business together.
Bu sinesses
Our merchant segment showed very strong
performance in 2015. We delivered EMV®
implementations and new product offerings
like American Express OptBlue®, which allows
smaller-volume merchants to accept American
Express® payments through a simpler
acceptance process.
Our merchant segment also launched support for
Android Pay and Samsung Pay, enabling merchants
to accept the many forms of mobile payments
consumers expect. We also increased our focus
on small-to-medium-size businesses (SMBs): a $10
billion addressable market opportunity of six to eight
million businesses*.
Today businesses look for fully integrated software
solutions that better manage all their operations and
have payment acceptance and processing embedded
within management software specifically designed for
their business’ needs. In 2015, our merchant segment
continued this momentum. We grew our integrated
software vendor channel, and added new partners
to the mix. Combining TransFirst with our own
merchant segment accentuates TransFirst’s go-to-
market strategy and focus on referral partners like
technology software providers, banks, associations
and e-commerce providers.
The acquisition of TransFirst will also strengthen our
sales and distribution network. It adds more than
1,300 partners and more than 350 sales professionals,
enhancing our access to fast-growing vertical
markets like healthcare, B2B and not-for-profits.
TransFirst complements TSYS’ existing merchant
business in three key ways. First, TransFirst operates
a partner-centric distribution model, which will
give us scalable, cost-efficient access to a large
number of SMBs. Second, TransFirst operates a single,
integrated platform that evolved from TSYS’ own
payment solutions. This means we can leverage our
joint capabilities to offer products in a seamless way
through one provider for all processing requirements.
And third, TransFirst offers customized, user-friendly
solutions that enable merchants to sell all their
products on a single platform — whether from
a store, over the Web or remotely through a
mobile device.
Once the TransFirst acquisition is complete, we’ll be
servicing more than 645,000 merchant locations,
processing $117 billion in annual sales volume and
have approximately 2,300 distribution partners.
That will make TSYS the sixth-largest U.S. acquirer
based on revenue and the United States’ third-largest
integrated payments provider, according to First
Annapolis Consulting.
Co n s u mers
Consumer expectations are higher than ever. And our
dedication to providing consumers with alternative
banking solutions came into sharp focus in 2015.
Our consumer-facing prepaid segment, NetSpend®,
is positioned to become the number-one choice for
those consumers and businesses who want more
control over their money in order to move ahead with
their lives. In 2015, we had more than 96,000 distributing
locations and employers, serving almost four million
consumers. That made us the number-one U.S. prepaid
program manager based on gross dollar volume.
NetSpend had a banner year in 2015, which culminated
in a milestone of 16 consecutive quarters of double-
digit revenue growth, as well as multiple new launches
and distribution agreements.
Thanks to strong relationships across diverse acquisition
channels, NetSpend significantly increased its presence
in places consumers live and work. We drove organic
growth through launching and scaling new relationships
with trusted partners like Paychex®, Western Union®,
Brink’s®, Walmart® and Rite Aid®. NetSpend now also
offers a full suite of commercial prepaid products
including payroll and disbursement cards to one of TSYS’
biggest clients, a top-10 bank in the United States.
NetSpend wins by answering customers’ needs for
innovative products that deliver speed, security, control
and universal acceptance. 2016 will see the launch
of products to meet the needs of many small and
micro-business owners who already rely on NetSpend
products for their day-to-day spending.
As you’d expect, we’re also actively preparing for the final
rules from the Consumer Financial Protection Bureau
(CFPB) on prepaid products in 2016. Regardless of the
rules, we’re more committed than ever to developing our
partner network, and providing innovative, affordable
products to help consumers meet their financial needs.
* SMB addressable market by net revenue estimated to be $10 billion. Notes: Market growth forecast based on 2014-2019 CAGRs
Source: First Annapolis Consulting, Economist Intelligence Unit
5
6
I’d also like to announce the addition of Pam Joseph
as the newest member of our Board of Directors.
Pam is the recently retired vice chairman of U.S.
Bancorp®’s payment services division, and is
immensely respected within the payments industry
— and has a deep familiarity with our company
from years of working together. I know she will
be a tremendous asset to our Board.
When I look back on this year, I believe we stand at
the threshold of perhaps our greatest adventure
as a business.
Looking ahead, I see a future in which we are unlocking
ever-greater opportunities for payment providers,
businesses and consumers alike. It’s a future in which
we show the world the true potential of People-
Centered Payments® — our greatest strength and most
strategic asset as a company. We have a uniquely
strong hand to play within the world of commerce in
2016 and beyond.
On behalf of executive management, and the TSYS
Board of Directors, I’d like to thank our clients, team
members, shareholders and partners for their loyalty
and commitment.
Sincerely,
M. Troy Woods
Chairman, President and
Chief Executive Officer, TSYS
T H R E E P I L L A RS O F ST R E N GT H
I am often asked what is the real strategic value
of us being in these three specific businesses —
issuer processing, merchant acquiring and prepaid
program management.
TSYS lives at the intersection of commerce and data.
We have the privilege of influencing how the world
pays — and, in the process, gaining unique expertise
in the payments space. Using this expertise, we’re able
to serve as a trusted advisor to clients and customers,
and gain greater insight into their businesses and
lives. Through our scale, reach, mix of solutions
and distribution network, we’re uniquely positioned
within each of the customer groups across our
three businesses — and the payments spectrum.
The traditional dividing lines in the payments value
chain are blurring. And we’re perfectly placed to
act as an intermediary between all of them. The
number of cardholders we touch through our issuer
processing business, plus the number of merchants
we serve, means we can bridge technology solutions,
innovative products and new ways to pay across the
payments spectrum — by leading the market, and
excelling in these three businesses.
IN CLOS ING
I’d like to give fond and heartfelt thanks to Ken Tye,
who retired as Chief Information Officer (CIO) in
September, as well as Gardiner W. Garrard Jr.
and H. Lynn Page, who will retire from the Board of
Directors at the 2016 Annual Meeting of Shareholders.
This group has been with us since the very beginning,
advising and supporting us on the journey to become
the multi-billion-dollar global payments company
we are today. It has been an enormous pleasure to
have Ken, Gardiner and Lynn play such influential
roles in the past 32 years of the TSYS story.
I’d like to welcome our new CIO, Patty Watson, to the
company. In addition to a U.S. Air Force background,
Patty has more than 17 years of experience in the
financial services industry, most recently serving as vice
president and global CIO for The Brink’s Company®.
Her experience in technology and her passion for
clients and innovation will serve us well into the future.
7
8
Board of Directors
James H. Blanchard
Chairman of the Board &
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Synovus
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Jordan-Blanchard Capital, LLC
Kriss Cloninger III
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(cid:36)(cid:193)(cid:68)(cid:70)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)
Walter W. Driver Jr.
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Goldman, Sachs & Co.
Gardiner W. Garrard Jr.
Chairman of the Board
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Leadership
Executive Management
pictured on the left
Front Row
M. Troy Woods
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(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)
Sidney E. Harris
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(cid:42)(cid:72)(cid:82)(cid:85)(cid:74)(cid:76)(cid:68)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:87)(cid:92)(cid:15)
(cid:45)(cid:17)(cid:3)(cid:48)(cid:68)(cid:70)(cid:78)(cid:3)(cid:53)(cid:82)(cid:69)(cid:76)(cid:81)(cid:86)(cid:82)(cid:81)(cid:3)(cid:38)(cid:82)(cid:79)(cid:79)(cid:72)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:37)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)
William M. Isaac
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(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)
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Former Chairman
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Pamela A. Joseph
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(cid:56)(cid:17)(cid:3)(cid:54)(cid:17)(cid:3)(cid:37)(cid:68)(cid:81)(cid:70)(cid:82)(cid:85)(cid:83)(cid:3)(cid:3)
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Mason H. Lampton
Chairman of the Board
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Connie D. McDaniel
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H. Lynn Page
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Synovus
TSYS
Philip W. Tomlinson
Chairman of the Board &
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TSYS
John T. Turner
(cid:51)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:82)(cid:85)
Richard W. Ussery
Chairman of the Board &
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)
TSYS
M. Troy Woods
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)
TSYS
James D. Yancey
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:71)
Synovus
Columbus Bank and Trust
Middle Row, Left to Right
Gaylon Jowers Jr.
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)
Paul M. Todd
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)(cid:3)
Ryland L. Harrelson
(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)(cid:3)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)(cid:72)(cid:86)(cid:82)(cid:88)(cid:85)(cid:70)(cid:72)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)
Charles J. Harris
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)(cid:3)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:49)(cid:72)(cid:87)(cid:54)(cid:83)(cid:72)(cid:81)(cid:71)(cid:3)
Back Row, Left to Right
(cid:42)(cid:17)(cid:3)(cid:54)(cid:68)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:42)(cid:85)(cid:76)(cid:375)(cid:87)(cid:75)(cid:3)(cid:44)(cid:44)(cid:44)
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)
(cid:42)(cid:72)(cid:81)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)(cid:38)(cid:82)(cid:88)(cid:81)(cid:86)(cid:72)(cid:79)(cid:3)(cid:9)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)
Patricia A. Watson
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:50)(cid:375)(cid:70)(cid:72)(cid:85)
William A. Pruett
(cid:54)(cid:72)(cid:81)(cid:76)(cid:82)(cid:85)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:9)
(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:49)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:36)(cid:80)(cid:72)(cid:85)(cid:76)(cid:70)(cid:68)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)
9
TSYS Financial Data
Selected Financial Data ...............................................................................................................................................................................................11
Financial Overview ..........................................................................................................................................................................................................11
Financial Review ................................................................................................................................................................................................................13
Consolidated Balance Sheets .................................................................................................................................................................................41
Consolidated Statements of Income ..................................................................................................................................................................42
Consolidated Statements of Comprehensive Income ...........................................................................................................................43
Consolidated Statements of Cash Flows.........................................................................................................................................................44
Consolidated Statements of Changes in Equity .........................................................................................................................................45
Notes to Consolidated Financial Statements ................................................................................................................................................46
Report of Independent Registered Public Accounting Firm ................................................................................................................90
Management’s Report on Internal Control Over Financial Reporting ..........................................................................................91
Quarterly Financial Data, Stock Price, Dividend Information .............................................................................................................92
Stock Performance Graph ........................................................................................................................................................................................93
10
Selected Financial Data
The following financial data should be read in conjunction with the Consolidated Financial Statements and Notes
thereto and Financial Review sections of the Annual Report. The historical trends in Total System Services, Inc.’s
(TSYS’ or the Company’s) results of operations and financial position over the last five years are presented below.
Years Ended December 31,
(in thousands, except per share data)
2015
2014
2013
2012
2011
Income Statement Data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,779,541 2,446,877 2,064,305 1,793,557 1,733,237
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 534,107
431,640
382,500
354,969
321,120
Income from continuing operations, net of tax . . . $ 367,630
Income from discontinued operations, net of
280,751
254,542
248,928
218,446
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,411
48,655
2,055
995
4,216
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
369,041
329,406
256,597
249,923
222,662
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,997)
(6,534)
(11,847)
(5,643)
(2,103)
Net income attributable to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364,044
322,872
244,750
244,280
220,559
Basic earnings per share (EPS)* attributable to
TSYS common shareholders:
Income from continuing operations . . . . . . . . . . . $
Gain (loss) from discontinued operations . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted EPS* attributable to TSYS common
shareholders:
Income from continuing operations . . . . . . . . . . . $
Gain (loss) from discontinued operations . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash dividends declared per share . . . . . . . . . . . . . $
1.97
0.01
1.98
1.96
0.01
1.97
0.40
1.48
0.26
1.73
1.47
0.25
1.72
0.40
1.31
(0.01)
1.30
1.30
(0.01)
1.29
0.40
1.31
(0.02)
1.30
1.31
(0.02)
1.29
0.40
1.14
0.01
1.15
1.14
0.01
1.15
0.31
* Basic and diluted EPS amounts for continuing operations and net income may not total due to rounding.
(in thousands)
2015
2014
2013
2012
2011
Balance Sheet Data:
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,908,300 3,733,581 3,686,568 2,023,838 1,858,392
Obligations under long-term borrowings and
capital leases, excluding current portion . . . . . .
1,383,634 1,405,106 1,435,751
192,014
63,593
As of December 31,
Financial Overview
TSYS’ revenues are derived from providing global payment processing services to financial and nonfinancial
institutions, generally under long-term processing contracts. In addition, the Company derives revenues from
providing processing services, acquiring solutions, related systems and integrated support services to merchant
acquirers and merchants. The Company also derives revenues by providing general-purpose reloadable (GPR)
prepaid debit cards and payroll cards and alternative financial services to underbanked and other consumers. The
Company’s services are provided through the Company’s four operating segments: North America Services,
International Services, Merchant Services and NetSpend.
Through the Company’s North America Services and International Services segments, TSYS processes
information through its cardholder systems for financial institutions throughout the United States and
11
internationally. The Company’s North America Services segment provides these services to clients in the United
States, Canada, Mexico and the Caribbean. The Company’s International Services segment provides services to
clients in Europe, India, Middle East, Africa, Asia Pacific and Brazil. The Company’s Merchant Services segment
provides merchant services to merchant acquirers and merchants based primarily in the United States. The
Company’s NetSpend segment provides GPR prepaid debit and payroll cards and alternative financial service
solutions to underbanked and other consumers in the United States.
The following table sets forth each segment’s revenues as a percentage of the Company’s total revenues:
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47%
21
20
12
45%
19
21
15
48%
10
26
16
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
Years Ended December 31,
2015
2014
2013
Due to the somewhat seasonal nature of the credit card industry, TSYS’ revenues and results of operations have
generally increased in the fourth quarter of each year because of increased transaction and authorization volumes
during the traditional holiday shopping season. Furthermore, growth or declines in card and merchant portfolios
of existing clients, the conversion of cardholder and merchant accounts of new clients to the Company’s
processing platforms, the receipt of fees for early contract termination and the loss of cardholder and merchant
accounts either through purges or deconversions impact the results of operations from period to period.
Another factor which may affect TSYS’ revenues and results of operations from time to time is consolidation in the
financial services or retail industries either through the sale, by a client, of its business, its card portfolio or a
segment of its accounts to a party which processes cardholder or merchant accounts internally or uses another
third-party processor. A change in the economic environment in the retail sector, or a change in the mix of
payments between cash and cards could favorably or unfavorably impact TSYS’ financial position, results of
operations and cash flows in the future.
TSYS’ reported financial results will also be impacted by significant shifts in currency conversion rates. TSYS does
not view foreign currency as an economic event for the Company but as a financial reporting issue. Because
changes in foreign currency exchange rates distort the operating growth rates, TSYS discloses the impact of
foreign currency translation on its financial performance.
A significant amount of the Company’s revenues are derived from long-term contracts with large clients.
Processing contracts with large clients, representing a significant portion of the Company’s total revenues,
generally provide for discounts on certain services based on the size and activity of clients’ portfolios. Therefore,
revenues and the related margins are influenced by the client mix relative to the size of client portfolios, as well
as the number and activity of individual cardholder or merchant accounts processed for each client.
Regulation
Government regulation affects key areas of TSYS’ business, in the U.S. as well as internationally. TSYS, along with
the rest of the financial services industry, continues to experience increased legislative and regulatory scrutiny,
including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Financial Reform Act). This legislation, which provides for sweeping
financial regulatory reform, may have a significant and negative impact on the Company and its clients, which
could impact TSYS’ earnings through fee reductions, higher costs (both regulatory and implementation) and new
restrictions on operations. The Financial Reform Act may also impact the competitive dynamics of the financial
services industry in the U.S. by more adversely impacting large financial institutions, some of which are TSYS
clients, and by adversely impacting the competitive position of U.S. financial institutions in comparison to foreign
competitors in certain businesses.
12
The Financial Reform Act, which includes the Durbin Amendment to the Electronic Funds Transfer Act, mandates
that the Board of Governors of the Federal Reserve System (Board) limit debit card interchange fees. Final rules
were issued in June 2011. The final rules cap interchange fees for debit transactions at $0.21 plus five basis
points of the transaction and require that the amount of any debit interchange transaction fee charged be
reasonable and proportional to the costs incurred in connection with the transaction.
Although this legislative action by the U.S. Congress had been anticipated for some time, it remains impossible
to predict the impact, if any, that the law and the regulations to be promulgated thereunder may have on the
Company’s operations or its financial condition in the future. However, as TSYS’ business is predominately credit
card related, the Durbin Amendment is not expected to have a significant negative impact upon TSYS’ business.
The Financial Reform Act also created a new Consumer Financial Protection Bureau (“CFPB”) with responsibility
for regulating consumer financial products and services and enforcing most federal consumer protection laws in
the area of financial services, including consumer credit and the prepaid card industry. For example, the CFPB
has proposed regulations regarding the prepaid industry, which, if adopted as proposed, could impose
significant additional disclosure requirements, overdraft requirements, and other requirements on the prepaid
card industry, including the Company’s NetSpend business, effective in 2016 or 2017. Similarly, other future
actions of the CFPB may make payment card or product transactions generally less attractive to card issuers,
acquirers, consumers and merchants by further regulatory disclosures, payment card practices, fees, routing and
other matters with respect to credit, debit and prepaid cards, and thus negatively impact the Company’s
business.
Financial Review
This Financial Review provides a discussion of critical accounting policies and estimates, related party transactions
and off-balance sheet arrangements. This Financial Review also discusses the results of operations, financial
position, liquidity and capital resources of TSYS and outlines the factors that have affected its recent earnings, as
well as those factors that may affect its future earnings. The accompanying Consolidated Financial Statements and
related Notes are an integral part of this Financial Review and should be read in conjunction with it.
Critical Accounting Policies and Estimates
Risk factors that could affect the Company’s future operating results and cause actual results to vary materially
from expectations are listed in the Company’s forward-looking statements. Negative developments in these or
other risk factors could have a material adverse effect on the Company’s financial position, results of operations
and cash flows.
TSYS’ financial position, results of operations and cash flows are impacted by the accounting policies the
Company has adopted. Refer to Note 1 in the Consolidated Financial Statements for more information on the
Company’s basis of presentation and a summary of significant accounting policies.
Management believes that the following accounting policies are the most critical to fully understand and evaluate
the Company’s results. Within each critical policy, the Company makes estimates that require management’s
subjective or complex judgments about the effects of matters that are inherently uncertain.
A summary of the Company’s critical accounting estimates applicable to the reportable operating segments
follows:
Allowance for Doubtful Accounts and Billing Adjustments
The Company estimates the allowance for doubtful accounts. When estimating the allowance, the Company
takes into consideration such factors as its knowledge of the financial position of specific clients, the industry and
size of its clients, the overall composition of its accounts receivable aging, prior experience with specific
customers of accounts receivable write-offs and prior history of allowances in proportion to the overall receivable
balance. This analysis includes an ongoing and continuous communication with its largest clients and those
clients with past due balances. A financial decline of any one of the Company’s large clients could have a material
13
adverse effect on collectability of receivables and thus the adequacy of the allowance for doubtful accounts. If
the actual collectability of clients’ accounts is not consistent with the Company’s estimates, bad debt expense,
which is recorded in selling, general and administrative expenses, may be materially different than was initially
recorded. The Company’s experience and extensive data accumulated historically indicates that these estimates
have proven reliable over time.
The Company estimates allowances for billing adjustments for potential billing discrepancies. When estimating
the allowance for billing adjustments, the Company considers its overall history of billing adjustments, as well as
its history with specific clients and known disputes. If the actual adjustments to clients’ billing are not consistent
with the Company’s estimates, billing adjustments, which are recorded as a reduction of revenues in the
Company’s Consolidated Statements of Income, may be materially different than was initially recorded. The
Company’s experience and extensive data accumulated historically indicates that these estimates have proven
reliable over time. The allowance for doubtful accounts and billing adjustments on the Company’s Consolidated
Balance Sheet as of December 31, 2015 was $2.7 million.
Contract Acquisition Costs
In evaluating contract acquisition costs for recoverability, expected cash flows are estimated by management.
The Company evaluates the carrying value of contract acquisition costs associated with each customer for
impairment on the basis of whether these costs are fully recoverable from either contractual minimum fees
(conversion costs) or from expected undiscounted net operating cash flows of the related contract (cash
incentives paid). The determination of expected undiscounted net operating cash flows requires management to
make estimates. If the actual cash flows are not consistent with the Company’s estimates, a material impairment
charge may result and net income may be materially different than was initially recorded.
These costs may become impaired with the loss of a contract, the financial decline of a client, termination of
conversion efforts after a contract is signed, or diminished prospects for current clients. Note 11 in the
Consolidated Financial Statements contains a discussion of contract acquisition costs. The net carrying value of
contract acquisition costs on the Company’s Consolidated Balance Sheet as of December 31, 2015 was $247.8
million.
Software Development Costs
In evaluating software development costs for recoverability, expected cash flows are estimated by management.
The Company evaluates the unamortized capitalized costs of software development as compared to the net
realizable value of the software product, which is determined by expected undiscounted net operating cash
flows. The amount by which the unamortized software development costs exceed the net realizable value is
written off in the period that such determination is made. If the actual cash flows are not consistent with the
Company’s estimates, a material write-off may result and net income may be materially different than was initially
recorded. Assumptions and estimates about future cash flows and remaining useful lives of software are complex
and subjective. They can be affected by a variety of factors, including industry and economic trends, changes in
the Company’s business strategy and changes in the internal forecasts. Note 9 in the Consolidated Financial
Statements contains a discussion of internally developed software costs. The net carrying value of internally
developed software on the Company’s Consolidated Balance Sheet as of December 31, 2015 was $116.4 million.
Acquisitions – Purchase Price Allocation
TSYS’ purchase price allocation methodology requires the Company to make assumptions and to apply judgment
to estimate the fair value of acquired assets and liabilities. TSYS estimates the fair value of assets and liabilities
based upon appraised values, the carrying value of the acquired assets and widely accepted valuation
techniques, including discounted cash flows and market multiple analyses. Management determines the fair value
of fixed assets and identifiable intangible assets such as developed technology or customer relationships, and
any other significant assets or liabilities. TSYS adjusts the purchase price allocation, as necessary, up to one year
after the acquisition closing date as TSYS obtains more information regarding asset valuations and liabilities
assumed. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s fair
value estimates, including assumptions regarding industry economic factors and business strategies, and result in
an impairment or a new allocation of purchase price.
14
Given its history of acquisitions, TSYS may allocate part of the purchase price of future acquisitions to contingent
consideration as required by generally accepted accounting principles (GAAP) for business combinations. The fair
value calculation of contingent consideration will involve a number of assumptions that are subjective in nature
and which may differ significantly from actual results. TSYS may experience volatility in its earnings to some
degree in future reporting periods as a result of these fair value measurements.
Goodwill
In evaluating for impairment, discounted net cash flows for future periods are estimated by management. In
accordance with the provisions of GAAP, goodwill is required to be tested for impairment at least annually. The
combination of the income approach, utilizing the discounted cash flow (DCF) method, and the market approach,
utilizing readily available market valuation multiples, is used to estimate the fair value. Under the DCF method,
the fair value of the asset reflects the present value of the projected earnings that will be generated by each asset
after taking into account the revenues and expenses associated with the asset, the relative risk that the cash flows
will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of invested
capital. Cash flows are estimated for future periods based on historical data and projections provided by
management. If the actual cash flows are not consistent with the Company’s estimates, a material impairment
charge may result and net income may be materially different than was initially recorded. Note 7 in the
Consolidated Financial Statements contains a discussion of goodwill. The net carrying value of goodwill on the
Company’s Consolidated Balance Sheet as of December 31, 2015 was $1.5 billion.
Long-lived Assets and Intangibles
In evaluating long-lived assets and intangibles for recoverability, expected undiscounted net operating cash flows
are estimated by management. The Company reviews long-lived assets, such as property and equipment and
intangibles subject to amortization, including contract acquisition costs and certain computer software, for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the actual cash
flows are not consistent with the Company’s estimates, a material impairment charge may result and net income
may be materially different than was initially recorded. The Company did not recognize any impairment charges
during the years ended December 31, 2015, 2014 and 2013.
Revenue Recognition
The Company recognizes revenues in accordance with the provisions of GAAP, which sets forth guidance as to
when revenue is realized or realizable and earned when all of the following criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services have been performed; (3) the seller’s
price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.
The Company evaluates its contractual arrangements that provide services to clients through a bundled sales
arrangement in accordance with the provisions of GAAP to address the determination of whether an arrangement
involving more than one deliverable contains more than one unit of accounting and how the arrangement
consideration should be measured and allocated to the separate units of accounting.
A deliverable in multiple element arrangements indicates any performance obligation on the part of the seller
and includes any combination of obligations to perform different services, grant licenses or other rights. Revenue
is allocated to the separate units of accounting in a multiple element arrangement based on relative fair values,
provided the delivered element has standalone value to the customer and delivery of any undelivered items is
probable and substantially within the Company’s control. Evidence of fair value must be objective and reliable.
An item has value to the customer on a standalone basis if it is sold separately by any vendor or the customer
could resell the deliverable on a standalone basis.
As TSYS’ business and service offerings change in the future, the determination of the number of deliverables in
an arrangement and related units of accounting and future pricing practices may result in changes in the
estimates of vendor-specific objective evidence of selling price (VSOE) and estimates of the standalone selling
price (ESP), which may change the ratio of fees allocated to each service or unit of accounting in a given
15
customer arrangement. There were no material changes or impact to revenue in revenue recognition in the year
ended December 31, 2015 due to any changes in the determination of the number of deliverables in an
arrangement, units of accounting, or estimates of VSOE or ESP for existing contractual arrangements.
Cardholders’ Reserve
The Company is exposed to losses due to cardholder fraud, payment defaults and other forms of cardholder
activity as well as losses due to non-performance of third parties who receive cardholder funds for transmittal to
the Issuing Banks (banks that issue MasterCard International or Visa USA, Inc. branded cards to customers). The
Company establishes a reserve for the losses it estimates will arise from processing customer transactions, debit
card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to non-delivery of
goods or services. These reserves are established based upon historical loss and recovery rates and cardholder
activity for which specific losses can be identified. The cardholders’ reserve was $9.4 million as of December 31,
2015. The provision for cardholder losses is included in cost of services in the Consolidated Statements of
Income. The Company regularly updates its estimate as new facts become known and events occur that may
impact the settlement or recovery of losses.
Provision for Merchant Losses
The Company has potential liability for losses resulting from disputes between a cardholder and a merchant that
arise as a result of, among other things, the cardholder’s dissatisfaction with merchandise quality or merchant
services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged
back” to the merchant, which means the purchase price is refunded to the customer by the card-issuing bank and
charged to the merchant. If the merchant is unable to fund the refund, TSYS must do so. TSYS also bears the risk
of reject losses arising from the fact that TSYS collects fees from its merchants on the first day after the monthly
billing period. If the merchant has gone out of business during such period, TSYS may be unable to collect such
fees. TSYS maintains cash deposits or requires the pledge of a letter of credit from certain merchants, generally
those with higher average transaction size where the card is not present when the charge is made or the product
or service is delivered after the charge is made, in order to offset potential contingent liabilities such as
chargebacks and reject losses that would arise if the merchant went out of business. Most chargeback and reject
losses are charged to cost of services as they are incurred. However, the Company also maintains a provision
against losses, including major fraud losses, which are both less predictable and involve larger amounts. The loss
provision is established using historical loss rates, applied to recent bankcard processing volume. As of
December 31, 2015, the Company had a merchant loss provision in the amount of $1.3 million.
Transaction Processing Provisions
The Company records estimates to provide for contract contingencies (performance penalties) and processing
errors. A significant number of the Company’s contracts with large clients contain service level agreements which
can result in TSYS incurring performance penalties if contractually required service levels are not met. When
estimating these accruals, the Company takes into consideration such factors as the prior history of performance
penalties and processing errors incurred, actual contractual penalties inherent in the Company’s contracts,
progress towards milestones, and known processing errors not covered by insurance. If the actual performance
penalties incurred are not consistent with the Company’s estimates, performance penalties and processing errors,
which are recorded in cost of services, may be materially different than were initially recorded. The Company’s
experience and extensive data accumulated historically indicate that these estimates have proven reliable over
time. As of December 31, 2015, the Company had a transaction processing provision in the amount of $6.5
million.
Income Taxes
In calculating its effective tax rate, the Company makes decisions regarding certain tax positions, including the
timing and amount of deductions and allocations of income among various tax jurisdictions. The Company has
various tax filing positions, including the timing and amount of deductions and credits, the establishment of
reserves for audit matters and the allocation of income among various tax jurisdictions.
The Company makes estimates as to the amount of deferred tax assets and liabilities and records valuation
allowances to reduce its deferred tax assets to reflect the amount that is more likely than not to be realized. The
16
Company considers projected future taxable income and ongoing tax planning strategies in assessing the need
for the valuation allowance. Actual results may differ from the Company’s estimates. If the Company realizes a
deferred tax asset or the Company was unable to realize a net deferred tax asset, an adjustment to the deferred
tax asset would increase or decrease earnings, respectively, in the period the difference is recognized.
Related Party Transactions
In December 2014, TSYS’ majority-owned subsidiary, TSYS Managed Services EMEA Limited (EMEA), obtained a
£900,000, or approximately $1.4 million, term loan bearing interest at a rate of LIBOR plus two percentage
points. During September 2015, TSYS increased the loan by £1.3 million, or approximately $1.9 million. The loan
matures in December 2017, and has monthly interest payments. The lender is Merchants Limited, who has a
noncontrolling interest in EMEA.
The Company provides miscellaneous services to Merchants Limited and to the Company’s equity investments,
Total System Services de México, S.A. de C.V. (TSYS de México) and China UnionPay Data Co., Ltd. (CUP Data).
The related party services and arrangements are performed under contracts that are similar to its contracts with
unrelated third party customers. The Company believes the terms and conditions of transactions between the
Company and these related parties are comparable to those which could have been obtained in transactions with
unaffiliated parties. The Company’s margins with respect to related party transactions are comparable to margins
recognized in transactions with unrelated third parties. The amounts related to these transactions are immaterial.
No significant changes have been made to the method of establishing terms with the affiliated companies during
the periods presented.
Refer to Note 4 in the Consolidated Financial Statements for more information on transactions with affiliated
companies.
Off-Balance Sheet Arrangements
OPERATING LEASES: As a method of funding its operations, TSYS employs noncancelable operating leases for
computer equipment, software and facilities. These leases allow the Company to use the latest technology while
avoiding the risk of ownership. Neither the assets nor obligations related to these leases are included on the
balance sheet. Refer to Notes 1 and 16 in the Consolidated Financial Statements for further information on
operating lease commitments.
CONTRACTUAL OBLIGATIONS: The total liability for uncertain tax positions as of December 31, 2015 is $13.1
million. Refer to Note 15 in the Consolidated Financial Statements for more information on income taxes. The
Company is not able to reasonably estimate the amount by which the liability will increase or decrease over time;
however, at this time, the Company does not expect any significant changes related to these obligations within
the next year.
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
2015-17 “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes,” which requires the
classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating
deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances
between current and noncurrent deferred tax assets because those allowances also will be classified as
noncurrent. The guidance is effective for public business entities for annual and interim periods in fiscal years
beginning after December 15, 2016. Early adoption is permitted. Companies can adopt the guidance either
prospectively or retrospectively. The Company does not expect the adoption of this ASU to have a material
impact on the Company’s financial position, results of operations or cash flows.
In September 2015, the FASB issued ASU 2015-16 “Business Combinations (Topic 805): Simplifying the
Accounting for Measurement-Period Adjustments,” which eliminates the requirement for an acquirer to
retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a
business combination is consummated. The guidance is effective for public business entities for annual and
17
interim periods in fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company
does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results
of operations or cash flows.
In June 2015, the FASB issued ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs
Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement
at June 18, 2015 EITF Meeting.” This ASU allows entities to defer and present debt issuance costs as an asset
and subsequently amortize deferred debt issuance costs ratably over the term of a line-of-credit arrangement.
The guidance is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015. Early adoption is permitted. The guidance will be applied retrospectively. The Company
does not expect the adoption of this guidance to have a material impact on the Company’s financial position,
results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-05 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this
Update provide guidance to customers about whether a cloud computing arrangement includes a software
license or a service agreement. The Company does not expect the adoption of this ASU to have a material
impact on the Company’s financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-03 “Interest – Imputation of Interest (Subtopic 835-30), Simplifying the
Presentation of Debt Issuance Cost.” The amendments in this update will require entities to present debt
issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt
liability, consistent with debt discounts. The guidance is effective for annual periods and interim periods within
those annual periods beginning after December 15, 2015. Early adoption is permitted. The guidance will be
applied retrospectively. The Company does not expect the adoption of this guidance to have a material impact
on the Company’s financial position, results of operations or cash flows.
In January 2015, the FASB issued ASU 2015-01 “Income Statement – Extraordinary and Unusual Items (Subtopic
225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” ASU
2015-01 eliminates from GAAP the concept of extraordinary items. For all entities, the ASU is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted
provided the guidance is applied from the beginning of the fiscal year of adoption. The Company does not
expect the adoption of this ASU to have a material impact on the financial position, results of operations or cash
flows of the Company.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers,” which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it
becomes effective. The new standard is effective for the Company on January 1, 2018. Early application is not
permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related
disclosures. The Company has not yet selected a transition method nor has it determined the effect on its
ongoing financial reporting.
Results of Operations
Revenues
The Company generates revenues by providing transaction processing and other payment-related services. The
Company’s pricing for transactions and services is complex. Each category of revenue has numerous fee
components depending on the types of transactions processed or services provided. TSYS reviews its pricing and
implements pricing changes on an ongoing basis. In addition, standard pricing varies among its regional
businesses, and such pricing can be customized further for customers through tiered pricing of various thresholds
for volume activity. TSYS’ revenues are based upon transactional information accumulated by its systems or
reported by its customers. The Company’s revenues are impacted by currency translation of foreign operations,
as well as doing business in the current economic environment.
18
The Company has included reimbursements received for out-of-pocket expenses as revenues and expenses. The
largest reimbursable expense items for which TSYS is reimbursed by clients are postage and network association
fees. The Company’s reimbursable items are impacted with changes in postal rates and changes in the volumes
of mailing activities by its clients. Reimbursable items for the year ended December 31, 2015, were $280.2
million, an increase of $26.3 million, or 10.4%, compared to $253.9 million for the same period last year.
Reimbursable items for the year ended December 31, 2014 increased $13.3 million, or 5.5%, compared to $240.6
million for the same period in 2013.
TSYS’ revenues are generated from charges based on the number of accounts on file (AOF), transactions and
authorizations processed, statements mailed, cards embossed and mailed, and other processing services for
cardholder AOF. Cardholder AOF includes active and inactive consumer credit, retail, prepaid, stored value,
government services and commercial card accounts.
TSYS’ revenues in its North America Services and International Services segments are influenced by several
factors, including volumes related to AOF and transactions. TSYS estimates that approximately 48.4% of these
segments’ revenues is AOF and transaction volume driven. The remaining 51.6% of payment processing
revenues are not AOF and transaction volume driven, and are derived from production and optional services
TSYS considers to be value added products and services, custom programming and licensing arrangements.
Whether or not an account on file is active can impact TSYS’ revenues differently. Active accounts are accounts
that have had monetary activity either during the current month or in the past 90 days based on contractual
definition. Inactive accounts are accounts that have not had a monetary transaction (such as a purchase or
payment) in the past 90 days. The more active an account is, the more revenue is generated for TSYS (items such
as transactions and authorizations processed and statements billed).
Occasionally, a client will purge inactive accounts from its portfolio. An inactive account typically will only
generate an AOF charge. A processing client will periodically review its cardholder portfolio based upon activity
and usage. Each client, based upon criteria individually set by the client, will flag an account to be “purged” from
TSYS’ system and deactivated.
A deconversion involves a client migrating all of its accounts to an in-house solution or another processor.
Account deconversions include active and inactive accounts and can impact the Company’s revenues significantly
more than an account purge.
A sale of a portfolio typically involves a client selling a portion of its accounts to another party. A sale of a
portfolio and a deconversion impact the Company’s financial statements in a similar fashion, although a sale
usually has a smaller financial impact due to the number of accounts typically involved.
TSYS’ revenues in its Merchant Services segment are influenced by several factors, including volumes related to
transactions and dollar sales volume, which are approximately 92.3% of this segment’s revenues. The remaining
7.7% of Merchant Services’ revenues are derived from value added services, monthly statement fees, compliance
fees and miscellaneous services.
TSYS’ revenues in its NetSpend segment primarily consist of a portion of the service fees and interchange
revenues received by NetSpend’s prepaid card Issuing Banks in connection with the programs managed by
NetSpend. For the year ended December 31, 2015, 69.6% of revenues was derived from fees charged to
cardholders and 30.4% of revenues was derived from interchange and other revenues. Service fee revenues are
driven by the number of active cards, and in particular by the number of cards with direct deposit. Cardholders
with direct deposit generally initiate more transactions and generate more revenues than those that do not take
advantage of this feature. Interchange revenues are driven by gross dollar volume. Substantially all of the
NetSpend segment’s revenues are volume driven as they are driven by the active card and gross dollar volume
indicators.
19
A summary of the consolidated financial highlights for the years ended December 31, 2015, 2014, and 2013 is
provided below:
(in thousands, except per share data)
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Years Ended December 31,
Percent Change
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . $2,779,541 2,446,877 2,064,305
Operating income . . . . . . . . . . . . . . . . . . . . .
382,500
Net income attributable to TSYS common
534,107
431,640
13.6%
23.7
18.5%
12.8
shareholders . . . . . . . . . . . . . . . . . . . . . . . .
364,044
322,872
244,750
Basic EPS attributable to TSYS common
shareholders1 . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS attributable to TSYS common
shareholders1 . . . . . . . . . . . . . . . . . . . . . . .
Adjusted earnings before interest, taxes,
depreciation and amortization (Adjusted
EBITDA)2 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EPS3 from continuing
1.98
1.97
1.73
1.72
1.30
1.29
833,920
712,267
624,093
operations . . . . . . . . . . . . . . . . . . . . . . . . .
2.46
1.96
1.73
Cash flows provided by operating
activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
600,194
560,201
452,398
12.8
14.1
14.2
17.1
25.5
7.1
31.9
33.5
33.6
14.1
13.2
23.8
1
2
3
Basic and diluted EPS is computed based on the two-class method in accordance with the guidance under GAAP. Refer to
Note 26 in the Consolidated Financial Statements for more information on EPS.
Adjusted EBITDA is net income excluding equity in income of equity investments, nonoperating income/(expense), income
taxes, depreciation, amortization and stock-based compensation expenses and other non-recurring items.
Adjusted EPS is adjusted earnings divided by weighted average shares outstanding used for basic EPS calculations.
Adjusted earnings is net income excluding theafter-tax impact of stock-based compensation expenses, amortization of
acquisition intangibles and other nonrecurring items.
Total revenues increased $332.7 million for the year ended December 31, 2015, compared to the year ended
December 31, 2014, which increased $382.6 million compared to the year ended December 31, 2013. The
increases in revenues for 2015 and 2014 include a decrease of $31.5 million and an increase of $14.9 million,
respectively, related to the effects of currency translation of the Company’s foreign-based subsidiaries and
branches.
Excluding reimbursable items, revenues increased 14.0%, or $306.4 million, for the year ended December 31,
2015, compared to the year ended December 31, 2014, which increased 20.2%, or $369.3 million, compared to
the year ended December 31, 2013. The increase in revenues excluding reimbursable items for the year ended
December 31, 2015, as compared to the same period in 2014, is the result of increases in new business and
organic growth, partially offset by decreases associated with currency translation. The increase in revenues
excluding reimbursable items for the year ended December 31, 2014 as compared to the same period in 2013 is
primarily the result of the acquisition of NetSpend in July 2013. NetSpend’s revenues excluding reimbursable
items were $580.4 million, $482.7 million and $207.9 million, respectively, for the years ended December 31,
2015, 2014 and 2013.
20
Below is a summary of AOF for the Company’s North America Services and International Services segments
combined:
(in millions)
As of December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Consumer Credit
Retail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 382.1 270.0 228.9
27.8
26.1
28.4
Total Consumer
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 408.2 298.4 256.7
39.9
18.9
45.4
26.6
41.6
22.4
Subtotal1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480.2 362.4 315.5
97.2 127.3 118.0
79.3
62.2
67.4
75.8
45.3
59.6
Prepaid/Stored Value2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Government Services3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Card Single Use4 . . . . . . . . . . . . . . . . . . . . . . . .
Total AOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 732.5 616.7 541.0
41.5%
(7.9)
18.0%
2.2
36.8
9.2
18.8
32.5
(23.7)
17.8
27.1
18.8
16.3
4.2
18.7
14.9
7.9
8.2
31.5
14.0
1
2
Traditional accounts include consumer, retail, commercial, debit and other accounts. These accounts are grouped together
due to the tendency to have more transactional activity than prepaid, government services and single use accounts.
Prepaid does not include NetSpend accounts.These accounts tend to have less transactional activity than the traditional
accounts. Prepaid and stored value cards are issued by firms through retail establishments to be purchased by consumers
to be used at a later date. These accounts tend to be the least active of all accounts on file.
3 Government services accounts are disbursements of student loan accounts issued by the Department of Education, which
4
have minimal activity.
Commercial card single use accounts are one-time use accounts issued by firms to book lodging and other travel related
expenses.
Major Customer
The Company works to maintain a large and diverse customer base across various industries. Although the
Company does not have a major customer on a consolidated basis, a significant amount of the Company’s
revenues are derived from long-term contracts with large clients. TSYS derives revenues from providing various
processing and other services to these clients, including processing of consumer and commercial accounts, as
well as revenues for reimbursable items. The loss of one of the Company’s large clients could have a material
adverse effect on the Company’s financial position, results of operations and cash flows.
Refer to Note 22 in the Consolidated Financial Statements for more information on major customers.
Operating Segments
TSYS’ services are provided through four operating segments: North America Services, International Services,
Merchant Services and NetSpend.
Issuing Services – North America Services and International Services
The Company’s North America Services and International Services segments have many long-term customer
contracts with card issuers providing account processing and output services for printing and embossing items.
These contracts generally require advance notice prior to the end of the contract if a client chooses not to renew.
Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a
change in control. The termination fees paid upon the occurrence of such events are designed primarily to cover
balance sheet exposure related to items such as capitalized conversion costs or client incentives associated with
the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts
may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream
since a vast majority of the contracts are honored through the contracted expiration date.
These services are provided throughout the period of each account’s use, starting from a card-issuing client
processing an application for a card. Services may include processing the card application, initiating service for
the cardholder, processing each card transaction for the issuing retailer or financial institution and accumulating
21
the account’s transactions. Fraud management services monitor the unauthorized use of accounts which have
been reported to be lost, stolen, or which exceed credit limits. Fraud detection systems help identify fraudulent
transactions by monitoring each account holder’s purchasing patterns and flagging unusual purchases. Other
services provided include customized communications to cardholders, information verification associated with
granting credit, debt collection and customer service.
TSYS’ revenues in its North America Services and International Services segments are derived from electronic
payment processing. There are certain basic core services directly tied to accounts on file and transactions. These
are provided to all of TSYS’ processing clients. The core services begin with an account on file.
The core services include housing an account on TSYS’ system (AOF), authorizing transactions (authorizations),
accumulating monthly transactional activity (transactions) and providing a monthly statement (statements billed).
From these core services, TSYS’ clients also have the option to use fraud and portfolio management services.
Collectively, these services are considered volume-based revenues.
Non-volume related revenues include processing fees which are not directly associated with AOF and
transactional activity, such as value added products and services, custom programming and certain other
services, which are only offered to TSYS’ processing clients.
Value added products and services, which includes services such as data analytics and application processing, are
primarily non-volume related and are only offered to TSYS’ processing clients (i.e., indirectly derived from
accounts on file). These ancillary products and services, along with offerings such as card production, statement
production, managed services, customized reporting and custom programming provided to clients at an hourly
rate, are considered non-volume based products and services.
Additionally, certain clients license the Company’s processing systems and process in-house. Since the accounts
are processed outside of TSYS for licensing arrangements, the AOF and other volumes are not available to TSYS.
Thus, volumes reported by TSYS do not include volumes associated with licensing.
A summary of each segment’s results follows:
North America Services
The North America Services segment provides issuer account solutions for financial institutions and other
organizations primarily based in North America. Growth in revenues and operating profit in this segment is
derived from retaining and growing the core business and improving the overall cost structure. Growing the core
business comes primarily from an increase in account usage, growth from existing clients and sales to new clients
and the related account conversions.
In July 2012, TSYS executed a master services agreement, with a minimum six year term, with Bank of America to
provide processing services for its consumer credit card portfolios in the U.S. In addition, TSYS continues to
process Bank of America’s commercial credit card portfolios in the U.S. and internationally. In May 2015, the
contract term for processing both the consumer and commercial credit card portfolios was extended for an
additional 18 months.
The master services agreement with Bank of America provides for a tiered-pricing arrangement for both the
consumer card portfolio and the existing commercial card portfolios.
This segment has two major customers.
22
Below is a summary of the North America Services segment:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Volume-based revenues . . . . . . . . . . . . . . . . $ 595,314
480,386
433,723
23.9%
10.8%
Non-volume related revenues:
Processing fees . . . . . . . . . . . . . . . . . . . . .
Value-added, custom programming,
licensing and other
. . . . . . . . . . . . . . . .
Output and managed services . . . . . . . . .
Total non-volume related revenues . . .
Total revenues before reimbursable
items . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursable items . . . . . . . . . . . . . .
235,313
216,685
195,394
151,671
164,956
551,940
115,741
141,270
110,448
121,080
473,696
426,922
1,147,254
187,004
954,082
163,682
860,645
139,428
Total revenues . . . . . . . . . . . . . . . . $1,334,258 1,117,764 1,000,073
Adjusted segment operating income1 . . . . . $ 429,064
351,512
321,619
Adjusted segment operating margin2 . . . . .
Key indicators (in millions):
37.4%
36.8%
37.4%
AOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions . . . . . . . . . . . . . . . . . . . . . . . .
654.1
15,774.5
550.0
10,838.0
481.9
9,132.8
8.6
31.0
16.8
16.5
20.2
14.2
19.4
22.1
18.9
45.5
10.9
4.8
16.7
11.0
10.9
17.4
11.8
9.3
14.1
18.7
1
2
Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate
Administration and Other.
Adjusted segment operating margin equals adjusted segment operating income divided by revenues before reimbursable
items.
Total segment revenues increased $216.5 million for 2015, as compared to 2014. The increase is attributable to
an increase in new business, internal growth and reimbursable items, partially offset by decreases related to client
deconversions and price reductions. Total segment revenues increased $117.7 million for 2014, as compared to
2013. The increase is attributable to an increase in new business, internal growth and reimbursable items,
partially offset by decreases related to client deconversions, price reductions and other adjustments.
The increases in adjusted segment operating income for 2015 and 2014 are driven primarily by increases in
revenues partially offset by increases in total operating expenses.
For the year ended December 31, 2015, approximately 51.9% of revenues before reimbursable items of TSYS’
North America Services segment are driven by the volume of accounts on file and transactions processed and
approximately 48.1% were derived from non-volume based revenues, such as processing fees, value-added
products and services, custom programming and licensing arrangements.
International Services
The International Services segment provides issuer card solutions to financial institutions and other organizations
primarily based outside the North American region. Growth in revenues and operating profit in this segment is
derived from retaining and growing the core business and improving the overall cost structure. Growing the core
business comes primarily from an increase in account usage, growth from existing clients and sales to new clients
and the related account conversions. This segment’s financial results are impacted by foreign currency.
Movements in foreign currency exchange rates as compared to the U.S. dollar can result in foreign denominated
financial statements being translated into more or fewer U.S. dollars, which impacts the comparison to prior
periods when the U.S. dollar was stronger or weaker.
This segment has two major customers.
23
Below is a summary of the International Services segment:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Volume-based revenues . . . . . . . . . . . . . . . . . . . . . $119,974 131,322 126,714
(8.6)%
3.6%
Non-volume related revenues:
Processing fees . . . . . . . . . . . . . . . . . . . . . . . . . .
Value-added, custom programming, licensing
and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Output and managed services . . . . . . . . . . . . . .
62,998
69,346
61,519
(9.2)
86,318
61,869
95,040
46,077
92,807
40,444
Total non-volume related revenues . . . . . . . .
211,185 210,463 194,770
Total revenues before reimbursable
items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursable items . . . . . . . . . . . . . . . . . . .
331,159 341,785 321,484
20,065
21,574
23,566
Total revenues . . . . . . . . . . . . . . . . . . . . . $354,725 363,359 341,549
Adjusted segment operating income1
. . . . . . . . . $ 60,087
55,123
42,068
(9.2)
34.3
0.3
(3.1)
9.2
(2.4)
9.0
Adjusted segment operating margin2 . . . . . . . . . .
Key indicators (in millions):
18.1%
16.1%
13.1%
AOF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78.5
2,473.6
66.6
2,268.4
59.1
2,007.4
17.8
9.0
12.7
2.4
13.9
8.1
6.3
7.5
6.4
31.0
12.7
13.0
1
2
Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate
Administration and Other.
Adjusted segment operating margin equals adjusted segment operating income divided by revenues before reimbursable
items.
The decrease in total segment revenues for 2015, as compared to 2014, is driven primarily by the negative
impact of $31.0 million of currency translation. The increase in total segment revenues for 2014, as compared to
2013, was driven primarily by the positive impact of $14.8 million in currency translation, as well as organic
growth. Excluding the impact of currency translation, segment revenues increased $22.3 million, or 6.1% in 2015,
as compared to 2014 and $7.0 million, or 2.1% in 2014, as compared to 2013.
The increase in adjusted segment operating income for 2015, as compared to 2014, is driven primarily by an
increase in non-volume related revenues, excluding the impact of currency translation, due to increased business.
The increase in adjusted segment operating income for 2014, as compared to 2013, is driven primarily from an
increase in revenues partially offset by an increase in employee related expenses.
For the year ended December 31, 2015, approximately 36.2% of revenues before reimbursable items of TSYS’
International Services segment are driven by the volume of accounts on file and transactions processed and
approximately 63.8% are derived from non-volume based revenues, such as processing fees, value-added
products and services, custom programming and licensing arrangements.
Merchant Services
The Merchant Services segment provides merchant services and related services to clients based primarily in the
United States. The Merchant Services segment’s revenues are derived from providing processing services,
acquiring solutions, related systems and integrated support services to merchant acquirers and merchants.
Revenues from merchant services include processing all payment forms including credit, debit, prepaid,
electronic benefit transfer and electronic check for merchants of all sizes across a wide array of market verticals.
Merchant services include authorization and capture of transactions; clearing and settlement of transactions;
information reporting services related to transactions; merchant billing services; and point-of-sale equipment
sales and service.
24
In June 2009, Bank of America announced that it formed a new joint venture to provide merchant services. In
November 2010, TSYS and Bank of America agreed to a new agreement, during the term of which TSYS expects
merchant services revenues from Bank of America to decline as Bank of America transitions its services to its new
joint venture. The loss of Bank of America as a merchant services client is not expected to have a material
adverse effect on the Merchant Services segment’s or TSYS’ financial position, results of operations or cash flows.
Effective June 2013, the Company renewed its processing agreement, which includes revenue minimums, with
Bank of America for an additional two years.
This segment has no major customers.
Below is a summary of the Merchant Services segment:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Revenues before reimbursable items . . . . . . . . . $ 474,040
75,329
Reimbursable items . . . . . . . . . . . . . . . . . . . . . . .
435,649
74,471
446,277
86,773
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 549,369
510,120
533,050
Adjusted segment operating income1 . . . . . . . . $ 150,225
134,872
155,643
8.8%
1.2
7.7
11.4
(2.4)%
(14.2)
(4.3)
(13.3)
Adjusted segment operating margin2 . . . . . . . .
Key indicators (in millions):
31.7%
31.0%
34.9%
Point-of-sale transactions . . . . . . . . . . . . . . . .
4,359.8
Dollar sales volume . . . . . . . . . . . . . . . . . . . . . $48,072.7 46,846.4 44,144.0
4,052.7
4,266.5
5.3
2.6
(7.0)
6.1
1
2
Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate
Administration and Other.
Adjusted segment operating margin equals adjusted segment operating income divided by revenues before reimbursable
items.
Total segment revenues increased $39.2 million for 2015, as compared to 2014. This increase includes increases
associated with new business, internal growth and reimbursable items offset by decreases associated with lost
business, deconversions and price reductions. Total segment revenues decreased $22.9 million for 2014, as
compared to 2013. This decrease was due primarily to lost business, deconversions and price reductions and
reimbursable items offset by new business and internal growth.
The increase in adjusted segment operating income for 2015, as compared to 2014, is driven by an increase in
revenues partially offset by increases in associated costs. The decrease in adjusted segment operating income for
2014, as compared to 2013, is driven by lower third party processing revenues and incremental costs related to
integration projects.
The Merchant Services segment results are driven by dollar sales volume and the authorization and capture
transactions processed at the point-of-sale and clearing and settlement transactions. This segment’s authorization
and capture transactions are primarily through dial-up or Internet connectivity.
For the year ended December 31, 2015 approximately 92.3% of the revenues of the Merchant Services segment,
were influenced by several factors, including volumes related to transactions and dollar sales volume. The
remaining 7.7% of this segment’s revenues were derived from value added services, chargebacks, managed
services, investigation, risk and collection services performed.
NetSpend
The NetSpend segment is a program manager for FDIC-insured depository institutions that issue GPR cards and
payroll cards and provide alternative financial services to underbanked and other consumers in the United States.
25
The products within this segment provide underbanked consumers with access to FDIC-insured depository
accounts with a menu of pricing and features specifically tailored to their needs. This segment has an extensive
distribution and reload network comprised of financial service centers, employers and retail locations throughout
the United States. The NetSpend segment markets prepaid cards through multiple distribution channels,
including alternative financial service providers, traditional retailers, direct-to-consumer and online marketing
programs and contractual relationships with corporate employers.
The NetSpend segment’s revenues primarily consist of a portion of the service fees and interchange revenues
received by NetSpend’s prepaid card Issuing Banks in connection with the programs managed by this segment.
Cardholders are charged fees for transactions including fees for PIN and signature-based purchase transactions
made using their prepaid cards, for ATM withdrawals or other transactions conducted at ATMs, for balance
inquiries, and monthly maintenance fees among others. Cardholders are also charged fees associated with
additional products and services offered in connection with certain cards including the use of overdraft features,
bill payment options, custom card designs and card-to-card transfers of funds initiated through call centers. The
NetSpend segment also earns revenues from a portion of the interchange fees remitted by merchants when
cardholders make purchase transactions using their cards. Subject to applicable law, interchange fees are fixed
by card associations and network organizations.
This segment has no major customers.
Below is a summary of the NetSpend segment:
(in thousands)
Total revenues (and revenues before
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
reimbursable items) . . . . . . . . . . . . . . . . . . . . . . $ 580,377
482,686 207,851
20.2%
Adjusted segment operating income1 . . . . . . . . $ 137,837
128,285
66,353
7.4
nm%
nm
Adjusted segment operating margin2 . . . . . . . . .
Key indicators (in millions):
Number of active cards . . . . . . . . . . . . . . . . . . .
Number of active cards with direct deposit . .
Percentage of active cards with direct
23.8%
26.6%
31.9%
3.9
1.9
3.2
1.6
2.8
1.3
29.1
17.7
13.4
21.9
deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.7%
50.1%
46.6%
Gross dollar volume . . . . . . . . . . . . . . . . . . . . . $24,274.9 20,296.0
7,748.5
19.6%
nm%
nm = not meaningful. Amounts are not comparable because the amounts for 2013 only include six months of results
compared to twelve months of results for 2014.
1
2
Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate
Administration and Other.
Adjusted segment operating margin equals adjusted segment operating income divided by revenues before reimbursable
items.
The results noted above for the year 2013 are for the period from July 1, 2013, the date that TSYS acquired
NetSpend, through December 31, 2013. Number of active cards represents the total number of prepaid cards
that have had a PIN or signature-based purchase transaction, a point-of-sale load transaction or an ATM
withdrawal within three months of the date of determination. Number of active cards with direct deposit
represents the number of active cards that have had a direct deposit load within three months of the date of
determination. Gross dollar volume represents the total dollar volume of debit transactions and cash withdrawals
made using the prepaid cards the NetSpend segment manages.
NetSpend segment revenues increased $97.7 million for 2015 from 2014. This increase was comprised of a $64.3
million increase in service fee revenues and a $33.4 million increase in interchange and other revenues.
NetSpend segment revenues increased $274.8 million for 2014, as compared to 2013. This increase is
attributable mainly to the inclusion of a full twelve months of results in 2014. The $580.4 million of revenues for
2015 was a combination of 69.6% of revenues derived from service fees charged to cardholders and 30.4% of
revenues derived from interchange and other revenues. Service fee revenues are driven by the number of active
26
cards and in particular by the number of cards with direct deposit. Cardholders with direct deposit generally
initiate more transactions and generate more revenues than those that do not take advantage of this feature.
Interchange revenues are driven by gross dollar volume. Substantially all of the NetSpend segment revenues are
volume driven as they are driven by the active card and gross dollar volume indicators.
Cardholder funds and deposits related to NetSpend’s prepaid products are held at FDIC-insured Issuing Banks
for the benefit of the cardholders. NetSpend currently has active agreements with six Issuing Banks.
NetSpend’s prepaid card business derived approximately one-fourth of its revenues from cardholders acquired
through one of its third-party distributors.
Operating Expenses
The Company’s operating expenses consist of cost of services and selling, general and administrative expenses.
Cost of services describes the direct expenses incurred in performing a particular service for customers, including
the cost of direct labor expense in putting the service in saleable condition. Selling, general and administrative
expenses are incurred in selling or marketing and for the direction of the enterprise as a whole, including
accounting, legal fees, officers’ salaries, investor relations and mergers and acquisitions.
Operating expenses were $2.2 million, $2.0 million and $1.7 million in 2015, 2014 and 2013, respectively. The
changes in operating expenses for the years ended December 31, 2015 and 2014 include a decrease of $30.4
million and an increase of $5.9 million, respectively, related to the effects of currency translation of the
Company’s foreign-based subsidiaries. The changes in operating expenses for the years ended December 31,
2015, 2014 and 2013 were also impacted by the NetSpend acquisition in 2013. NetSpend’s operating expenses
were $535.2 million, $443.5 million and $191.0 million in 2015, 2014 and 2013, respectively. Expenses in 2015
were also impacted by certain one-time state tax benefits of $15.6 million that resulted from prior years but were
recognized in 2015. Expenses in 2014 were also impacted by a significant nonrecurring charitable contribution.
Federal legislation was enacted which makes extensive changes to the current system of health care insurance
and benefits. The Company has reviewed the legislation and, based upon information available, estimates the
impact of the legislation was approximately $2.0 million on 2015, $1.8 million on 2014 and $1.1 million on 2013.
The Company’s merger and acquisition expenses were $64,000, $3.2 million and $14.2 million for the years
ended December 31, 2015, 2014 and 2013, respectively. These expenses consist of legal, accounting and
professional fees, as well as, personnel costs for severance and retention.
Nonoperating Income (Expense)
Nonoperating income (expense) consists of interest income, interest expense, gains and losses on currency
transactions and gains and losses on investments in private equity. Nonoperating income (expense) decreased in
2015 as compared to 2014, and increased in 2014 as compared to 2013.
The following table provides a summary of nonoperating expense:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,450 $ 1,109 $ 1,494
(32,449)
Interest expense* . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,013)
Currency transaction gains(losses), net . . . . . . . . .
338
Net gains on investments in private equity . . . . .
1,606
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(40,701)
(388)
3,324
(904)
(40,975)
142
308
705
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(37,219)
(38,711)
(30,024)
30.8%
(0.7)
nm
nm
nm
(3.9)
(25.8)%
26.3
nm
(8.8)
(56.1)
28.9
*
Interest expense includes interest on bonds of $33.7 million, $33.7 million, and $20.5 million, respectively, for the years
ended December 31, 2015, 2014 and 2013.
27
Income Taxes
Below is a summary of income tax expense:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . $151,364 129,761 110,981
Effective income tax rate . . . . . . . . . . . . . . . . . . . .
30.5%
32.0%
31.5%
16.6%
16.9%
The pretax income and the effective income tax rate includes noncontrolling interest in consolidated subsidiaries’
net income and excludes equity in income of equity investments.
During 2015, the Company generated income tax credits in excess of its utilization capacity based on both the
Company’s current operations and with consideration of future tax planning strategies. Based upon these same
considerations, the Company reassessed its need for valuation allowances in all jurisdictions. Accordingly, the
Company experienced a net decrease in its valuation allowance for deferred income tax assets of $0.5 million.
TSYS has adopted the permanent reinvestment exception as allowed by GAAP, with respect to future earnings of
certain foreign subsidiaries. As a result, TSYS considers foreign earnings related to these foreign operations to be
permanently reinvested. No provision for U.S. federal and state incomes taxes has been made in the
Consolidated Financial Statements for those non-U.S. subsidiaries whose earnings are considered to be
reinvested. The amount of undistributed earnings considered to be “reinvested” which may be subject to tax
upon distribution was approximately $83.9 million as of December 31, 2015. Although TSYS does not intend to
repatriate these earnings, a distribution of these non-U.S. earnings in the form of dividends, or otherwise, would
subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and
withholding taxes payable to the various non-U.S. countries. Determination of the amount of any unrecognized
deferred income tax liability on these undistributed earnings is not practicable.
In 2015, TSYS reassessed its contingencies for foreign, federal and state exposures, which resulted in a net
increase in tax contingency amounts of approximately $6.4 million.
Refer to Note 15 in the Consolidated Financial Statements for more information on income taxes.
Equity in Income of Equity Investments
Below is a summary of TSYS’ share of income from its interest in equity investments:
(in thousands)
Years Ended December 31,
Percent Change
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Equity in income of equity investments . . . . . . . . . . . . $22,106 17,583 13,047
25.7%
34.8%
The increase in equity income in 2015 and 2014 is the result of organic growth in CUP Data. Refer to Note 12 in
the Consolidated Financial Statements for more information on equity investments.
Discontinued Operations
TSYS sold its Japan-based operations during 2014 and recorded income from discontinued operations, net of
tax, of $1.4 million, $48.7 million and $2.1 million for 2015, 2014 and 2013, respectively. Refer to Note 2 in the
Consolidated Financial Statements for more information on discontinued operations.
28
Net Income
The following table provides a summary of net income and EPS:
(in thousands, except per share data)
2015
2014
2013
2015 vs. 2014
2014 vs. 2013
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $369,041 329,406 256,597
Net income attributable to noncontrolling
12.0%
28.4%
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4,997)
(6,534)
(11,847)
(23.5)
(44.8)
Years Ended December 31,
Percent Change
Net income attributable to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . $364,044 322,872 244,750
12.8
Basic EPS attributable to TSYS common
shareholders1
. . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.98
1.73
1.30
14.1
Diluted EPS attributable to TSYS common
shareholders1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.97
1.72
1.29
14.2
31.9
33.5
33.6
1
Basic and diluted EPS is computed based on the two-class method in accordance with the guidance under GAAP. Refer to
Note 26 in the Consolidated Financial Statements for more information on EPS.
Net income attributable to noncontrolling interests in 2015 decreased by $1.5 million, from 2014 and decreased
$5.3 million in 2014 from 2013. The decrease in 2015 compared to 2014 is driven by the sale of GP Net in 2014
and the operating results of the Company’s European cost center business. The decrease in 2014 was a result of
the additional acquisition of 15% of Central Payment Co., LLC (CPAY) in 2014.
Non-GAAP Financial Measures
Management evaluates the Company’s operating performance based upon operating margin excluding
reimbursables, adjusted EBITDA, adjusted segment operating income, adjusted segment operating margin and
adjusted EPS, which are all non-generally accepted accounting principles (non-GAAP) measures. TSYS also uses
these non-GAAP financial measures to evaluate and assess TSYS’ financial performance against budget.
Although not a substitute for GAAP, TSYS believes that non-GAAP financial measures are important to enable
investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP
financial measures when reporting its financial results to shareholders in order to provide them with an additional
tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are
representative of comparative financial performance that reflects the economic substance of TSYS’ current and
ongoing business operations.
Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial
performance, they are not necessarily comparable to similarly titled captions of other companies due to potential
inconsistencies in the method of calculation.
TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial
performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business
and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure
of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as
viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to
be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial
measures alone would not provide its shareholders and potential investors with the ability to appropriately
analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that
inclusion of non-GAAP financial measures provides investors with additional information to help them better
understand its financial statements just as management utilizes these non-GAAP financial measures to better
understand the business, manage budgets and allocate resources.
29
The following tables provide a reconciliation of GAAP to non-GAAP financial measures:
Revenues Before Reimbursable Items and Operating Margin Excluding Reimbursable Items
Years Ended December 31,
(in thousands)
2015
2014
2013
Operating income (a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 534,107
431,640
382,500
Total revenues (b)
Less reimbursable items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,779,541 2,446,877 2,064,305
240,597
280,192
253,899
Revenues before reimbursable items (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,499,349 2,192,978 1,823,708
Operating margin (as reported) (a)/(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.22%
17.64%
18.53%
Operating margin excluding reimbursables (a)/(c) . . . . . . . . . . . . . . . . . . . . .
21.37%
19.68%
20.97%
Adjusted EBITDA
(in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted for:
Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in income of equity investments, net of taxes . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonoperating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted for:
Years Ended December 31,
2015
2014
2013
$369,041
329,406
256,597
(1,411)
(22,106)
151,364
37,219
258,264
(48,655)
(17,583)
129,761
38,711
246,620
(2,055)
(13,047)
110,981
30,024
199,026
792,371
678,260
581,526
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend merger and acquisition expenses* . . . . . . . . . . . . . . . . . . . . . .
41,549
—
30,790
3,217
28,933
13,634
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$833,920
712,267
624,093
Deduct: State tax credits and related expenses . . . . . . . . . . . . . . . . . . . . .
$ (14,903)
—
—
Adjusted EBITDA without impact of one-time tax items . . . . . . . . . . . . .
$819,017
712,267
624,093
*
Excludes share-based compensation
30
Segment Operating Margin and Consolidated Adjusted Operating Margin
Year Ended December 31, 2015
Adjusted Segment
Operating Income
Revenues before
Reimbursable Items
Adjusted
Operating Margin
(in thousands)
North America Services . . . . . . . . . . . . . . . . . . . . . . .
International Services . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate admin and other . . . . . . . . . . . . . . . . . . .
Adjusted operating margin . . . . . . . . . . . . . . . .
Acquisition intangible amortization . . . . . . . . . . . . . . .
NetSpend M&A operating expenses . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . .
Operating income and margin* . . . . . . . . . . . . . .
Reimbursable items . . . . . . . . . . . . . . . . . . . . . . . .
$ 429,064
60,087
150,225
137,837
—
(109,035)
668,178
(92,522)
—
(41,549)
534,107
—
Operating income and margin* . . . . . . . . . . . . . .
$ 534,107
1,147,254
331,159
474,040
580,377
(33,481)
37.40%
18.14
31.69
23.75
2,499,349
26.73%
2,499,349
280,192
2,779,541
21.37%
19.22%
Year Ended December 31, 2014
Adjusted Segment
Operating Income
Revenues before
Reimbursable Items
Adjusted
Operating Margin
North America Services . . . . . . . . . . . . . . . . . . . . . . . . .
International Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate admin and other . . . . . . . . . . . . . . . . . . . . .
Adjusted operating margin . . . . . . . . . . . . . . . . . .
Acquisition intangible amortization . . . . . . . . . . . . . . . . .
NetSpend M&A operating expenses . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Operating income and margin* . . . . . . . . . . . . . . . .
Reimbursable items . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 351,512
55,123
134,872
128,285
—
(107,174)
562,618
(96,971)
(3,217)
(30,790)
431,640
—
Operating income and margin* . . . . . . . . . . . . . . . .
$ 431,640
954,082
341,785
435,649
482,686
(21,224)
36.84%
16.13
30.96
26.58
2,192,978
25.66%
2,192,978
253,899
2,446,877
19.68%
17.64%
Year Ended December 31, 2013
Adjusted Segment
Operating Income
Revenues before
Reimbursable Items
Adjusted
Operating Margin
North America Services . . . . . . . . . . . . . . . . . . . . . . . . .
International Services . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intersegment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate admin and other . . . . . . . . . . . . . . . . . . . . .
Adjusted operating margin . . . . . . . . . . . . . . . . . .
Acquisition intangible amortization . . . . . . . . . . . . . . . . .
NetSpend M&A operating expenses . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . .
Operating income and margin* . . . . . . . . . . . . . . . .
Reimbursable items . . . . . . . . . . . . . . . . . . . . . . . . . .
$321,619
42,068
155,643
66,353
—
(94,137)
491,546
(65,893)
(14,220)
(28,933)
382,500
—
Operating income and margin* . . . . . . . . . . . . . . . .
$382,500
* Operating margin on revenue before reimbursable items
860,645
321,484
446,277
207,851
(12,549)
—
37.37%
13.09
34.88
31.92
1,823,708
26.95%
1,823,708
240,597
2,064,305
20.97%
18.53%
31
Adjusted Earnings Per Share
(in thousands except per share data)
Years Ended December 31,
2015
2014
2013
Income from continuing operations attributable to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $362,633 $275,216
246,893
Adjust for amounts attributable to TSYS common shareholders (net of taxes):
Acquisition intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend merger and acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
61,525
27,954
—
65,127
20,944
3,115
43,743
19,830
15,251
Adjusted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $452,112 $364,402 $325,717
Basic EPS—Income from continuing operations attributable to TSYS
common shareholders
As reported (GAAP)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.97
1.48
1.31
Adjust for amounts attributable to TSYS common shareholders (net of taxes):
Acquisition intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend merger and acquisition expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EPS* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.33
0.15
—
2.46
Deduct: Federal and state tax credits and related expenses, net of tax . . . . $
(0.13)
Adjusted EPS without impact of one-time tax items . . . . . . . . . . . . . . . . . . . . . . $
2.33
0.35
0.11
0.02
1.96
—
1.96
0.23
0.11
0.08
1.73
—
1.73
Average common shares and participating securities . . . . . . . . . . . . . . . . . . . . .
184,082
186,222
188,391
*
Adjusted EPS amounts do not total due to rounding.
Projected Outlook for 2016
As compared to 2015, TSYS expects its 2016 total revenues to increase by 4%-6%, its revenues before
reimbursable items to increase by 5%-7%, and its adjusted EPS from continuing operations attributable to TSYS
common shareholders to increase by 4%-7%, based on the following assumptions with respect to 2016: (1) there
will be no significant movements in the London Interbank Offered Rate (LIBOR) and TSYS will not make any
significant draws on the remaining balance of its revolving credit facility; (2) there will be no significant movement
in foreign currency exchange rates related to TSYS’ business; (3) TSYS will not incur significant expenses
associated with the conversion of new large clients, additional acquisitions, or any significant impairment of
goodwill or other intangibles; (4) there will be no deconversions of large clients during the year other than as
previously disclosed; and (5) the economy will not worsen. In addition, TSYS’ earnings guidance for 2016 does
not include the impact of share repurchases or the pending acquisition of TransFirst Holdings Corp.
(“TransFirst”).
Financial Position, Liquidity and Capital Resources
The Consolidated Statements of Cash Flows detail the Company’s cash flows from operating, investing and
financing activities. TSYS’ primary methods for funding its operations and growth have been cash generated from
current operations, the use of leases and the occasional use of borrowed funds to supplement financing of capital
expenditures.
32
Cash Flows from Operating Activities
(in thousands)
Years Ended December 31,
2015
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $369,041 329,406 256,597
258,264 248,018 205,351
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
76,744
(27,928)
Other noncash items and charges, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(86,294)
10,705
Net change in current and other assets and current and other liabilities . . . . . . .
50,458
(77,569)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,194 560,201 452,398
TSYS’ main source of funds is derived from operating activities, specifically net income. The increases in 2015 and
2014, as compared to the previous years, in net cash provided by operating activities were primarily the result of
increased earnings.
Net change in current and other assets and current and other liabilities include accounts receivable, prepaid
expenses, other current assets and other assets, accounts payable, accrued salaries and employee benefits and
other liabilities. The change in accounts receivable between the years is the result of timing of collections
compared to billings. The change in accounts payable and other liabilities between years is the result of the
timing of payments and the reduction of liabilities related to the disposal of the Company’s Japan operations.
Cash Flows from Investing Activities
(in thousands)
Years Ended December 31,
2015
2014
2013
Additions to contract acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (58,728)
(54,640)
Purchases of property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,729)
Additions to licensed computer software from vendors . . . . . . . . . . . . . . . . . .
(39,219)
Additions to internally developed computer software . . . . . . . . . . . . . . . . . . .
(3,525)
Purchases of private equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(750)
Cash used in acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . .
—
Proceeds from insurance recovery for loss on disposal . . . . . . . . . . . . . . . . . . .
1,839
Proceeds from sale of private equity investment . . . . . . . . . . . . . . . . . . . . . . . .
3,568
Proceeds from dispositions, net of expenses paid and cash disposed . . . . . .
(88,871)
(75,913)
(29,638)
(41,501)
(3,291)
(38,584)
6,212
—
44,979
(55,965)
(40,598)
(63,635)
(33,600)
(1,378)
(1,314,660)
—
—
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(202,184)
(226,607)
(1,509,836)
The major uses of cash for investing activities in 2015, 2014 and 2013 were for additions to contract acquisition
costs, equipment, acquisitions, internally developed computer software and licensed computer software from
vendors.
Contract Acquisition Costs
TSYS makes cash payments for processing rights, third-party development costs and other direct salary-related
costs in connection with converting new customers to the Company’s processing systems. The Company’s
investments in contract acquisition costs were $58.7 million in 2015, $88.9 million in 2014 and $56.0 million in
2013. The Company made cash payments for processing rights of $29.6 million, $21.7 million and $9.7 million in
2015, 2014 and 2013, respectively. Conversion cost additions were $29.1 million, $67.2 million and $46.3 million
in 2015, 2014 and 2013, respectively. The decreases in conversion costs in 2015 compared to 2014, and the
increase in 2014 compared to 2013, are primarily related to the conversion of Bank of America’s consumer card
portfolio.
Property and Equipment
Capital expenditures for property and equipment were $54.6 million in 2015, compared to $75.9 million in 2014
and $40.6 million in 2013. The majority of capital expenditures in 2015 and 2014 related to computer processing
33
hardware. The majority of capital expenditures in 2013 related to investments in new computer processing
hardware and building improvements
Internally Developed Computer Software Costs
Additions to capitalized software development costs, including enhancements to, and development of,
processing systems, were $39.2 million in 2015, $41.5 million in 2014 and $33.6 million in 2013. The changes in
capitalized software development costs in 2015, as compared to 2014, were the result of varying levels of activity
in two corporate-wide initiatives. One initiative is a multi-year, multi-phase initiative that consists of enhancing
TSYS’ issuing processing platforms. The other is an innovation initiative focused on enhancing existing product
and service offerings through several new product concepts and ideas on how to change existing processes.
Licensed Computer Software from Vendors
Expenditures for licensed computer software from vendors for increases in processing capacity were $50.7 million
in 2015, compared to $29.6 million in 2014 and $63.6 million in 2013. The increase in expenses in 2015
compared to 2014 was due primarily to the extension of existing mainframe and distributed software
agreements. The decrease in expenditures in 2014 was due to purchases of software in 2013 in anticipation of
large conversions in future years.
Purchases of Private Equity Investments
The Company has entered into limited partnership agreements in connection with investing in two Atlanta-based
venture capital funds focused exclusively on investing in technology-enabled financial services companies.
Pursuant to each limited partnership agreement, the Company has committed to invest up to $20.0 million in
each fund so long as its ownership interest in each fund does not exceed 50%. The Company made investments
in the fund of $3.5 million, $3.3 million and $1.4 million in 2015, 2014 and 2013, respectively. The Company
recorded gains on this investment of $4.0 million, $793,000 and $966,000 for the years ended December 31,
2015, 2014 and 2013, respectively.
Cash Used in Acquisitions
In 2014, the Company paid $38.6 million to NetSpend dissenting shareholders to settle the outstanding lawsuit
associated with the NetSpend acquisition. In 2013, the Company used cash of $1.3 billion in the acquisition of
NetSpend.
Proceeds from Insurance Recovery for Loss on Disposal
In 2014, the Company received $6.2 million of proceeds from insurance coverage related to the destruction of
property resulting from a fire. The Company recorded the loss on disposal which was more than offset by the
insurance proceeds received.
Proceeds from Dispositions
TSYS received $3.6 million in proceeds from dispositions related to the return of cash in 2015 that was placed in
escrow during closing and tax adjustments associated with the sale of the Company’s Japan-based operations in
2014. In 2014, TSYS received $45.0 million of proceeds, net of expenses paid and cash disposed in connection
with this transaction. Refer to Note 2 in the Consolidated Financial Statements for more information on
discontinued operations.
34
Cash Flows from Financing Activities
(in thousands)
Years Ended December 31,
2015
2014
2013
Repurchases of common stock under plans and tax withholding . . . . . . . . . . . $(242,235)
(73,677)
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(54,719)
Principal payments on long-term borrowings and capital lease obligations . .
(5,028)
Subsidiary dividends paid to noncontrolling shareholders . . . . . . . . . . . . . . . .
Purchase of noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from share-based payment arrangements . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(170,516)
(74,796)
(69,939)
(7,172)
— (37,500)
—
—
1,912
24,357
58,636
(103,857)
(56,510)
(166,805)
(7,321)
—
(13,573)
1,396 1,395,661
3,528
7,185
40,691
34,869
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . $(290,754)
(316,473) 1,091,814
The main sources of cash from financing activities in 2015 and 2014 were proceeds from the exercise of stock
options. The main source of cash from financing activities in 2013 was the proceeds of borrowed funds. Net cash
used in financing activities for the years ended December 31, 2015 and 2014 was primarily the result of the
repurchases of common stock, payment of dividends, and principal payments on long-term debt borrowings and
capital lease obligations offset by proceeds from the exercise of stock options. Net cash provided by financing
activities for the year ended December 31, 2013 was primarily the result of proceeds from long-term borrowings
in connection with the NetSpend acquisition. Refer to Notes 13 and 24 in the Consolidated Financial Statements
for more information on the long-term debt financing and acquisitions.
Financing
In connection with the NetSpend acquisition, the Company obtained commitments for a $1.2 billion 364-day
bridge term loan facility. In May, 2013 the Company closed the bridge term loan and issued debt of $1.4 billion
to finance the NetSpend acquisition. In April 2013, the Company entered into a new credit agreement that
provided for a five-year term loan to the Company in the amount of $200.0 million. In May 2013, the Company
closed its issuance of $550.0 million aggregate principal amount of 2.375% Senior Notes due 2018 and $550.0
million aggregate principal amount of 3.750% Senior Notes due 2023 (collectively, the “Notes”). The interest on
the Notes is payable semiannually. Upon the issuance of the Notes, the Company eliminated its bridge term loan
facility. In July 2013, the Company borrowed $100 million on its revolving credit facility which was repaid as of
December 31, 2013. In connection with the bridge term loan facility and the aforementioned loans, the Company
paid debt issuance costs of $13.6 million in 2013.
Refer to Note 13 in the Consolidated Financial Statements for further information on TSYS’ long-term debt and
financing arrangements.
Purchase of Noncontrolling Interest
In connection with the acquisition of CPAY, the Company is party to call and put arrangements with respect to
the membership units that represent the remaining noncontrolling interest of CPAY. The call arrangement is
exercisable by TSYS and the put arrangement is exercisable by the Seller. The put arrangement is outside the
control of the Company by requiring the Company to purchase the Seller’s entire equity interest in CPAY at a put
price at fair value. At the time of the original acquisition, the redemption of the put option was considered
probable based upon the passage of time of the second anniversary date. The put arrangement is recorded on
the balance sheet and is classified as redeemable noncontrolling interest outside of permanent equity.
In February 2014, the Company purchased an additional 15% equity interest in CPAY for $37.5 million, reducing
the redeemable noncontrolling interest to 25%. The call and put options for the Seller’s 25% equity interest were
extended as a result of this transaction.
35
The put option is not currently redeemable, but redemption is considered probable based upon the passage of
time toward the third anniversary date of the 2014 purchase of additional equity. The Company’s accounting
policy is to accrete changes in the redemption value over the period from the date of issuance to the earliest
redemption date, which the Company believes to be in 2017. The Company did not accrete any changes to the
redemption value as the balance as of December 31, 2015 exceeded the accretion fair value amount.
Refer to Note 24 in the Consolidated Financial Statements for more information on this purchase.
Stock Repurchase Plan
In January 2015, TSYS announced that its Board had approved a new stock repurchase plan to repurchase up to
20 million shares of TSYS stock. The shares may be purchased from time to time at prices considered
appropriate. There is no expiration date for the plan. Through December 31, 2015, the Company purchased
5.2 million shares for approximately $242.1 million, at an average price of $47.01.
In April 2010, TSYS announced a stock repurchase plan to purchase up to 10 million shares of TSYS stock. The
shares were to be purchased from time to time over the next two years at prices considered attractive to the
Company. In May 2011, TSYS announced that its Board had approved an increase in the number of shares that
may be repurchased under its current share repurchase plan from up to 10 million shares to up to 15 million
shares of TSYS stock. The expiration date of the plan was also extended to April 30, 2013. In July 2012, TSYS
announced that its Board had approved an increase in the number of shares that may be repurchased under its
current share repurchase plan from up to 15 million shares to up to 20 million shares of TSYS stock. The
expiration date of the plan was also extended to April 30, 2014. In January, 2014, TSYS announced that its Board
had approved an increase in the number of shares that may be repurchased under its current share repurchase
plan from up to 20 million shares to up to 28 million shares of TSYS stock. With the increase, TSYS had 6.8 million
shares available to be repurchased. In addition, the expiration date of the plan was extended to April 30, 2015.
Through December 31, 2014 and 2013, respectively, the Company purchased 21.2 million and 16.0 million
shares for approximately $503.3 million and $338.0 million, at an average price of $23.75 and $21.13. In January
2015, this plan was terminated.
Dividends
Dividends on common stock of $73.7 million were paid in 2015, compared to $74.8 million and $56.5 million in
2014 and 2013, respectively. The Company paid dividends of $0.40 per share in 2015 and 2014, and $0.30 per
share in 2013. The increase in dividends paid in 2014, compared to 2013, is due to the acceleration of the
payment of the fourth quarter 2012 dividend. The fourth quarter 2012 dividend payment was paid in December
2012, rather than January 2013, to allow shareholders to benefit from the lower dividend tax rate that was set to
expire on December 31, 2012.
Significant Noncash Transactions
During 2015, 2014 and 2013, the Company issued 388,211, 673,724 and 1.7 million shares of common stock,
respectively, to certain key employees and non-management members of its Board of Directors. The grants to
certain key employees were issued in the form of nonvested stock bonus awards for services to be provided in
the future by such officers and employees. The market value of the common stock at the date of issuance is
amortized as compensation expense over the vesting period of the awards. The grants to the Board of Directors
were fully vested on the date of grant.
The Company acquired computer equipment and software under capital leases in the amount of $4.1 million,
$17.9 million and $14.8 million in 2015, 2014 and 2013, respectively.
Refer to Notes 19 and 23 in the Consolidated Financial Statements for more information on share-based
compensation and significant noncash transactions.
36
Additional Cash Flow Information
Off-Balance Sheet Financing
TSYS uses various operating leases in its normal course of business. These “off-balance sheet” arrangements
obligate TSYS to make payments for computer equipment, software and facilities. These computer and software
lease commitments may be replaced with new lease commitments due to new technology. Management expects
that, as these leases expire, they will be evaluated and renewed or replaced by similar leases based on need.
The following table summarizes future contractual cash obligations, including lease payments and software
arrangements, as of December 31, 2015, for the next five years and thereafter:
(in thousands)
Contractual Cash Obligations
Payments Due By Period
Total
1 Year
or Less
2-3
Years
4-5
Years
After
5 Years
50,364
Debt obligations (principal) . . . . . . . . . . . . . . . . . . . . . . . . $1,433,669
195,403
Debt obligations (interest) . . . . . . . . . . . . . . . . . . . . . . . . .
37,932
495,238 123,812
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,144
Purchase commitments . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Redeemable noncontrolling interest . . . . . . . . . . . . . . . .
3,637
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
67,425
23,410
7,362
833,305
64,658
41,250
218,550 130,159
22,091
—
63
27,165
23,410
3,662
— 550,000
51,563
22,716
25
—
—
Total contractual cash obligations . . . . . . . . . . . . . . . . . . $2,222,507 233,889 1,170,750 193,563 624,304
Amounts utilize prevailing interest rates as of December 31, 2015.
Income Taxes
The total liability for uncertain tax positions as of December 31, 2015 is $13.1 million. Refer to Note 15 in the
Consolidated Financial Statements for more information on income taxes. The Company is not able to reasonably
estimate the amount by which the liability will increase or decrease over time; however, at this time, the
Company does not expect any significant changes related to these obligations within the next twelve months.
Foreign Operations
TSYS operates internationally and is subject to the impact of adverse movements in foreign currency exchange
rates. TSYS does not enter into foreign exchange forward contracts to reduce its exposure to foreign currency
rate changes; however, the Company continues to analyze the potential use of hedging instruments to safeguard
it from significant foreign currency translation risks.
TSYS maintains operating cash accounts outside the United States. Refer to Note 5 in the Consolidated Financial
Statements for more information on cash and cash equivalents. TSYS has adopted the permanent reinvestment
exception under GAAP with respect to future earnings of certain foreign subsidiaries. While some of the foreign
cash is available to repay intercompany financing arrangements, remaining amounts are not presently available to
fund domestic operations and obligations without paying a significant amount of taxes upon its repatriation.
Demand on the Company’s cash has increased as a result of its strategic initiatives. TSYS funds these initiatives
through a balance of internally generated cash, external sources of capital and, when advantageous, access to
foreign cash in a tax efficient manner. Where local regulations limit an efficient intercompany transfer of amounts
held outside of the U.S., TSYS will continue to utilize these funds for local liquidity needs. Under current law,
balances available to be repatriated to the U.S. would be subject to U.S. federal income taxes, less applicable
foreign tax credits. TSYS has provided for the U.S. federal tax liability on these amounts for financial statement
purposes, except for foreign earnings that are considered permanently reinvested outside of the U.S. TSYS
utilizes a variety of tax planning and financing strategies with the objective of having its worldwide cash available
in the locations where it is needed.
37
Impact of Inflation
Although the impact of inflation on its operations cannot be precisely determined, the Company believes that by
controlling its operating expenses and by taking advantage of more efficient computer hardware and software, it
can minimize the impact of inflation.
Working Capital
TSYS may seek additional 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 2.6:1. As of
December 31, 2015, TSYS had working capital of $543.7 million, compared to $394.0 million in 2014 and $356.7
million in 2013.
Legal Proceedings
Refer to Note 16 in the Consolidated Financial Statements for information regarding the Company’s
commitments and contingencies including legal proceedings.
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). These forward-looking
statements include, among others: (i) TSYS’ expectation that the loss of Bank of America as a merchant services
client will not have a material adverse effect on TSYS’ business; (ii) TSYS’ expectation that the Durbin Amendment
will not have a significant negative impact on TSYS’ business; (iii) TSYS’ expectation with respect to the effect of
recent accounting pronouncements; (iv) TSYS’ expectation that it will be able to fund a significant portion of its
capital expenditure needs through internally generated cash in the future; (v) TSYS’ earnings guidance for 2016
total revenues, revenues before reimbursable items, and adjusted EPS attributable to TSYS’ common
shareholders from continuing operations; (vi) TSYS’ belief with respect to lawsuits, claims and other complaints;
(vii) TSYS’ expectation with respect to certain tax matters; (viii) the Board’s intention to continue to pay cash
dividends; (ix) statements regarding the pending Transfirst acquisition, and the assumptions underlying such
statements. 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; (iii) statements of future economic performance; and (iv) statements of assumptions
underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,”
“estimates,” “projects,” “plans,” “may,” “could,” “should,” “would,” and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of identifying these statements.
These statements are based upon the current beliefs and expectations of TSYS’ management and are subject to
significant risks and uncertainties. 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 Company’s forward-looking statements. Many of these factors are beyond TSYS’ ability to
control or predict. These factors include, but are not limited to:
•
•
the material breach of security of any of TSYS’ systems;
TSYS incurs expenses associated with the signing of a significant client;
38
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
organic growth rates for TSYS’ existing clients are lower than anticipated whether as a result of
unemployment rates, card delinquencies and charge off rates or otherwise or attrition rates of existing clients
are higher than anticipated;
TSYS does not convert and deconvert clients’ portfolios as scheduled;
risks associated with foreign operations, including adverse developments with respect to foreign currency
exchange rates;
adverse developments with respect to entering into contracts with new clients and retaining current clients;
consolidation in the financial services and other industries, including the merger of TSYS clients with entities
that are not TSYS processing clients, the sale of portfolios by TSYS clients to entities that are not TSYS
processing clients and financial institutions which are TSYS clients otherwise ceasing to exist;
the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on TSYS and its clients;
adverse developments with respect to the payment card industry in general, including a decline in the use of
cards as a payment mechanism;
the impact of potential and completed acquisitions, particularly the pending TransFirst acquisition, including
the costs associated therewith, their being more difficult to integrate than anticipated, and the inability to
achieve the anticipated growth opportunities and other benefits of the acquisitions;
the costs and effects of litigation, investigations or similar matters or adverse facts and developments
relating thereto;
the impact of the application of and/or changes in accounting principles;
TSYS’ inability to timely, successfully and cost-effectively improve and implement processing systems to
provide new products, increased functionality and increased efficiencies;
TSYS’ reliance on financial institution sponsors;
changes occur in laws, rules, regulations, credit card association rules, prepaid industry rules, or other
industry standards affecting TSYS and its clients that may result in costly new compliance burdens on TSYS
and its clients and lead to a decrease in the volume and/or number of transactions processed or limit the
types and amounts of fees that can be charged to customers;
successfully managing the potential both for patent protection and patent liability in the context of rapidly
developing legal framework for expansive patent protection;
one or more of the assumptions upon which TSYS’ earnings guidance for 2016 is based is inaccurate;
the effect of current domestic and worldwide economic and geopolitical conditions;
the impact on TSYS’ business, as well as on the risks set forth above, of various domestic or international
military or terrorist activities or conflicts;
other risk factors described in the “Risk Factors” and other sections of TSYS’ Annual Report on Form 10-K for
the fiscal year ended December 31, 2015 and other filings with the Securities and Exchange Commission;
and
•
TSYS’ ability to manage the foregoing and other risks.
These forward-looking statements speak only as of the date on which they are made and TSYS does not intend to
update any forward-looking statement as a result of new information, future developments or otherwise.
39
Subsequent Events
Agreement to Acquire Capital Stock of TransFirst Holdings Corp.
On January 26, 2016, TSYS announced it entered into a definitive agreement with Vista Equity Partners Fund V,
L.P. and certain related funds (collectively, “Vista”) to acquire TransFirst Holdings Corp. (“TransFirst”), a Vista
portfolio company and leading U S. merchant solutions provider, in an all-cash transaction valued at
approximately $2.35 billion. The Company intends to finance the TransFirst acquisition with cash on hand and
approximately $2.4 billion of additional indebtedness. In connection with the transaction, the Company entered
into a commitment letter with certain of its lenders to provide a $2.0 billion bridge term loan facility (the “Bridge
Term Loan Facility”) to finance the TransFirst acquisition to the extent the Company has not obtained alternative
financing before the closing of the transaction. The transaction is currently expected to close in the second
quarter of 2016 and is subject to regulatory approvals and other customary closing conditions. For additional
information regarding the transaction, see TSYS’ Current Reports on Form 8-K filed on January 26, 2016 and
January 27, 2016, which include the press release announcing the transaction, the stock purchase agreement for
the transaction and the commitment letter for the Bridge Term Loan Facility. There can be no assurance that the
proposed acquisition will be completed, or if it is completed, that the expected benefits of the transaction will be
realized.
Entry into Credit Agreement
On February 23, 2016, TSYS entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase
Bank, N.A., as Administrative Agent and L/C Issuer, Bank of America, N.A., as Syndication Agent and L/C Issuer,
The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Bank, National
Association, as Co-Documentation Agents, and the other lenders party thereto, with J.P. Morgan Securities LLC
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank
National Association and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners. The Credit
Agreement provides TSYS with a $700 million five-year term loan facility broken consisting of (i) a $300 million
term loan (the “Refinancing Term Loan”) funded upon entry into the Credit Agreement and (ii) a $400 million
term loan (the “Delayed Draw Term Loan”). The Credit Agreement also provides TSYS with a $800 million
unsecured revolving credit facility (the “Revolving Credit Facility”), which includes a $50 million sub-facility for the
issuance of standby letters of credit.
The Refinancing Term Loan was used to repay in full TSYS’ outstanding loans and other obligations under that
certain Credit Agreement, dated as of September 10, 2012, by and among the Company, the lenders party
thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended, and that certain
Credit Agreement, dated as of April 8, 2013, by and among the Company, the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended. The Delayed Draw Term Loan will
be available to be drawn to finance, in part, the TransFirst acquisition and related transactions, upon satisfaction
of a limited set of conditions precedent. The Revolving Loan Facility will be available for draws for purposes of
working capital and other general corporate purposes, including to finance, in part, the TransFirst acquisition and
related transactions upon satisfaction of a limited set of conditions precedent.
Upon entering into the Credit Agreement, the total commitments under the Bridge Term Loan Facility were
reduced from $2.0 billion to $1.15 billion by the amount of the Delayed Draw Term Loan commitment and the
portion of the Revolving Loan Facility commitments in excess of $350 million.
For additional information regarding the Credit Agreement, see TSYS’ Current Report on Form 8-K filed on
February 23, 2016.
Management performed an evaluation of the Company’s activity as of the date these audited financial statements
were issued, and has concluded that, other than as set forth above, there are no significant subsequent events
requiring disclosure.
40
Consolidated Balance Sheets
(in thousands, except per share data)
Assets
Current assets:
December 31,
2015
2014
Cash and cash equivalents (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances for doubtful accounts, billing adjustments and merchant
losses of $4.0 million and $5.2 million as of 2015 and 2014, respectively (Note 4) . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets (Note 15)
Prepaid expenses and other current assets (Note 6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software, net of accumulated amortization of $680.6 million and $613.3 million as of 2015
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
and 2014, respectively (Note 9)
Other intangible assets, net of accumulated amortization of $257.1 million and $181.9 million as of
$ 389,328
289,183
314,705
24,670
154,199
—
283,203
15,190
98,974
4,003
882,902
1,545,424
690,553
1,547,397
405,070
366,148
2015 and 2014, respectively (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
328,320
404,107
Property and equipment, net of accumulated depreciation and amortization of $457.3 million and
$423.2 million as of 2015 and 2014, respectively (Note 10)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
289,898
290,585
Contract acquisition costs, net of accumulated amortization of $287.9 million and $276.1 million as
of 2015 and 2014, respectively (Note 11)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity investments, net (Note 12)
Deferred income tax assets (Note 15)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
247,811
106,118
5,598
97,159
236,305
100,468
7,002
91,016
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,908,300
3,733,581
Liabilities
Current liabilities:
Accrued salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable (Note 4)
Current portion of long-term borrowings (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of obligations under capital leases (Note 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued operations (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
66,594
52,213
50,364
3,468
166,579
—
38,001
48,793
43,784
7,127
154,805
4,003
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term borrowings, excluding current portion (Notes 4 and 13) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations under capital leases, excluding current portion (Note 13)
. . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
339,218
1,379,971
216,470
3,663
96,886
296,513
1,398,132
211,820
6,974
98,006
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,036,208
2,011,445
Redeemable noncontrolling interest in consolidated subsidiary . . . . . . . . . . . . . . . . . . .
23,410
22,492
Commitments and contingencies (Note 16)
Equity
Shareholders’ equity: (Notes 18 ,19 ,20 and 21)
Common stock — $0.10 par value. Authorized 600,000 shares; 202,769 and 202,775 issued as
of 2015 and 2014, respectively; 182,781 and 184,939 outstanding as of 2015 and 2014,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost (19,988 and 17,836 shares as of 2015 and 2014, respectively) . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,277
241,891
(33,544)
(641,664)
2,256,058
20,278
171,270
(11,926)
(453,230)
1,966,370
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,843,018
1,692,762
Noncontrolling interests in consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,664
6,882
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,848,682
1,699,644
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,908,300
3,733,581
See accompanying Notes to Consolidated Financial Statements
41
Consolidated Statements of Income
(in thousands, except per share data)
Years Ended December 31,
2015
2014
2013
Total revenues (Notes 4 and 22)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,779,541 2,446,877 2,064,305
Cost of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
1,855,181 1,668,892 1,369,438
312,367
390,253
346,345
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,245,434 2,015,237 1,681,805
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonoperating expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
534,107
(37,219)
431,640
(38,711)
382,500
(30,024)
Income before income taxes and equity in income of equity
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes (Note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before equity in income of equity investments . . . . . . . . . . . . . . . . .
Equity in income of equity investments, net of tax (Note 12) . . . . . . . . . . . .
Income from continuing operations, net of tax . . . . . . . . . . . . . . . . . . . . . . .
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . .
496,888
151,364
345,524
22,106
367,630
1,411
392,929
129,761
263,168
17,583
280,751
48,655
352,476
110,981
241,495
13,047
254,542
2,055
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling interests . . . . . . . . . . . . . . . . .
369,041
(4,997)
329,406
(6,534)
256,597
(11,847)
Net income attributable to Total System Services, Inc. (TSYS) common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364,044
322,872
244,750
Basic earnings per share (EPS) attributable to TSYS common shareholders
(Note 26)
Income from continuing operations to TSYS common shareholders . . $
Gain (loss) from discontinued operations to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TSYS common shareholders* . . . . . . . . . . . $
Diluted EPS attributable to TSYS common shareholders (Note 26)
Income from continuing operations to TSYS common shareholders . . $
Gain (loss) from discontinued operations to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TSYS common shareholders* . . . . . . . . . . . $
Amounts attributable to TSYS common shareholders:
1.97
0.01
1.98
1.96
0.01
1.97
1.48
0.26
1.73
1.47
0.25
1.72
1.31
(0.01)
1.30
1.30
(0.01)
1.29
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 362,633
1,411
Gain (loss) from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
275,216
47,656
246,893
(2,143)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 364,044
322,872
244,750
*
EPS amounts may not total due to rounding
See accompanying Notes to Consolidated Financial Statements
42
Consolidated Statements of Comprehensive Income
(in thousands)
Years Ended December 31,
2015
2014
2013
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $369,041 329,406 256,597
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less reclassifications of foreign currency translation adjustments to net
(21,719)
(19,531)
(4,081)
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
3,514
—
Total foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Postretirement healthcare plan adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on available-for-sale securities . . . . . . . . . . . . . . . . . . . . .
(21,719)
(1,567)
1,398
(16,017)
589
(668)
(4,081)
1,895
1,773
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21,888)
(16,096)
(413)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to noncontrolling interests . . . . . . . . . . . . . .
347,153 313,310 256,184
(9,092)
(4,727)
(6,113)
Comprehensive income attributable to TSYS common shareholders . . . . . . . . . . $342,426 307,197 247,092
See accompanying Notes to Consolidated Financial Statements
43
Consolidated Statements of Cash Flows
(in thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for cardholder losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends received from equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Charges for transaction processing provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provisions for bad debt expenses, billing adjustments and merchant losses . . . . . . . . . . .
Amortization of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of bond discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on foreign currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposals of equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in value of private equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in income of equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from share-based payment arrangements . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of effects of acquisition:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses, other current assets and other long-term assets . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities and other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2015
2014
2013
$ 369,041
329,406
256,597
258,264
41,549
41,264
12,097
6,976
4,495
1,841
397
388
(397)
(3,568)
(4,038)
(4,083)
(22,106)
(24,357)
(39,218)
(8,498)
(3,987)
29,168
(55,034)
248,018
30,790
38,381
9,189
9,468
2,823
1,817
383
999
(293)
(86,961)
(793)
(8,963)
(17,583)
(7,185)
(33,406)
(10,525)
8,765
414
45,457
205,351
28,933
11,912
8,595
7,458
2,000
7,269
225
1,027
(79)
—
(966)
26,945
(13,047)
(3,528)
(8,667)
(571)
(52,042)
(403)
(24,611)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
600,194
560,201
452,398
Cash flows from investing activities:
Additions to contract acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to licensed computer software from vendors . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to internally developed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of private equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used in acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from insurance recovery for loss on disposal
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of private equity investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from dispositions, net of expenses paid and cash disposed . . . . . . . . . . . . . . . .
(58,728)
(54,640)
(50,729)
(39,219)
(3,525)
(750)
—
1,839
3,568
(88,871)
(75,913)
(29,638)
(41,501)
(3,291)
(38,584)
6,212
—
44,979
(55,965)
(40,598)
(63,635)
(33,600)
(1,378)
(1,314,660)
—
—
—
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(202,184)
(226,607)
(1,509,836)
Cash flows from financing activities:
Repurchases of common stock under plans and tax withholding . . . . . . . . . . . . . . . . . . . .
Dividends paid on common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term borrowings and capital lease obligations . . . . . . . . . . .
Subsidiary dividends paid to noncontrolling shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from share-based payment arrangements . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(242,235)
(73,677)
(54,719)
(5,028)
(170,516)
(74,796)
(69,939)
(7,172)
— (37,500)
—
—
1,912
1,396
24,357
7,185
58,636
34,869
(103,857)
(56,510)
(166,805)
(7,321)
—
(13,573)
1,395,661
3,528
40,691
Net cash (used in) provided by financing activities . . . . . . . . . . . . . . . . . . . . . . . . .
(290,754)
(316,473)
1,091,814
Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . .
(7,111)
(6,168)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less cash and cash equivalents of discontinued operations at end of period . . . . . . . . . .
100,145
289,183
389,328
—
10,953
278,230
289,183
—
Cash and cash equivalents of continued operations at end of period . . . . . . . . . . . . . . . .
$ 389,328
289,183
Supplemental cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,425
40,969
Income taxes paid, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 171,455
135,770
(3,758)
30,618
247,612
278,230
(30,530)
247,700
23,157
80,033
See accompanying Notes to Consolidated Financial Statements
44
Consolidated Statements of Changes in Equity
(in thousands, except per share data)
Balance as of December 31, 2012 . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (Note 21) . . . .
Replacement share-based awards issued in
connection with acquisition (Note 19) . . . .
Common stock issued from treasury shares
for exercise of stock options (Note 19)
. . .
Common stock issued for nonvested awards
. . . . . . . . . . . . . . . . . . . . . . . . . . .
(Note 19)
Common stock issued from treasury shares
for nonvested awards (Note 19) . . . . . . . . .
Share-based compensation (Note 19) . . . . . .
Common stock issued from treasury shares
for dividend equivalents (Note 19)
Cash dividends declared ($0.40 per
. . . . . .
share)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares (Note 20) . . . . . .
Subsidiary dividends paid to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2013 . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (Note 21) . . . .
Common stock issued from treasury shares
. . .
for exercise of stock options (Note 19)
Common stock unissued due to forfeiture of
nonvested awards . . . . . . . . . . . . . . . . . . . .
Common stock issued from treasury shares
for nonvested awards (Note 19) . . . . . . . . .
Share-based compensation (Note 19) . . . . . .
Common stock issued from treasury shares
for dividend equivalents (Note 19)
Cash dividends declared ($0.40 per
. . . . . .
share)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of treasury shares (Note 20) . . . . . .
Subsidiary dividends paid to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of noncontrolling interest . . . . . . .
Disposition of noncontrolling interest
(Note 2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefits associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2014 . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income
(Note 21) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued from treasury
shares for exercise of stock options
(Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock unissued due to forfeiture
of nonvested awards . . . . . . . . . . . . . . . .
Common stock issued from treasury
shares for nonvested awards
(Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation (Note 19) . . . .
Common stock issued from treasury
shares for dividend equivalents
(Note 19) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared ($0.40 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
Purchase of treasury shares (Note 20)
Subsidiary dividends paid to
noncontrolling interests . . . . . . . . . . . . . .
Tax benefits associated with share-based
compensation . . . . . . . . . . . . . . . . . . . . . . .
Redeemable
Noncontrolling
Interests
Common Stock Additional
Shares Dollars
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
TSYS Shareholders
Treasury
Stock
Retained
Earnings
Noncontrolling
Interests
Total
Equity
$ 39,505
6,515
—
202,471 $ 20,247
—
—
—
—
141,793
—
—
1,408
—
2,341
(287,301) 1,549,063
— 244,750
—
—
19,725
5,331
(2,754)
$ 1,444,935
250,081
(413)
—
—
—
—
—
—
—
—
(6,368)
—
39,652
4,650
—
—
—
—
—
—
—
—
(6,732)
(15,078)
—
—
—
—
319
—
—
—
—
—
—
—
—
—
32
(1,167)
(700)
(32)
—
(5,747)
— 28,972
—
—
—
—
—
36
—
—
—
2,686
165,841
—
—
202,790
—
—
20,279
—
—
—
(15)
—
—
—
—
—
—
—
—
—
—
(1)
1,955
1
— (11,142)
— 30,312
—
—
—
185
—
—
—
—
— (22,422)
—
—
—
6,540
—
—
—
—
—
—
—
—
—
—
16,723
41,391
—
5,747
—
—
—
—
—
—
301
161
— (75,770)
—
(103,857)
—
—
—
—
3,749
—
(15,675)
(326,996) 1,718,204
— 322,872
—
—
—
—
—
—
—
—
—
—
—
—
—
32,914
—
11,142
—
226
—
—
—
—
—
— (74,706)
—
(170,516)
—
—
—
—
—
—
—
—
22,492
5,945
202,775
—
20,278
—
171,270
—
(11,926)
—
(453,230) 1,966,370
— 364,044
—
—
—
—
—
—
—
—
(5,027)
—
—
—
(6)
—
—
—
—
—
—
—
—
—
(21,618)
—
— 12,273
(1)
702
— (7,982)
— 41,179
—
—
—
—
186
—
6
—
— 24,257
—
—
—
—
—
—
—
—
—
46,363
(701)
7,982
—
163
—
—
—
—
—
— (74,356)
—
(242,241)
—
—
—
—
—
—
—
—
—
—
—
—
(953)
—
21,349
1,884
(421)
—
—
—
—
—
—
—
(440)
—
15,556
40,691
—
—
28,972
498
(75,770)
(103,857)
(953)
2,686
1,602,426
324,756
(16,096)
34,869
—
—
30,312
411
(74,706)
(170,516)
(440)
(22,422)
(15,490)
(15,490)
—
6,882
(948)
(270)
6,540
1,699,644
363,096
(21,888)
—
—
—
—
—
—
—
—
—
58,636
—
—
41,179
349
(74,356)
(242,235)
—
24,257
Balance as of December 31, 2015 . . . . . . .
$23,410
202,769 $20,277 241,891
(33,544)
(641,664) 2,256,058
5,664
$1,848,682
See accompanying Notes to Consolidated Financial Statements
45
Notes to Consolidated Financial Statements
Note 1: Basis of Presentation and Summary of Significant Accounting Policies
BUSINESS: Total System Services, Inc.’s (TSYS’ or the Company’s) revenues are derived from providing
payment processing, merchant services and related payment services to financial and nonfinancial institutions,
generally under long-term processing contracts. The Company also derives revenues by providing general-
purpose reloadable (GPR) prepaid debit cards and payroll cards and alternative financial services to underbanked
and other consumers. The Company’s services are provided through four operating segments: North America
Services, International Services, Merchant Services and NetSpend.
Through the Company’s North America Services and International Services segments, TSYS processes
information through its cardholder systems to financial and nonfinancial institutions throughout the United States
and internationally. The Company’s North America Services segment provides these services to clients in the
United States, Canada, Mexico and the Caribbean. The Company’s International Services segment provides
services to clients in Europe, India, Middle East, Africa, Asia Pacific and Brazil. The Company’s Merchant Services
segment provides merchant services to merchant acquirers and merchants mainly in the United States. The
Company’s NetSpend segment provides services to consumers in the United States.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The accompanying consolidated
financial statements, which are prepared in accordance with generally accepted accounting principles (GAAP)
include the accounts of TSYS and its wholly- and majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. In addition, the Company evaluates its
relationships with other entities to identify whether they are variable interest entities and to assess whether it is
the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary,
then that entity is included in the consolidated financial statements.
RISKS AND UNCERTAINTIES AND USE OF ESTIMATES: Factors that could affect the Company’s future
operating results and cause actual results to vary materially from expectations include, but are not limited to,
lower than anticipated growth from existing clients, an inability to attract new clients and grow internationally,
loss of a major customer or other significant client, loss of a major supplier, an inability to grow through
acquisitions or successfully integrate acquisitions, an inability to control expenses, technology changes, the
impact of the application of and/or changes in accounting principles, financial services consolidation, changes in
regulatory requirements, a decline in the use of cards as a payment mechanism, disruption of the Company’s
international operations, breach of the Company’s security systems, a decline in the financial stability of the
Company’s clients and uncertain economic conditions. Negative developments in these or other risk factors
could have a material adverse effect on the Company’s financial position, results of operations and cash flows.
The Company has prepared the accompanying consolidated financial statements in conformity with U.S. GAAP.
The preparation of the consolidated financial statements requires management of the Company to make a
number of estimates and assumptions relating to the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the period. These
estimates and assumptions are developed based upon all information available. Actual results could differ from
estimated amounts.
ACQUISITIONS — PURCHASE PRICE ALLOCATION: TSYS’ purchase price allocation methodology requires
the Company to make assumptions and to apply judgment to estimate the fair value of acquired assets and
liabilities. TSYS estimates the fair value of assets and liabilities based upon appraised market values, the carrying
value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and
market multiple analyses. Management determines the fair value of fixed assets and identifiable intangible assets
such as developed technology or customer relationships, and any other significant assets or liabilities. TSYS
adjusts the purchase price allocation, as necessary, up to one year after the acquisition closing date as TSYS
obtains more information regarding asset valuations and liabilities assumed. Unanticipated events or
circumstances may occur which could affect the accuracy of the Company’s fair value estimates, including
assumptions regarding industry economic factors and business strategies, and result in an impairment or a new
allocation of purchase price.
46
Given its history of acquisitions, TSYS may allocate part of the purchase price of future acquisitions to contingent
consideration as required by GAAP for business combinations. The fair value calculation of contingent
consideration will involve a number of assumptions that are subjective in nature and which may differ significantly
from actual results. TSYS may experience volatility in its earnings to some degree in future reporting periods as a
result of these fair value measurements.
CASH AND CASH EQUIVALENTS: Cash on hand and investments with a maturity of three months or less
when purchased are considered to be cash equivalents.
ACCOUNTS RECEIVABLE: Accounts receivable balances are stated net of allowances for doubtful accounts,
billing adjustments and merchant losses.
TSYS records an allowance for doubtful accounts when it is probable that the accounts receivable balance will not
be collected. When estimating the allowance for doubtful accounts, the Company takes into consideration such
factors as its day-to-day knowledge of the financial position of specific clients, the industry and size of its clients,
the overall composition of its accounts receivable aging, prior history with specific customers of accounts
receivable write-offs and prior experience of allowances in proportion to the overall receivable balance. This
analysis includes an ongoing and continuous communication with its largest clients and those clients with past
due balances. A financial decline of any one of the Company’s large clients could have a material adverse effect
on collectability of receivables and thus the adequacy of the allowance for doubtful accounts.
Increases in the allowance for doubtful accounts are recorded as charges to bad debt expense and are reflected
in selling, general and administrative expenses in the Company’s Consolidated Statements of Income. Write-offs
of uncollectible accounts are charged against the allowance for doubtful accounts.
TSYS records an allowance for billing adjustments for actual and potential billing discrepancies. When estimating
the allowance for billing adjustments, the Company considers its overall history of billing adjustments, as well as
its history with specific clients and known disputes. Increases in the allowance for billing adjustments are
recorded as a reduction of revenues in the Company’s Consolidated Statements of Income and actual
adjustments to invoices are charged against the allowance for billing adjustments.
TSYS records a provision for merchant losses. When estimating the provision for merchant losses, the Company
considers historical loss rates. Increases in the provision for merchant losses are charged to expense and are
reflected in cost of services expenses in the Company’s Consolidated Statements of Income. Write-offs of
uncollectible amounts are charged against the provision for merchant losses.
UP-FRONT DISTRIBUTOR PAYMENTS: The Company makes up-front contractual payments to third-party
distribution partners. The Company assesses each up-front payment to determine whether it meets the criteria of
an asset as defined by U.S. GAAP. If these criteria are met, the Company capitalizes the up-front payment and
recognizes the capitalized amount as expense ratably over the benefit period, which is generally the contract
period. If the contract requires the distributor to perform specific acts (i.e. achieve a sales goal) and no other
conditions exist for the distributor to earn or retain the up-front payment, then the Company capitalizes the
payment and recognizes it as an expense when the performance conditions have been met. Up-front distributor
payments are classified on the Consolidated Balance Sheet as other non-current assets and recorded as a cost of
services in the Consolidated Statements of Income.
PROPERTY AND EQUIPMENT: Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line method over the estimated
useful lives of the assets. Buildings and improvements are depreciated over estimated useful lives of 5-40 years,
computer and other equipment over estimated useful lives of 2-5 years, and furniture and other equipment over
estimated useful lives of 3-15 years. The Company evaluates impairment losses on long-lived assets used in
operations in accordance with the provisions of GAAP. All ordinary repairs and maintenance costs are expensed
as incurred. Maintenance costs that extend the asset life are capitalized and amortized over the remaining
estimated life of the asset.
LICENSED COMPUTER SOFTWARE: The Company licenses software that is used in providing services to
clients. Licensed software is obtained through perpetual licenses, term licenses, site licenses and through
47
agreements based on processing capacity. Perpetual and site licenses are amortized using the straight-line
method over their estimated useful lives which range from three to ten years. Term licenses are amortized over
the term of the agreement. Mainframe software that is licensed based on processing capacity is amortized using
a units-of-production basis over the estimated useful life of the software, generally not to exceed ten years. At
each balance sheet date, the Company evaluates impairment losses on long-lived assets used in operations in
accordance with GAAP.
ACQUISITION TECHNOLOGY INTANGIBLES: These identifiable intangible assets are software technology
assets resulting from acquisitions. These assets are amortized using the straight-line method over periods not
exceeding their estimated useful lives, which range from five to nine years. GAAP requires that intangible assets
with estimated useful lives be amortized over their respective estimated useful lives to their residual values, and
reviewed for impairment. Acquisition technology intangibles’ net book values are included in computer software,
net in the accompanying balance sheets. Amortization expenses are charged to cost of services in the Company’s
Consolidated Statements of Income.
SOFTWARE DEVELOPMENT COSTS: Software development costs are capitalized once technological
feasibility of the software product has been established. Costs incurred prior to establishing technological
feasibility are expensed as incurred. Technological feasibility is established when the Company has completed a
detailed program design and has determined that a product can be produced to meet its design specifications,
including functions, features and technical performance requirements. Capitalization of costs ceases when the
product is generally available to clients. At each balance sheet date, the Company evaluates the unamortized
capitalized costs of software development as compared to the net realizable value of the software product which
is determined by future undiscounted net cash flows. The amount by which the unamortized software
development costs exceed the net realizable value is written off in the period that such determination is made.
Software development costs are amortized using the straight-line method over its estimated useful life, which
ranges from three to ten years.
The Company also develops software that is used internally. These software development costs are capitalized in
accordance with GAAP. Internal-use software development costs are capitalized once: (1) the preliminary project
stage is completed, (2) management authorizes and commits to funding a computer software project, and (3) it is
probable that the project will be completed and the software will be used to perform the function intended.
Costs incurred prior to meeting the qualifications are expensed as incurred. Capitalization of costs ceases when
the project is substantially complete and ready for its intended use. Internal-use software development costs are
amortized using the straight-line method over its estimated useful life which ranges from three to ten years.
Software development costs may become impaired in situations where development efforts are abandoned due
to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned
software product.
CONTRACT ACQUISITION COSTS: The Company capitalizes contract acquisition costs related to signing or
renewing long-term contracts and costs related to cash payments for rights to provide processing services. The
Company capitalizes internal conversion costs in accordance with GAAP. All costs incurred prior to a signed
agreement are expensed as incurred.
Contract acquisition costs are amortized using the straight-line method over the expected customer relationship
(contract term) beginning when the client’s cardholder accounts are converted and producing revenues. The
amortization of contract acquisition costs associated with cash payments for client incentives is included as a
reduction of revenues in the Company’s Consolidated Statements of Income. The amortization of contract
acquisition costs associated with conversion activity is recorded as cost of services in the Company’s
Consolidated Statements of Income.
The Company evaluates the carrying value of contract acquisition costs associated with each customer for
impairment on the basis of whether these costs are fully recoverable from either contractual minimum fees
(contractual costs) or from expected undiscounted net operating cash flows of the related contract (cash
incentives paid). The determination of expected undiscounted net operating cash flows requires management to
make estimates. These costs may become impaired with the loss of a contract, the financial decline of a client,
termination of conversion efforts after a contract is signed, diminished prospects for current clients or if the
48
Company’s actual results differ from its estimates of future cash flows. The amount of the impairment is written off
in the period that such a determination is made.
EQUITY INVESTMENTS: TSYS’ 49% investment in Total System Services de México, S.A. de C.V. (TSYS de
México), an electronic payment processing support operation located in Toluca, Mexico, is accounted for using
the equity method of accounting, as is TSYS’ 44.56% investment in China UnionPay Data Co., Ltd. (CUP Data)
headquartered in Shanghai, China. TSYS’ equity investments are recorded initially at cost and subsequently
adjusted for equity in earnings, cash contributions and distributions, and foreign currency translation adjustments.
GOODWILL: Goodwill results from the excess of cost over the fair value of net assets of businesses acquired.
Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually. Intangible
assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated
residual values. Equity investment goodwill, which is not reported as goodwill in the Company’s Consolidated
Balance Sheet, but is reported as a component of the equity investment, was $49.4 million as of December 31,
2015.
Identifiable intangible assets relate primarily to customer relationships,
OTHER INTANGIBLE ASSETS:
databases, channel relationships, covenants-not-to-compete, trade names and trade associations resulting from
acquisitions. These identifiable intangible assets are amortized using the straight-line method over periods not
exceeding the estimated useful lives, which range from three to ten years. Intangible assets with estimable useful
lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed
for impairment in accordance with GAAP. Amortization expenses are charged to selling, general and
administrative expenses in the Company’s Consolidated Statements of Income.
FAIR VALUES OF FINANCIAL INSTRUMENTS: The Company uses financial instruments in the normal course
of its business. The carrying values of cash equivalents, accounts receivable, accounts payable, accrued salaries
and employee benefits, and other current liabilities approximate their fair value due to the short-term maturities
of these assets and liabilities. The fair value of the Company’s long-term debt and obligations under capital
leases is not significantly different from its carrying value.
Investments in equity investments are accounted for using the equity method of accounting and pertain to
privately held companies for which fair value is not readily available. The Company believes the fair values of its
investments in equity investments exceed their respective carrying values.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company reviews long-lived assets, such as property and
equipment and intangibles subject to amortization, including contract acquisition costs and certain computer
software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.
If upon a triggering event the Company determines that the carrying amount of an asset exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the
balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no
longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be
presented separately in the appropriate asset and liability sections of the balance sheet.
TRANSACTION PROCESSING PROVISIONS: The Company has recorded an accrual for contract
contingencies (performance penalties) and processing errors. A significant number of the Company’s contracts
with large clients contain service level agreements which can result in TSYS incurring performance penalties if
contractually required service levels are not met. When providing for these accruals, the Company takes into
consideration such factors as the prior history of performance penalties and processing errors incurred, actual
contractual penalties inherent in the Company’s contracts, progress towards milestones and known processing
errors not covered by insurance. As of December 31, 2015, the Company had transaction processing provision of
$6.5 million. These accruals are included in other current liabilities in the accompanying Consolidated Balance
Sheets. Increases and decreases in transaction processing provisions are charged to cost of services in the
Company’s Consolidated Statements of Income, and payments or credits for performance penalties and
processing errors are charged against the accrual.
49
PROVISION FOR CARDHOLDER LOSSES: The Company is exposed to losses due to cardholder fraud,
payment defaults and other forms of cardholder activity as well as losses due to non-performance of third parties
who receive cardholder funds for transmittal to the Issuing Banks (banks that issue MasterCard International or
Visa USA, Inc. branded cards to customers). The Company establishes a reserve for the losses it estimates will
arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and
merchant-related chargebacks due to non-delivery of goods and services. These reserves are established based
upon historical loss and recovery rates and cardholder activity for which specific losses can be identified. The
provision for cardholder losses was approximately $9.4 million as of December 31, 2015. The charges to
provisions for cardholder losses are included in cost of services in the Consolidated Statements of Income. The
Company regularly updates its reserve estimate as new facts become known and events occur that may impact
the settlement or recovery of losses.
PROVISION FOR MERCHANT LOSSES: The Company has potential liability for losses resulting from disputes
between a cardholder and a merchant that arise as a result of, among other things, the cardholder’s
dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the
merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase
price is refunded to the customer by the card-issuing bank and charged to the merchant. If the merchant is
unable to fund the refund, TSYS must do so. TSYS also bears the risk of reject losses arising from the fact that
TSYS collects fees from its merchants on the first day after the monthly billing period. If the merchant has gone
out of business during such period, TSYS may be unable to collect such fees. TSYS maintains cash deposits or
requires the pledge of a letter of credit from certain merchants, generally those with higher average transaction
size where the card is not present when the charge is made or the product or service is delivered after the charge
is made, in order to offset potential contingent liabilities such as chargebacks and reject losses that would arise if
the merchant went out of business. Most chargeback and reject losses are charged to cost of services as they are
incurred. However, the Company also maintains a provision against losses, including major fraud losses, which
are both less predictable and involve larger amounts. The loss provision was established using historical loss
rates, applied to recent bankcard processing volume. As of December 31, 2015, the Company had a merchant
loss provision in the amount of $1.3 million.
REDEEMABLE NONCONTROLLING INTEREST:
LLC (CPAY), the Company is party to call and put arrangements with respect to the membership units that
represent the remaining noncontrolling interest of CPAY. The call arrangement is exercisable by TSYS and the put
arrangement is exercisable by the seller. The put arrangement is outside the control of the Company by requiring
the Company to purchase the seller’s entire equity interest in CPAY at a put price at fair value. The put
arrangement is recorded on the balance sheet and is classified as redeemable noncontrolling interest outside of
permanent equity.
In connection with the acquisition of Central Payment Co.,
FOREIGN CURRENCY TRANSLATION: The Company maintains several different foreign operations whose
functional currency is their local currency. Foreign currency financial statements of the Company’s Mexican and
Chinese equity investments, the Company’s wholly-owned subsidiaries and the Company’s majority-owned
subsidiaries, as well as the Company’s division and branches in the United Kingdom and China, 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 rates for each reporting period. Net gains or losses resulting from the
currency translation of assets and liabilities of the Company’s foreign operations, net of tax when applicable, are
accumulated in a separate section of shareholders’ equity titled accumulated other comprehensive income (loss).
Gains and losses on transactions denominated in currencies other than the functional currencies are included in
determining net income for the period in which exchange rates change.
TREASURY STOCK: The Company uses the cost method when it purchases its own common stock as treasury
shares or issues treasury stock upon option exercises and displays treasury stock as a reduction of shareholders’
equity.
REVENUE RECOGNITION: Revenue is recognized when it is realized or realizable and earned, which is
deemed to occur when all of the following criteria are met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been performed; (3) the seller’s price to the buyer is fixed or
determinable; and (4) collectability is reasonably assured. The Company accrues for rights of refund, processing
errors or penalties, or other related allowances based on historical experience.
50
The Company’s North America and International Services revenues are derived from long-term processing
contracts with financial and nonfinancial institutions and are generally recognized as the services are performed.
Payment processing services revenues are generated primarily from charges based on the number of accounts on
file, transactions and authorizations processed, statements mailed, cards embossed and mailed and other
processing services for cardholder accounts on file. Most of these contracts have prescribed annual revenue
minimums, penalties for early termination, and service level agreements which may impact contractual fees if
certain service levels are not achieved.
Revenue is recognized as the services are performed, primarily on a per unit basis. Processing contracts generally
range from three to ten years in length. When providing payment processing services, the Company frequently
enters into customer arrangements to provide multiple services that may also include conversion or
implementation services, business process outsourcing services such as call center services, web-based services,
and other payment processing-related services. Revenue for these services is generally recognized as they are
performed on a per unit basis each month or ratably over the term of the contract.
The Company’s Merchant Services revenues are partially derived from relationships with thousands of individual
merchants. Additionally, part of the revenues are derived from long-term processing contracts with large financial
institutions, other merchant acquirers and merchant organizations which generally range from three to eight years
and provide for penalties for early termination. Merchant services revenue is generated primarily from processing
all payment forms including credit, debit, electronic benefits transfer and check truncation for merchants of all
sizes across a wide array of retail market segments. The products and services offered include authorization and
capture of electronic transactions, clearing and settlement of electronic transactions, information reporting
services related to electronic transactions, merchant billing services, and point-of-sale terminal services. Revenue
is recognized for merchant services as those services are performed, primarily measured on a per unit basis.
When providing merchant processing services, the Company frequently enters into customer arrangements to
provide multiple services that may also include conversion or implementation services, business process
outsourcing services such as call center services, terminal services, and other merchant processing-related
services. Revenue for these services is generally recognized as they are performed on a per unit basis each month
or ratably over the term of the contract. Revenues on point-of-sale terminal equipment are recognized upon the
transfer of ownership and shipment of product.
When a sale involves multiple deliverables, revenue recognition is affected by the determination of the number of
deliverables in an arrangement, whether those deliverables may be separated into multiple units of accounting,
and the standalone selling price of each unit of accounting which affects the amount of revenue allocated to each
unit. Pursuant to Accounting Standards Codification (ASC) 605 ”Revenue Recognition,” the Company uses
vendor-specific objective evidence of the standalone selling price (VSOE) of its services when it exists to
determine the amount of revenue to allocate to each unit of accounting. The Company establishes VSOE using
the price charged when the same service is sold separately (on a standalone basis). In certain situations, the
Company does not have sufficient VSOE. In these situations, TSYS considers whether sufficient third party
evidence (TPE) of standalone selling price exists for the Company’s services. However, the Company typically is
not able to determine TPE and has not used this measure of selling price due to the unique and proprietary
nature of some of its services and the inability to reliably verify relevant standalone third party prices. When there
is insufficient evidence of VSOE and TPE, the Company has made its best estimate of the standalone selling price
(ESP) of that service for purposes of allocating revenue to each unit of accounting. When determining ESP, TSYS
uses limited standalone sales data that do not meet the Company’s criteria to establish VSOE, management
pricing strategies, residual selling price data when VSOE exists for a group of elements, the cost of providing the
services and the related margin objectives. Consideration is also given to geographies in which the services are
sold or delivered, customer classifications, and market conditions including competitor pricing strategies and
benchmarking studies. Revenue is recognized when the revenue recognition criteria for each unit of accounting
have been met.
As business and service offerings change in the future, the determination of the number of deliverables in an
arrangement and related units of accounting and the future pricing practices may result in changes in the
estimates of VSOE and ESP, which may change the ratio of fees allocated to each service or unit of accounting in
a given customer arrangement. There were no material changes or impact to revenue for current contractual
arrangements in the year ended December 31, 2015 due to any changes in the determination of the number of
deliverables in an arrangement, units of accounting, or estimates of VSOE or ESP.
51
In many situations, the Company enters into arrangements with customers to provide conversion or
implementation services in addition to processing services where the conversion or implementation services do
not have standalone value. For these arrangements, conversion or implementation services that do not have
standalone value, are recognized over the expected customer relationship (contract term) as the related
processing services are performed.
The Company’s other services generally have standalone value and constitute separate units of accounting for
revenue recognition purposes. Customer arrangements entered into prior to 2011 (prior to the adoption of
Accounting Standards Update (ASU) 2009-13 “Multiple-Deliverable Revenue Arrangements,” an update to ASC
Topic 605 “Revenue Recognition,” and formerly known as EITF 08-1, “Revenue Arrangements with Multiple
Deliverables”) often included services for which sufficient objective and reliable evidence of fair value did not
exist. In these situations, the deliverables were combined and recognized as a single unit of accounting based on
the proportional performance for the combined unit. For pre-2011 arrangements that have not expired, have not
been materially modified or amended, or terminated, the Company continues to recognize revenue in
accordance with these policies in the accompanying financial statements. Beginning in 2011, services in new or
materially modified arrangements of this nature were divided into separate units of accounting and revenue is
now allocated to each unit of accounting based on the relative selling price method as disclosed above. As the
services in the pre-2011 arrangements are generally delivered over the same term with consistent patterns of
performance, there is no material difference in the timing or pattern of revenue recognition for each group of
arrangements (pre-2011 arrangements and those new or materially modified thereafter).
The Company’s multiple element arrangements may include one or more elements that are subject to other
topics including software revenue recognition and leasing guidance. The consideration for these multiple
element arrangements is allocated to each group of deliverables — those subject to ASC 605-25 and those
subject to other topics based on the revised guidance in ASU 2009-13. Arrangement revenue for each group of
deliverables is then further separated, allocated, and recognized based on applicable guidance.
The Company’s NetSpend revenues principally consist of a portion of the service fees and interchange revenues
received by the Issuing Banks in connection with the programs NetSpend manages. Revenue is recognized when
there is persuasive evidence of an arrangement, the relevant services have been rendered, the price is fixed or
determinable and collectability is reasonably assured.
Cardholders are charged fees in connection with NetSpend’s products and services as follows:
•
•
•
Transactions — Cardholders are typically charged a fee for each PIN and signature-based purchase
transaction made using their GPR cards, unless the cardholder is on a monthly or annual service plan, in
which case the cardholder is instead charged a monthly or annual subscription fee, as applicable.
Cardholders are also charged fees for ATM withdrawals and other transactions conducted at ATMs.
Customer Service and Maintenance — Cardholders are typically charged fees for balance inquiries made
through NetSpend’s call centers. Cardholders are also charged a monthly maintenance fee after a specified
period of inactivity.
Additional Products and Services — Cardholders are charged fees associated with additional products and
services offered in connection with certain GPR cards, including the use of overdraft features, a variety of bill
payment options, custom card designs and card-to-card transfers of funds initiated through the call centers.
• Other — Cardholders are charged fees in connection with the acquisition and reloading of the GPR cards at
retailers and the Company receives a portion of these amounts in some cases.
Revenue resulting from the service fees charged to the cardholders described above is recognized when the fees
are charged because the earnings process is substantially complete, except for revenue resulting from the initial
activation of cards and annual subscription fees. Revenue resulting from the initial activation of cards is
recognized ratably, net of commissions paid to distributors, over the average account life, which is approximately
six months for GPR cards. Revenue resulting from annual subscription fees is recognized ratably over the annual
period to which the fees relate.
Revenues also include fees charged in connection with program management and processing services the
Company provides for private-label programs. Revenue resulting from these fees is recognized when the
company has fulfilled its obligations under the underlying service agreements.
52
NetSpend derives revenue from a portion of the interchange fees remitted by merchants when cardholders make
purchases using their GPR cards. Subject to applicable law, interchange fees are fixed by the card associations
and network organizations (Networks). Interchange revenue is recognized net of sponsorship, licensing and
processing fees charged by the Networks for services they provide in processing purchase transactions routed
through them. Interchange revenue is recognized during the period that the purchase transactions occur. Also
included in interchange revenue are fees earned from branding agreements with the Networks.
In regards to taxes assessed by a governmental authority imposed directly on a revenue producing transaction,
the Company reports its revenues on a net basis.
REIMBURSABLE ITEMS: Reimbursable items consist of out-of-pocket expenses which are reimbursed by the
Company’s clients. These expenses consist primarily of postage, access fees and third party software services.
SHARE-BASED COMPENSATION: GAAP establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity
incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity
instruments or that may be settled by the issuance of those equity instruments. A public entity must measure the
cost of employee services received in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions). That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award.
The Company estimates forfeitures when recognizing compensation cost. The estimate of forfeitures will be
adjusted by the Company as actual forfeitures differ from its estimates, resulting in compensation cost only for
those awards that actually vest. The effect of the change in estimated forfeitures is recognized as compensation
costs in the period the change in estimate occurred. In estimating its forfeiture rate, the Company stratified its
data based upon historical experience to determine separate forfeiture rates for the different award grants. The
Company currently estimates a forfeiture rate for existing stock option grants to TSYS non-executive employees,
and other TSYS share-based awards. Currently, TSYS estimates a forfeiture rate in the range of 0% to 8%.
The Company has issued its vested awards to directors and nonvested awards to certain employees. The market
value of the common stock at the date of issuance is recognized as compensation expense immediately for
vested awards and over the vesting period of the nonvested awards. For nonvested award grants that have pro
rata vesting, the Company recognizes compensation expense using the straight-line method over the vesting
period of the award.
LEASES: The Company is obligated under noncancelable leases for computer equipment, software and
facilities. As these leases expire, they will be evaluated and renewed or replaced by similar leases based on need.
A lease is an agreement conveying the right to use property, software or equipment (land and/or depreciable
assets) usually for a stated period of time. For purposes of applying the accounting and reporting standards,
leases are classified from the standpoint of the lessee as capital or operating leases.
Rental payments on operating leases are charged to expense over the lease term. If rental payments are not
made on a straight-line basis, rental expense nevertheless shall be recognized on a straight-line basis unless
another systematic and rational basis is more representative of the time pattern in which use benefit is derived
from the leased property, in which case that basis shall be used.
Certain of the Company’s operating leases are for office space. The Company will make various alterations
(leasehold improvements) to the office space and capitalize these costs as part of property and equipment.
Leasehold improvements are amortized on a straight-line basis over the useful life of the improvement or the
term of the lease, whichever is shorter.
ADVERTISING: Advertising costs are expensed as incurred or the first time the advertising takes place except
for direct-response advertising and television advertising production costs. Direct-response advertising consists
of commission paid to affiliate marketers for the new funded customer accounts generated by them. Direct-
response advertising costs are capitalized and amortized over the average life of the new accounts, which is
approximately one year. Television advertising production costs consist of the costs of developing and filming
53
television ads. Television advertising production costs are capitalized when the production services are received
and expensed in the period when the advertising first takes place. Advertising expense for 2015, 2014 and 2013
was $9.6 million, $5.7 million and $1.3 million, respectively.
Income taxes reflected in TSYS’ consolidated financial statements are computed based on
INCOME TAXES:
the taxable income of TSYS and its affiliated subsidiaries. A consolidated U.S. federal income tax return is filed for
TSYS and its majority-owned U.S. subsidiaries. Additionally, income tax returns are also filed in states where TSYS
and its subsidiaries have filing obligations and in foreign jurisdictions where TSYS has a foreign affiliate.
The Company accounts for income taxes in accordance with the asset and liability method. Deferred income tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. Reserves against the carrying value of a deferred tax asset are established when necessary
to reflect the decreased likelihood of realization of a deferred asset in the future. The effect on deferred income
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
Income tax provisions require the use of management judgments, which are subject to challenge by various
taxing authorities. Contingency reserves are periodically established where the amount of the contingency can be
reasonably determined and is likely to occur. Reductions in contingency reserves are recognized when tax
disputes are settled or examination periods lapse.
Significant estimates used in accounting for income taxes relate to the determination of taxable income, the
determination of temporary differences between book and tax basis, as well as estimates on the realizability of
tax credits and net operating losses.
TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax
expense in the Consolidated Statements of Income.
NONCONTROLLING INTEREST: Noncontrolling interests in earnings of subsidiaries represents the minority
shareholders’ share of the net income or loss of TSYS Managed Services EMEA Limited (EMEA) and CPAY. The
noncontrolling interests in the Consolidated Balance Sheet reflects the original investment by these shareholders
in EMEA and CPAY, their proportional share of the earnings or losses and their proportional share of net gains or
losses resulting from the currency translation of assets and liabilities of EMEA and CPAY.
EARNINGS PER SHARE: Unvested share-based payment awards that contain nonforfeitable rights to dividends
or dividend equivalents are “participating securities” as defined by GAAP, and therefore should be included in
EPS using the two-class method.
The two-class method is an earnings allocation method for computing EPS when an entity’s capital structure
includes two or more classes of common stock or common stock and participating securities. It determines EPS
based on dividends declared on common stock and participating securities and participation rights of
participating securities in any undistributed earnings.
Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding
during the period. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or
other contracts to issue common stock were exercised. Diluted EPS is calculated by dividing net income by
weighted average common and common equivalent shares outstanding. Common equivalent shares are
calculated using the treasury stock method.
RECLASSIFICATIONS: Certain reclassifications have been made to the 2014 and 2013 financial statements to
conform to the presentation adopted in 2015.
54
Recent Accounting Pronouncements
In November 2015, the Financial Accounting Standards Board (FASB) issued ASU 2015-17 “Income Taxes (Topic
740), Balance Sheet Classification of Deferred Taxes,” which requires the classification of all deferred tax assets
and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and
noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and
noncurrent deferred tax assets because those allowances also will be classified as noncurrent. The guidance is
effective for public business entities for annual and interim periods in fiscal years beginning after December 15,
2016. Early adoption is permitted. Companies can adopt the guidance either prospectively or retrospectively.
The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial
position, results of operations or cash flows.
In April 2015, the FASB issued ASU 2015-03 “Interest — Imputation of Interest (Subtopic 835-30), Simplifying the
Presentation of Debt Issuance Cost.” The amendments in this update will require entities to present debt
issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt
liability, consistent with debt discounts. The guidance is effective for annual periods and interim periods within
those annual periods beginning after December 15, 2015. Early adoption is permitted. The guidance will be
applied retrospectively. The Company does not expect the adoption of this guidance to have a material impact
on the Company’s financial position, results of operations or cash flows.
In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers,” which requires an entity
to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it
becomes effective. The new standard is effective for the Company on January 1, 2018. Early application is not
permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The
Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related
disclosures. The Company has not yet selected a transition method nor has it determined the effect on its
ongoing financial reporting.
Note 2 Discontinued Operations
In accordance with GAAP, the Company determined its Japan-based businesses became discontinued
operations in the first quarter of 2014.
The Company sold all of its stock of GP Network Corporation (GP Net) (representing 54% ownership of the
company) and all of its stock of TSYS Japan Godo Kaisha (TSYS Japan) (representing 100% ownership of the
company) in April 2014. Both entities were part of the International Services segment. The sale of the Company’s
stock in both of its operations in Japan was the result of management’s decision during the first quarter of 2014
to divest non-strategic businesses and focus resources on core products and services. In 2014, the Company had
a gain of $48.6 million, net of tax, related to the sales of its operations in Japan. In 2015, the Company recorded
an additional gain of $1.4 million, net of tax, related to the return of cash that was placed in escrow during
closing and tax adjustments associated with the transaction.
GP Net and TSYS Japan were not significant components of TSYS’ consolidated results.
The following table presents the main classes of assets and liabilities held for sale as of December 31, 2014:
(in thousands)
2014
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,003
4,003
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
The following table presents the summarized results of discontinued operations for the years ended
December 31, 2015, 2014 and 2013:
(in thousands)
2015
2014
2013
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $16,376 68,048
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $
1
3,443
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $
(39)
1,388
Income from operating activities of discontinued operations, net of tax . . . . . . . . . . . $ — $
40
2,055
Gain on dispositions, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,411 $48,615
—
Income from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,411 $48,655
2,055
Income from discontinued operations, net of tax, attributable to noncontrolling
interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $
999
4,198
Income (loss) from discontinued operations, net of tax, attributable to TSYS
common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,411 $47,656
(2,143)
Interest allocated to discontinued operations1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $
—
281
1
Interest expense relates to borrowings directly for use by Japan-based operations.
Note 3
Fair Value Measurement
GAAP requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy
for which these assets and liabilities must be grouped, based on significant level of inputs. The three-tier fair
value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:
Level 1 — Quoted prices for identical assets and liabilities in active markets.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that
are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs for the asset or liability.
The Company had no transfers between Level 1, Level 2, or Level 3 during the years ended December 31, 2015,
2014 or 2013. Goodwill is assessed annually for impairment in the second quarter of each year using fair value
measurement techniques. Specifically, goodwill impairment is determined using a two-step test. The first step of
the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting
unit (RU) with its book value, including goodwill. If the fair value of the RU exceeds its book value, goodwill is
considered not impaired and the second step of the impairment test is unnecessary. If the book value of the RU
exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of
impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the
RU’s goodwill with the book value of that goodwill. If the book value of the RU’s goodwill exceeds the implied
fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The fair value of
the RU is allocated to all of the assets and liabilities of that unit as if the RU had been acquired in a business
combination and the fair value of the RU was the purchase price paid to acquire the RU.
The estimate of fair value of the Company’s RUs is determined using various valuation techniques, including
using an equally weighted combination of the market approach and the income approach. The market approach,
which contains Level 2 inputs, utilizes readily available market valuation multiples to estimate fair value. The
income approach is a valuation technique that utilizes the discounted cash flow (DCF) method, which includes
Level 3 inputs. Under the DCF method, the fair value of the RU reflects the present value of the projected
earnings that will be generated by each RU after taking into account the revenues and expenses associated with
the asset, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate
discount rate to reflect the value of the invested capital. Cash flows are estimated for future periods based upon
historical data and projections by management.
56
As of December 31, 2015, the Company had recorded goodwill in the amount of $1.5 billion. The Company
performed its annual impairment test of its goodwill balances as of May 31, 2015, and this test did not indicate
any impairment. The fair value of the RUs substantially exceeds the carrying value. Refer to Note 7 for more
information regarding goodwill.
The fair value of the Company’s long-term debt and obligations under capital leases is not significantly different
from its carrying value.
Note 4 Relationships with Affiliated Companies
TSYS has a note payable to Merchants Limited, which has a noncontrolling interest in EMEA. Refer to Note 13 for
more information regarding this loan.
The Company provides miscellaneous services to Merchants Limited and to the Company’s equity investments,
TSYS de México and CUP Data.
The foregoing related party arrangements and services are performed under contracts that are similar to its
contracts with unrelated third party customers. The Company believes the terms and conditions of transactions
between the Company and these related parties are comparable to those which could have been obtained in
transactions with unaffiliated parties.
Through its related party transactions, TSYS generates accounts receivable and liability accounts with TSYS de
México and CUP Data.
The Company had the following balances with related parties as of December 31, 2015 and 2014:
(in thousands)
2015
2014
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Account payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 $
3,278
19
4,329
The table below details revenues and expenses derived from affiliated companies for the years ended
December 31, 2015, 2014 and 2013:
(in thousands)
Total revenues:
2015
2014
2013
CUP Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116
85
TSYS de México . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201
232
78
310
229
68
297
Total operating expenses:
Merchants Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,202 9,842 5,739
148
TSYS de México . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148
148
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,350 9,990 5,887
Nonoperating expenses paid to Merchants Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
42
—
—
57
Note 5 Cash and Cash Equivalents
Cash and cash equivalent balances as of December 31, 2015 and 2014 are summarized as follows:
(in thousands)
2015
2014
Cash and cash equivalents in domestic accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $307,578 225,396
63,787
Cash and cash equivalents in foreign accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,750
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $389,328 289,183
The Company maintains operating accounts outside the United States denominated in currencies other than the
U.S. dollar. All amounts in domestic accounts are denominated in U.S. dollars.
NOTE 6 Prepaid Expenses and Other Current Assets
Significant components of prepaid expenses and other current assets as of December 31, 2015 and 2014 are
summarized as follows:
(in thousands)
2015
2014
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,961 35,334
15,114 14,340
Supplies inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,322
259
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,802 49,041
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $154,199 98,974
NOTE 7 Goodwill
In 2013, the Company allocated $1.0 billion to goodwill due to the acquisition of NetSpend. In 2014, the
Company adjusted the NetSpend purchase price allocation to add an additional $8.5 million for settlement of the
dissenting shareholder lawsuit and adjustments to deferred taxes. In 2015, the Company adjusted the NetSpend
goodwill allocation to include an additional $627,000 for an adjustment to a sales and use tax reserve associated
with the acquisition.
The gross amount and accumulated impairment losses of goodwill as of December 31, 2015 and 2014 are as
follows:
(in thousands)
North America
Services
International
Services
Merchant
Services
NetSpend
Consolidated
Gross amount . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . .
$70,796
(182)
29,081
(1,605)
415,973
(2,225)
1,033,586
—
$1,549,436
(4,012)
Goodwill, net . . . . . . . . . . . . . . . . . . . . . .
$70,614
27,476
413,748
1,033,586
$1,545,424
2015
North America
Services
International
Services
Merchant
Services
NetSpend
Consolidated
2014
Gross amount . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated impairment losses . . . . . . . . . .
$70,796
(182)
31,681
(1,605)
415,973
(2,225)
1,032,959
—
$1,551,409
(4,012)
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . .
$70,614
30,076
413,748
1,032,959
$1,547,397
58
The changes in the carrying amount of goodwill as of December 31, 2015 and 2014 are as follows:
(in thousands)
Balance as of December 31, 2013 . . . . . .
Disposal of GP Net . . . . . . . . . . . . . . . .
NetSpend purchase price
allocation . . . . . . . . . . . . . . . . . . . . . .
Currency translation adjustments . . . .
Balance as of December 31, 2014 . . . . . .
NetSpend tax adjustment . . . . . . . . .
Currency translation adjustments . .
Balance as of December 31, 2015 . . . .
North America
Services
International
Services
Merchant
Services
NetSpend
Consolidated
$ 70,796
(182)
—
—
$ 70,614
—
—
$70,614
34,201
(1,605)
—
(2,520)
30,076
—
(2,600)
413,748
—
1,024,434
—
$ 1,543,179
(1,787)
—
—
8,525
—
8,525
(2,520)
413,748
—
—
1,032,959
627
—
$ 1,547,397
627
(2,600)
$27,476
$413,748 $1,033,586
$1,545,424
Refer to Note 24 for more information on acquisitions.
Note 8 Other Intangible Assets, net
In 2015, the changes related to other gross intangible assets were related to foreign currency translation and an
acquisition of an acquisition technology intangible asset. Refer to Note 24 for more information on acquisitions.
Significant components of other intangible assets as of December 31, 2015 and 2014 are summarized as follows:
(in thousands)
Gross
Channel relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 318,600
166,579
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,422
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,000
Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,940
Covenants-not-to-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000
Trade association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
875
Favorable lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
Accumulated
Amortization
(99,909)
(104,736)
(24,422)
(14,000)
(7,834)
(5,750)
(445)
Net
$218,691
61,843
22,000
14,000
7,106
4,250
430
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 585,416
(257,096)
$328,320
(in thousands)
2014
Accumulated
Amortization
Gross
Channel relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $318,600
167,140
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46,480
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,000
Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14,940
Covenants-not-to-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,000
Trade association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
875
Favorable lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(60,079)
(87,201)
(15,680)
(8,400)
(5,551)
(4,750)
(267)
Net
$258,521
79,939
30,800
19,600
9,389
5,250
608
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $586,035
(181,928)
$404,107
Amortization related to other intangible assets, which is recorded in selling, general and administrative expenses,
was $75.8 million, $77.3 million and $50.0 million for 2015, 2014 and 2013, respectively.
59
The weighted average useful life for each component of other intangible assets, and in total, as of December 31,
2015 is as follows:
Weighted
Average
Amortization
Period (Yrs)
Channel relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenants-not-to-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.0
8.2
4.9
5.0
5.3
10.0
4.9
7.6
Estimated future amortization expense of other intangible assets as of December 31, 2015 for the next five years
is:
(in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,213
74,823
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,166
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47,870
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,711
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 9 Computer Software, net
Computer software as of December 31, 2015 and 2014 is summarized as follows:
(in thousands)
2015
2014
Licensed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 513,443 435,701
404,238 376,026
Software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
167,971 167,687
Acquisition technology intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,085,652 979,414
Less accumulated amortization:
Licensed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition technology intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
282,563 243,866
287,863 275,512
110,156
93,888
Total accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
680,582 613,266
Computer software, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 405,070 366,148
The Company held the following computer software under capital lease as of December 31, 2015 and 2014:
(in thousands)
Licensed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Licensed computer software, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
2014
$18,206
(8,175)
$10,031
17,625
(4,816)
12,809
60
Amortization expense includes amounts for computer software acquired under capital lease. The Company had
the following amortization expense related to computer software for the years ended December 31, 2015, 2014
and 2013:
(in thousands)
Amortization expense related to:
2015
2014
2013
Licensed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition technology intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$41,823
22,740
16,734
36,775
25,248
19,683
33,511
21,430
15,855
The weighted average useful life for each component of computer software, and in total, as of December 31,
2015, is as follows:
Licensed computer software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition technology intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Amortization
Period (Yrs)
5.4
6.1
6.8
5.9
Estimated future amortization expense of licensed computer software, software development costs and
acquisition technology intangibles as of December 31, 2015 for the next five years is:
(in thousands)
Licensed
Computer
Software
Software
Development
Costs
Acquisition
Technology
Intangibles
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$36,207
31,034
25,345
13,617
8,899
27,312
21,608
16,041
9,916
7,343
15,352
13,868
11,393
11,393
5,734
Note 10 Property and Equipment, net
Property and equipment balances as of December 31, 2015 and 2014 are as follows:
(in thousands)
2015
2014
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $346,387 317,862
244,938 243,211
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
138,727 135,741
Furniture and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,763
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,577
597
Total property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
747,226 713,781
457,328 423,196
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $289,898 290,585
61
The Company has various types of equipment under capital lease arrangements. The Company has the following
amounts of equipment under capital lease obligations as of December 31, 2015 and 2014:
(in thousands)
2015
2014
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,450
5,374
Furniture and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
49,118
5,374
Total equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,824
54,492
Less accumulated depreciation:
Computer and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(36,134)
(2,731)
(29,816)
(1,666)
Total accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,865)
(31,482)
Total equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,959
23,010
Depreciation and amortization expense includes amounts for computer equipment, furniture and other
equipment acquired under capital lease. Depreciation and amortization expense related to property and
equipment was $56.6 million, $53.5 million and $45.5 million for the years ended December 31, 2015, 2014 and
2013, respectively.
Note 11 Contract Acquisition Costs, net
Significant components of contract acquisition costs as of December 31, 2015 and 2014 are summarized as
follows:
(in thousands)
2015
2014
Conversion costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $159,000 159,339
76,966
Payments for processing rights, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,811
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $247,811 236,305
Amortization expense related to contract acquisition cost for the years ended December 31, 2015, 2014 and
2013 are as follows:
(in thousands)
Amortization expense related to:
2015
2014
2013
Conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments for processing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,392
17,039
17,816
16,209
19,515
13,099
The weighted average useful life for each component of contract acquisition costs, and in total, as of
December 31, 2015 is as follows:
Payments for processing rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted
Average
Amortization
Period (Yrs)
14.7
12.3
13.3
62
Estimated future amortization expense of conversion costs and payments for processing rights as of
December 31, 2015 for the next five years is:
(in thousands)
Conversion
Costs
Payments for
Processing Rights
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,122
29,148
25,656
21,149
17,800
17,394
15,978
14,561
12,277
10,167
Note 12 Equity Investments
The Company has an equity investment in TSYS de México and records its 49% ownership using the equity
method of accounting. The operation prints statements and provides card-issuing support services to the equity
investment clients and others.
The Company has an equity investment in CUP Data and records its 44.56% ownership using the equity method
of accounting. CUP Data is sanctioned by the People’s Bank of China, China’s central bank, and has become one
of the world’s largest and fastest-growing payments networks. CUP Data currently provides transaction
processing, disaster recovery and other services for banks and bankcard issuers in China.
TSYS’ equity investments are recorded initially at cost and subsequently adjusted for equity in earnings, cash
contributions and distributions, and foreign currency translation adjustments. TSYS believes the carrying value
approximates the underlying assets of the equity investments.
TSYS’ equity in income of equity investments (net of tax) for the years ended December 31, 2015, 2014 and 2013
was $22.1 million, $17.6 million and $13.0 million, respectively.
A summary of TSYS’ equity investments as of December 31, 2015 and 2014 is as follows:
(in thousands)
2015
2014
CUP Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,518
7,600
TSYS de México . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
92,738
7,730
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106,118 100,468
63
Note 13 Long-term Borrowings and Capital Lease Obligations
Long-term debt as of December 31, 2015 and 2014 consists of:
(in thousands)
2015
2014
2.375% Senior Notes due June 1, 2018 (5 year tranche), net of discount
3.75% Senior Notes due June 1, 2023 (10 year tranche), net of discount
LIBOR + 1.125%, unsecured term loan, due April 8, 2018, with quarterly principal and
. . . . . . . . . . . . $ 549,919
546,746
. . . . . . . . . . . .
549,889
546,379
interest payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,000
185,000
LIBOR + 1.125%, unsecured term loan, due September 10, 2017, with quarterly
principal and interest payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
120,000
131,250
1.38% note payable due January 31, 2017, with monthly interest and principal
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,000
—
1.50% note payable, due September 30, 2016, with monthly interest and principal
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,132
11,886
LIBOR + 2.0%, unsecured term loan, due December 7, 2017, with monthly interest
payments and principal paid at maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,202
1,396
1.50% note payable, due January 31, 2016, with monthly interest and principal
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
336
4,332
1.50% note payable, due December 31, 2015, with monthly interest and principal
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.50% note payable, due July 31, 2015, with monthly interest and principal
payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
10,075
1,709
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,430,335 1,441,916
43,784
50,364
Noncurrent portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,379,971 1,398,132
During December 2014, EMEA obtained a £900,000, or approximately $1.4 million term loan. In September
2015, TSYS increased the loan by £1.3 million, or approximately $1.9 million. The loan bears interest at a rate of
LIBOR plus two percent. The loan matures in December 2017, and has monthly interest payments. The lender in
this transaction is Merchants Limited, who has a noncontrolling interest in EMEA. The balance as of
December 31, 2015 was $3.2 million.
In December 2015, the Company entered into a $30.0 million financing agreement for perpetual software
licenses. The balance as of December 31, 2015 was $30.0 million.
In September 2014, the Company entered into a $13.6 million financing agreement for perpetual software
licenses. The balance as of December 31, 2015 was $5.1 million.
In December 2013, the Company entered into a $20.0 million financing arrangement to purchase additional
software licenses. The financing arrangement was repaid in 2015.
TSYS acquired additional mainframe software licenses to increase capacity in 2012. The Company entered into an
$8.6 million and an $11.9 million financing agreement in June and December of 2012, respectively, to purchase
these additional software licenses. The balance as of December 31, 2015 for the $11.9 million financing
agreement was $0.3 million. The $8.6 million financing agreement was repaid in 2015.
In addition, TSYS maintains an unsecured credit agreement with Columbus Bank and Trust. The credit agreement
has a maximum available principal balance of $5.0 million, with interest at prime. TSYS did not use the credit
facility during 2015, 2014 or 2013.
Acquisition-Related Borrowings
In April 2013, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase
Bank, N.A., as Administrative Agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Syndication Agent, Regions Bank
64
and U.S. Bank National Association, as Documentation Agents, and other lenders party thereto, with J.P. Morgan
Securities LLC, The Bank of Tokyo Mitsubishi UFJ, Ltd., Regions Capital Markets, and U.S. Bank National
Association as joint lead arrangers and joint bookrunners. The Credit Agreement provides for a five-year term
loan to the Company in the amount of $200.0 million (the “Term Loan”) and bears interest at LIBOR plus 1.125%,
which are subject to adjustment based on changes in the Company’s credit ratings, with margins ranging from
1.00% to 1.75%. As of December 31, 2015, the outstanding balance on the Credit Agreement was $175.0
million.
Concurrently with entering into the Merger Agreement, TSYS obtained commitments for a $1.2 billion 364-day
bridge term loan facility from JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC and The Bank of Tokyo-
Mitsubishi UFJ, Ltd. Thereafter, JPMorgan Chase Bank, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd.
assigned portions of their commitments to other bridge facility lenders. The Company paid fees in 2013
associated with the bridge term loan of approximately $5.9 million. The total commitments under the bridge
term loan facility were eliminated in May 2013 after the issuance of the Notes described below.
In May 2013, the Company closed its issuance (the “Transaction”) of $550.0 million aggregate principal amount
of 2.375% Senior Notes due 2018 and $550.0 million aggregate principal amount of 3.750% Senior Notes due
2023 (collectively, the “Notes”) pursuant to an Underwriting Agreement with J.P. Morgan Securities LLC, as
representative of certain underwriters (the “Underwriters”), whereby the Company agreed to sell and the
Underwriters agreed to purchase the Notes from the Company, subject to and upon the terms and conditions set
forth in the Underwriting Agreement. The interest on the Notes are payable semiannually. The Company paid
fees in 2013 associated with the issuance of these Notes of approximately $8.9 million and recorded discounts of
approximately $4.3 million that are being amortized over the life of the Notes. The Company used the net
proceeds of the Transaction to pay a portion of the $1.4 billion purchase price of the Company’s acquisition of
NetSpend and related fees and expenses. The Notes were issued pursuant to an Indenture dated as of May 22,
2013 between the Company and Wells Fargo Bank, National Association, as trustee. The balance as of
December 31, 2015 was $549.9 million net of discount for the Senior Notes due June 2018 and $546.7 million
net of discount for the Senior Notes due June 2023.
The Notes also contain various affirmative and negative covenants, including those that create limitations on the
Company’s:
•
creation of liens;
• merging or selling assets unless certain conditions are met; and
•
entering into sale/leaseback transactions.
The Notes also contain a provision that requires the Company to repurchase all or any portion of a holder’s
Notes, at the holder’s option, if a Change in Control Repurchase Event occurs.
Amendment to Existing Credit Agreement
In September 2012, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as
Administrative Agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Regions Bank and U.S. Bank National Association,
as Syndication Agents, and the other lenders named therein, with J.P. Morgan Securities LLC, The Bank of Tokyo-
Mitsubishi UFJ, Ltd., Regions Capital Markets and U.S. Bank National Association, as joint lead arrangers and
joint bookrunners (the “Existing Credit Agreement”). The Existing Credit Agreement provides for a $350.0 million
five-year unsecured revolving credit facility (which may be increased by up to an additional $350.0 million under
certain circumstances) and includes a $50.0 million subfacility for the issuance of standby letters of credit and a
$50.0 million subfacility for swingline loans. The Existing Credit Agreement also provides for a $150 million five-
year unsecured term loan, which was fully funded on the closing of the Existing Credit Agreement. As of
December 31, 2015, the outstanding balance on the Existing Credit Agreement was $120.0 million.
In April 2013, the Company entered into the First Amendment to the Existing Credit Agreement (the “Revolver”)
in order to conform certain provisions of the Existing Credit Agreement to the Credit Agreement for the Term
Loan. On July 1, 2013, an additional $100.0 million was used as funding in the NetSpend Merger. As of
December 31, 2015, there was no outstanding balance on the Revolver.
65
The Credit Agreement for the aforementioned loan provided for a $168.0 million unsecured five-year term loan
to the Company, which was repaid in 2012 and a $252.0 million five year unsecured revolving credit facility. The
principal balance of loans outstanding under the credit facility bears interest at a rate of LIBOR plus an applicable
margin of 0.60%. The applicable margin could vary within a range from 0.27% to 0.725% depending on changes
in the Company’s corporate credit rating. Interest was paid on the last date of each interest period; however, if
the period exceeded three months, interest was paid every three months after the beginning of such interest
period. In addition, the Company paid each lender a fee in respect of the amount of such lender’s commitment
under the revolving credit facility (regardless of usage), ranging from 0.08% to 0.15% depending on the
Company’s corporate credit rating.
The Company was able to prepay the revolving credit facility and the term loan in whole or in part at any time
without premium or penalty, subject to reimbursement of the lenders’ customary breakage and redeployment
costs in the case of prepayment of LIBOR borrowings. The Credit Agreement included covenants requiring the
Company to maintain certain minimum financial ratios. The Company did not use the revolving credit facility in
2015.
Required annual principal payments on long-term debt for the five years subsequent to December 31, 2015 are
summarized as follows:
(in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,364
143,305
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
690,000
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations as of December 31, 2015 and 2014 consist of:
(in thousands)
2015
2014
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,131 14,101
7,127
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,468
Noncurrent portion of capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,663
6,974
The Company acquires various computer equipment, software, machinery and equipment and furniture and
fixtures under capital lease obligations. Refer to Notes 9, 10 and 23 for more information. The capital lease
obligations have various payment terms for each capital lease obligation, including single payment leases,
monthly, quarterly and annually. The lease terms for the equipment and software range from one to six years.
The future minimum lease payments under capital leases as of December 31, 2015 are summarized as follows:
(in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,611
2,687
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,001
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,362
(231)
Principal minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,131
66
Note 14 Other Current Liabilities
Significant components of other current liabilities as of December 31, 2015 and 2014 are summarized as follows:
(in thousands)
2015
2014
Deferred revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 39,863
26,017
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,367
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
81,332
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,773
23,617
19,006
70,409
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $166,579 154,805
Note 15 Income Taxes
The provision for income taxes includes income taxes currently payable and those deferred because of temporary
differences between the financial statement carrying amounts and tax bases of assets and liabilities.
The components of income tax expense included in the Consolidated Statements of Income were as follows:
(in thousands)
Current income tax expense:
Years Ended December 31,
2015
2014
2013
Federal
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $139,228
9,255
4,762
126,203
5,161
7,694
Total current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153,245
139,058
74,327
2,949
6,822
84,098
Deferred income tax expense (benefit):
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . .
(2,198)
442
(125)
(1,881)
(3,623)
(2,039)
(3,635)
27,447
(55)
(509)
(9,297)
26,883
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $151,364
129,761
110,981
(in thousands)
Components of income before income tax expense:
Years Ended December 31,
2015
2014
2013
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$488,515
8,373
369,888
23,041
328,052
24,424
Total income before income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$496,888
392,929
352,476
67
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate
of 35% to income before income taxes, noncontrolling interest and equity in income of equity investments as a
result of the following:
(in thousands)
Computed “expected” income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in income tax expense resulting from:
International tax rate differential and equity income . . . . . . . . . . . . . . . . . .
State income tax expense, net of federal income tax effect . . . . . . . . . . . .
Increase (decrease) in valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deduction for domestic production activities . . . . . . . . . . . . . . . . . . . . . . . .
Permanent differences and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December 31,
2015
2014
2013
$173,911
137,525
123,367
8,367
7,101
(517)
(28,831)
(11,550)
2,883
6,541
4,823
(4,550)
(3,459)
(8,750)
(2,369)
1,870
3,408
1,715
(6,141)
(8,225)
(5,013)
Total income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$151,364
129,761
110,981
Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities
that give rise to significant portions of the net deferred tax liability as of December 31, 2015 and 2014 relate to
the following:
(in thousands)
Deferred income tax assets:
As of December 31,
2015
2014
Net operating loss and income tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,522
1,399
Allowances for doubtful accounts and billing adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
31,713
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,088
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,673
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,978
1,328
31,240
24,449
24,743
Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less valuation allowance for deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
119,395
(18,446)
113,738
(18,963)
Net deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100,949
94,775
Deferred income tax liabilities:
Excess tax over financial statement depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software development costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase accounting adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(61,161)
(82,835)
(114,171)
(4,522)
(24,462)
(53,527)
(67,703)
(136,701)
(7,642)
(18,830)
Total deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(287,151)
(284,403)
Net deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(186,202)
(189,628)
Total net deferred tax assets (liabilities):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,670
(210,872)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent
15,190
(204,818)
Net deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(186,202)
(189,628)
As of December 31, 2015, TSYS had recognized deferred tax assets from net operating losses and federal and
state income tax credit carryforwards of $4.5 million and $25.0 million, respectively. As of December 31, 2014,
TSYS had recognized deferred tax assets from net operating losses and federal and state income tax credit
carryforwards of $5.9 million and $26.1 million, respectively
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than
not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of
68
deferred income tax assets is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Management believes it is more likely than not that TSYS will realize the benefits of these deductible differences,
net of existing valuation allowances. The valuation allowance for deferred tax assets was $18.4 million and $19.0
million at December 31, 2015 and 2014, respectively. The decrease in the valuation allowance for deferred
income tax assets was $0.5 million for 2015. The decrease relates to foreign and state losses which, more likely
than not, will not be realized in later years.
TSYS has adopted the permanent reinvestment exception under GAAP, with respect to future earnings of certain
foreign subsidiaries. As a result, TSYS considers foreign earnings related to these foreign operations to be
permanently reinvested. No provision for U.S. federal and state incomes taxes has been made in the
consolidated financial statements for those non-U.S. subsidiaries whose earnings are considered to be reinvested.
The amount of undistributed earnings considered to be “reinvested” which may be subject to tax upon
distribution was approximately $83.9 million as of December 31, 2015. Although TSYS does not intend to
repatriate these earnings, a distribution of these non-U.S. earnings in the form of dividends, or otherwise, would
subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and
withholding taxes payable to the various non-U.S. countries. Determination of the amount of any unrecognized
deferred income tax liability on these undistributed earnings is not practicable.
TSYS is the parent of an affiliated group that files a consolidated U.S. federal income tax return and most state
and foreign income tax returns on a separate entity basis. In the normal course of business, the Company is
subject to examinations by these taxing authorities unless statutory examination periods lapse. TSYS is no longer
subject to U.S. federal income tax examinations for years before 2011 and with few exceptions, the Company is
no longer subject to income tax examinations from state and local or foreign tax authorities for years before
2005. There are currently federal income tax examinations in progress for the years 2009 through 2012 for a
subsidiary which was acquired in 2013. Additionally, a number of tax examinations are in progress by the relevant
state tax authorities. Although TSYS is unable to determine the ultimate outcome of these examinations, TSYS
believes that its liability for uncertain tax positions relating to these jurisdictions for such years is adequate.
GAAP prescribes a recognition threshold and measurement attribute for the financial statement recognition,
measurement and disclosure of a tax position taken or expected to be taken in a tax return. During the year
ended December 31, 2015, TSYS increased its liability for prior year uncertain income tax positions as a discrete
item by a net amount of approximately $6.4 million (net of the federal tax effect). The Company is not able to
reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time,
the Company does not expect any significant changes related to these obligations within the next twelve months.
A reconciliation of the beginning and ending amount of unrecognized tax liabilities is as follows 1:
(in millions)
Year Ended
December 31, 2015
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current activity:
Additions based on tax positions related to current year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net, current activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6.7
2.3
4.7
(0.6)
6.4
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$13.1
1
Unrecognized state tax liabilities are not adjusted for the federal tax impact
TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax
expense in the Consolidated Statements of Income. Gross accrued interest and penalties on unrecognized tax
69
benefits totaled $0.7 million and $0.3 million as of December 31, 2015 and December 31, 2014, respectively. The
total amounts of unrecognized income tax benefits as of December 31, 2015 and December 31, 2014 that, if
recognized, would affect the effective tax rates are $13.2 million and $6.5 million (net of the federal benefit on
state tax issues), respectively, which includes interest and penalties of $0.5 million and $0.2 million, respectively.
Note 16 Commitments and Contingencies
LEASE COMMITMENTS: TSYS is obligated under noncancelable operating leases for computer equipment,
software and facilities.
The future minimum lease payments under noncancelable operating leases with remaining terms greater than
one year for the next five years and thereafter and in the aggregate as of December 31, 2015, are as follows:
(in thousands)
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $121,892
117,137
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101,413
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,426
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,733
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,716
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total future minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $493,317
The majority of computer equipment lease commitments come with a renewal option or an option to terminate
the lease. These lease commitments may be replaced with new leases which allow the Company to continually
update its computer equipment. Total rental expense under all operating leases in 2015, 2014 and 2013 was
$124.8 million, $105.2 million and $93.4 million, respectively.
In the normal course of its business, the Company maintains long-term
CONTRACTUAL COMMITMENTS:
processing contracts with its clients. These processing contracts contain commitments, including, but not limited
to, minimum standards and time frames against which the Company’s performance is measured. In the event the
Company does not meet its contractual commitments with its clients, the Company may incur penalties and
certain clients may have the right to terminate their contracts with the Company. The Company does not believe
that it will fail to meet its contractual commitments to an extent that will result in a material adverse effect on its
financial position, results of operations or cash flows.
CONTINGENCIES:
Legal Proceedings — General
The Company is subject to various legal proceedings and claims and is also subject to information requests,
inquiries and investigations arising out of the ordinary conduct of its business. The Company establishes reserves
for litigation and similar matters when those matters present loss contingencies that TSYS determines to be both
probable and reasonably estimable in accordance with GAAP. In the opinion of management, based on current
knowledge and in part upon the advice of legal counsel, all matters not specifically discussed below are believed
to be adequately covered by insurance, or, if not covered, the possibility of losses from such matters are believed
to be remote or such matters are of such kind or involve such amounts that would not have a material adverse
effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.
Telexfree Matter
ProPay, Inc. (“ProPay”), a subsidiary of the Company, has been named as one of a number of defendants
(including other merchant processors) in several purported class action lawsuits relating to the activities of
Telexfree, Inc. and its affiliates and principals. Telexfree is a former merchant customer of ProPay. With regard to
Telexfree, each purported class action lawsuit generally alleges that Telexfree engaged in an improper multi-tier
marketing scheme involving voice-over Internet protocol telephone services. The plaintiffs in each of the
70
purported class action complaints generally allege that the various merchant processor defendants, including
ProPay, aided and abetted the improper activities of Telexfree. Telexfree filed for bankruptcy protection in
Nevada. The bankruptcy proceeding was subsequently transferred to the Massachusetts Bankruptcy Court.
Specifically, ProPay has been named as one of a number of defendants (including other merchant processors) in
each of the following purported class action complaints relating to Telexfree: (i) Waldermara Martin, et al. v.
TelexFree, Inc., et al. (Case No. BK-S-14-12524-ABL) filed on May 3, 2014 in the United States Bankruptcy Court
District of Nevada, (ii) Anthony Cellucci, et al. v. TelexFree, Inc., et. al. (Case No. 4: 14-BK-40987) filed on May 15,
2014 in the United States Bankruptcy Court District of Massachusetts, (iii) Maduako C. Ferguson Sr., et al. v.
Telexelectric, LLLP, et. al (Case No. 5: 14-CV-00316-D) filed on June 5, 2014 in the United States District Court of
North Carolina, (iv) Todd Cook v. TelexElectric LLLP et al. (Case No. 2: 14-CV-00134), filed on June 24, 2014 in
the United States District Court for the Northern District of Georgia, (v) Felicia Guevara v. James M. Merrill et al.,
CA No. 1: 14-cv-22405-DPG), filed on June 27, 2014 in the United State District Court for the Southern District of
Florida, and (vi) Reverend Jeremiah Githere, et al. v. TelexElectric LLLP et al. (Case No. 1: 14-CV-12825-GAO),
filed on June 30, 2014 in the United States District Court for the District of Massachusetts (together, the
“Actions”). On October 21, 2014, the Judicial Panel on Multidistrict Litigation transferred and consolidated the
Actions before the United States District Court for the District of Massachusetts (the “Consolidated Action”).
Following the Judicial Panel on Multidistrict Litigation’s October 21, 2014 order, four additional cases arising
from the alleged TelexFree scheme were transferred to the United States District Court for the District of
Massachusetts for coordinated or consolidated proceedings, including (i) Paulo Eduardo Ferrari et al. v. Telexfree,
Inc. et al. (Case No. 14-04080); (ii) Magalhaes v. TelexFree, Inc., et al., No. 14-cv-12437 (D. Mass.); (iii) Griffith v.
Merrill et al., No. 14-CV-12058 (D. Mass.); Abelgadir v. Telexelectric, LLP, No. 14-09857 (S.D.N.Y.) In addition, on
September 23, 2015, a putative class action relating to TelexFree was filed in the United States District Court for
the District of Arizona, styled Rita Dos Santos, Putative Class Representatives and those Similarly Situated v.
TelexElectric, LLLP et al., 2: 15-cv-01906-NVW (the “Arizona Action”). The Arizona Action makes claims similar to
those alleged in the consolidated action pending before the United States District Court for the District of
Massachusetts. On September 29, 2015, a group of certain defendants to the Consolidated Action, including
ProPay, filed a “tag along” notice with the Judicial Panel on Multidistrict Litigation, asking that the Arizona Action
be transferred to the District of Massachusetts where it can be consolidated or coordinated with the
Consolidated Action. On October 20, 2015, the Judicial Panel on Multidistrict Litigation transferred the Arizona
Action to the District of Massachusetts.
The United States District Court for the District of Massachusetts appointed lead plaintiffs’ counsel on behalf of
the putative class of plaintiffs in the Consolidated Action. On March 31, 2015, the plaintiffs filed a First
Consolidated Amended Complaint (the “Consolidated Complaint”). The Consolidated Complaint purports to
bring claims on behalf of all persons who purchased certain TelexFree “memberships” and suffered a “net loss”
between January 1, 2012 and April 16, 2014. The Consolidated Complaint supersedes the complaints filed prior
to consolidation of the Actions, and alleges that ProPay aided and abetted tortious acts committed by TelexFree,
and that ProPay was unjustly enriched in the course of providing payment processing services to TelexFree. On
April 30, 2015, the plaintiffs filed a Second Consolidated Amended Complaint (the “Second Amended
Complaint”), which amends and supersedes the Consolidated Complaint. Like the Consolidated Complaint, the
Second Amended Complaint generally alleges that ProPay aided and abetted tortious acts committed by
TelexFree, and that ProPay was unjustly enriched in the course of providing payment processing services to
TelexFree.
Several defendants, including ProPay, moved to dismiss the Second Amended Complaint on June 2, 2015.
Briefing on those motions closed on October 16, 2015. The court held a hearing on the motions to dismiss on
November 2, 2015. At present, pursuant to a court order, all discovery in the action is stayed pending the
resolution of parallel criminal proceedings against certain former principals of TelexFree, Inc.
ProPay has also received various subpoenas, a seizure warrant and other inquiries requesting information
regarding Telexfree from (i) the Commonwealth of Massachusetts, Securities Division, (ii) United States Securities
and Exchange Commission, (iii) US Immigration and Customs Enforcement, and (iv) the bankruptcy Trustee of the
Chapter 11 entities of Telexfree, Inc., Telexfree, LLC and Telexfree Financial, Inc. Pursuant to the seizure warrant
served by the United States Attorney’s Office for the District of Massachusetts, ProPay delivered all funds
71
associated with Telexfree held for chargeback and other purposes by ProPay to US Immigration and Customs
Enforcement. In addition, ProPay received a notice of potential claim from the bankruptcy Trustee as a result of
the relationship of ProPay with Telexfree and its affiliates.
The above proceedings and actions are preliminary in nature. While the Company and ProPay intend to
vigorously defend matters arising out of the relationship of ProPay with Telexfree and believe ProPay has
substantial defenses related to these purported claims, the Company currently cannot reasonably estimate losses
attributable to these matters.
GUARANTEES AND INDEMNIFICATIONS: The Company has entered into processing and licensing
agreements with its clients that include intellectual property indemnification clauses. Under these clauses, the
Company generally agrees to indemnify its clients, subject to certain exceptions, against legal claims that TSYS’
services or systems infringe on certain third party patents, copyrights or other proprietary rights. In the event of
such a claim, the Company is generally obligated to hold the client harmless and pay for related losses, liabilities,
costs and expenses, including, without limitation, court costs and reasonable attorney’s fees. The Company has
not made any indemnification payments pursuant to these indemnification clauses.
A portion of the Company’s business is conducted through distributors that provide load and reload services to
cardholders at their locations. Members of the Company’s distribution and reload network collect cardholder
funds and remit them by electronic transfer to the Issuing Banks for deposit in the cardholder accounts. The
Company’s Issuing Banks typically receive cardholders’ funds no earlier than three business days after they are
collected by the distributor. If any distributor fails to remit cardholders’ funds to the Company’s Issuing Banks,
the Company typically reimburses the Issuing Banks for the shortfall created thereby. The Company manages the
risk associated with this process through a formalized set of credit standards, volume limits and deposit
requirements for certain distributors and by typically maintaining the right to offset any settlement shortfall
against the commissions payable to the relevant distributor. To date, the Company has not experienced any
significant losses associated with settlement failures and the Company had not recorded a settlement guarantee
liability as of December 31, 2015. As of December 31, 2015, the Company’s estimated gross settlement
exposure was $9.9 million.
GPR cardholders can incur charges in excess of the funds available in their accounts and are liable for the
resulting overdrawn account balance. Although the Company generally declines authorization attempts for
amounts that exceed the available balance in a cardholder’s account, the application of the Networks’ rules and
regulations, the timing of the settlement of transactions and the assessment of subscription, maintenance or
other fees can, among other things, result in overdrawn card accounts. The Company also provides, as a courtesy
and in its discretion, certain cardholders with a “cushion” that allows them to overdraw their card accounts by up
to $10. In addition, eligible cardholders may enroll in the Issuing Banks’ overdraft protection programs and fund
transactions that exceed the available balance in their accounts. The Company generally provides the funds used
as part of these overdraft programs (one of the Company’s Issuing Banks will advance the first $1.0 million on
behalf of its cardholders) and is responsible to the Issuing Banks for any losses associated with any overdrawn
account balances. As of December 31, 2015 and 2014, cardholders’ overdrawn account balances totaled $17.9
million and $14.0 million, respectively. As of December 31, 2015 and 2014, the Company’s reserves for the losses
it estimates will arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized
card use and merchant-related chargebacks due to non-delivery of goods or services was $9.4 million and $6.3
million, respectively.
The Company has not recorded a liability for guarantees or indemnities in the accompanying consolidated
balance sheet since the maximum amount of potential future payments under such guarantees and indemnities is
not determinable.
PRIVATE EQUITY INVESTMENTS: The Company has entered into limited partnership agreements in
connection with investing in two Atlanta-based venture capital funds focused exclusively on investing in
technology-enabled financial services companies. Pursuant to each limited partnership agreement, the Company
has committed to invest up to $20.0 million in each fund so long as its ownership interest in each fund does not
exceed 50%. As of December 31, 2015 and 2014, the Company had made contributions to the funds of $15.0
million and $10.8 million, respectively. The Company had investments, including gains, totaling $17.6 million and
72
$11.9 million, respectively, as of December 31, 2015 and 2014. The Company recognized gains of $4.0 million,
$0.8 million, and $1.0 million due to increases in fair value in the years ended December 31, 2015, 2014 and
2013, respectively.
Note 17 Employee Benefit Plans
The Company provides benefits to its employees by offering employees participation in certain defined
contribution plans. The employee benefit plans through which TSYS provided benefits to its employees during
2015 are described as follows:
RETIREMENT SAVINGS AND STOCK PURCHASE PLANS: TSYS maintains a single plan, the Retirement
Savings Plan, which is designed to reward all team members of TSYS U.S.-based companies with a uniform
employer contribution. The terms of the plan provide for the Company to match 100% of the employee
contribution up to 4% of eligible compensation. The Company can make discretionary contributions up to
another 4% based upon business conditions.
The Company also maintains a stock purchase plan for employees. The Company contributes 15% of employee
contributions. The funds are used to purchase presently issued and outstanding shares of TSYS common stock on
the open market at fair market value for the benefit of participants. The Company’s contributions to the plans
charged to expense for the years ended December 31, 2015, 2014 and 2013 are as follows:
(in thousands)
2015
2014
2013
TSYS Retirement Savings Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,169 17,531 14,506
1,236
TSYS Stock Purchase Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,378
1,288
POSTRETIREMENT MEDICAL BENEFITS PLAN: TSYS provides certain medical benefits to qualified retirees
through a postretirement medical benefits plan, which is immaterial to the Company’s consolidated financial
statements. The measurement of the benefit expense and accrual of benefit costs associated with the plan do not
reflect the effects of the 2003 Medicare Act. Additionally, the benefit expense and accrued benefit cost
associated with the plan, as well as any potential impact of the effects of the 2003 Medicare Act, are not
significant to the Company’s consolidated financial statements.
Note 18 Equity
DIVIDENDS: Dividends on common stock of $73.7 million were paid in 2015, compared to $74.8 million and
$56.5 million in 2014 and 2013, respectively. The increase in dividends paid in 2014 compared to 2013 is due to
the acceleration of payment of the fourth quarter 2012 dividend. The fourth quarter 2012 dividend payment was
paid in December 2012, rather than January 2013, to allow shareholders to benefit from the lower dividend tax
rate that was set to expire on December 31, 2012.
EQUITY COMPENSATION PLANS: The following table summarizes TSYS’ equity compensation plans by
category as of December 31, 2015:
(in thousands, except per share data)
Plan Category
Equity compensation plans
(a)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(b)
Weighted-average
exercise price of
outstanding
options, warrants
and rights
(c)
Number of securities remaining
available for future issuance
under equity compensation plans
(excluding securities reflected in
column (a))
approved by security holders . . . .
4,475
$28.071
8,5502
The Company does not have any equity compensation plans that were not approved by security holders.
1 Weighted-average exercise price represents 2,887 thousand options only and does not include performance shares and
other awards that have no exercise price.
2
Shares available for future grants under the Total System Services Inc. 2007 Omnibus Plan and 2012 Omnibus Plan, which
could be in the form of options, nonvested awards and performance shares.
73
Note 19 Share-Based Compensation
General Description of Share-Based Compensation Plans
TSYS has various long-term incentive plans under which the Compensation Committee of the Board of Directors
has the authority to grant share-based compensation to TSYS employees.
Stock options generally become exercisable in three equal annual installments on the anniversaries of the date of
grant and expire ten years from the date of grant. The required service period for retirement eligible employees
is typically 12 or 18 months. For retirement eligible employees who retire prior to completing this required
service period, the options vest on a pro-rata basis based upon the number of months employed during the full
service period. For retirement eligible employees who retire after the required 18-month service period, the
options become fully vested upon retirement. For retirement eligible employees who retire after the required 12-
month service period, the option holder is deemed to have continued employment through the end of the
vesting period and the options continue to vest in accordance with their terms.
Long-Term Incentive Plans
TSYS maintains the Total System Services, Inc. 2012 Omnibus Plan, Total System Services, Inc. 2007 Omnibus
Plan, Total System Services, Inc. 2002 Long-Term Incentive Plan, Total System Services, Inc. 2000 Long-Term
Incentive Plan and the Amended and Restated NetSpend Holdings Inc. 2004 Equity Incentive Plan for Options
and Restricted Shares Assumed by Total System Services, Inc. to advance the interests of TSYS and its
shareholders through awards that give employees and directors a personal stake in TSYS’ growth, development
and financial success. Awards under these plans are designed to motivate employees and directors to devote
their best efforts to the business of TSYS. Awards will also help TSYS attract and retain the services of employees
and directors who are in a position to make significant contributions to TSYS’ success.
The plans are administered by the Compensation Committee of the Company’s Board of Directors and enable
the Company to grant nonqualified and incentive stock options, stock appreciation rights, restricted stock and
restricted stock units, performance units or performance shares, cash-based awards and other stock-based
awards.
All stock options must have a maximum life of no more than ten years from the date of grant. The exercise price
will not be less than 100% of the fair market value of TSYS’ common stock at the time of grant. Any shares related
to awards which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares,
are settled in cash in lieu of shares, or are exchanged with the Committee’s permission, prior to the issuance of
shares, for awards not involving shares, shall be available again for grant under the various plans. The aggregate
number of shares of TSYS stock which may be granted to participants pursuant to awards granted under the
various plans may not exceed the following: Total System Services, Inc. 2012 Omnibus Plan -17 million shares;
Total System Services, Inc. 2007 Omnibus Plan -5 million shares; Total System Services, Inc. 2002 Long-Term
Incentive Plan -9.4 million shares; and Total System Services, Inc. 2000 Long-Term Incentive Plan -2.4 million
shares. Effective February 1, 2010 and March 5, 2012, no additional awards may be made from the Total System
Services, Inc. 2000 and 2002 Long-Term Incentive Plans, respectively.
Share-Based Compensation
Share-based compensation costs are classified as selling, general and administrative expenses on the Company’s
statements of income and corporate administration and other expenses for segment reporting purposes. TSYS
does not include amounts associated with share-based compensation as costs capitalized as software
development and contract acquisition costs as these awards are typically granted to individuals not involved in
capitalizable activities. For the year ended December 31, 2015, share-based compensation was $41.5 million
compared to $30.8 million and $28.9 million for the same periods in 2014 and 2013, respectively.
Nonvested Awards
The Company granted shares of TSYS common stock to certain key employees and non-management members
of its Board of Directors. The grants to certain key employees were issued under nonvested stock bonus awards
74
and are typically for services to be provided in the future by such officers and employees. The grants to the
Board of Directors were fully vested on the date of grant.
On July 1, 2013, the Company issued 870,361 shares of TSYS common stock as nonvested stock replacement
awards with a market value of $21.5 million as part of the NetSpend acquisition. The nonvested stock bonus
awards to employees of NetSpend are for services to be provided in the future and vest over varying periods.
The NetSpend awards were converted into equivalent shares of Company’s common stock on the acquisition
date. The value of the stock at the date of issuance is charged as compensation expense over the vesting periods
of the awards.
On July 18, 2013, the Company issued 212,694 retention shares of TSYS common stock with a market value of
$5.5 million to certain key employees of NetSpend. The nonvested stock bonus awards to certain key employees
are for services to be provided in the future and vest over periods ranging from two to four years. The market
value of the TSYS common stock at the date of issuance is charged as compensation expense over the vesting
periods of the awards.
The following table summarizes the number of shares granted each year:
2015
2014
2013
Number of shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 388,211 672,724 1,667,246
Market value (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
41.3
14.9
20.6
A summary of the status of TSYS’ nonvested shares as of December 31, 2015, 2014 and 2013 and the changes
during the periods are presented below:
(in thousands, except per share data)
Nonvested shares
2015
Weighted
Average
Grant-Date
Fair Value
Shares
Outstanding at beginning of year
Granted1
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . 1,769
388
(930)
(81)
Outstanding at end of year . . . . . . . . . . . . . . . . . . . 1,146
$26.75
38.38
26.05
28.78
$31.11
2014
2013
Weighted
Average
Grant-Date
Fair Value
$24.19
30.67
23.74
25.47
Weighted
Average
Grant-Date
Fair Value
$19.96
24.75
19.95
23.82
Shares
554
1,667
(328)
(110)
Shares
1,783
673
(602)
(85)
1,769
$26.75
1,783
$24.19
1
Includes the issuance of approximately 870,361 stock replacement awards in connection with the acquisition of NetSpend
in 2013. These awards had a market value of $21.5 million. A portion of the expense associated with these options has
been included as a component of the total purchase price of the NetSpend acquisition. Refer to Note 24.
As of December 31, 2015, there was approximately $22.8 million of total unrecognized compensation cost
related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a
remaining weighted average period of 1.9 years.
Performance- and Market-Based Awards
The Company granted performance- and market-based shares to certain key executives. The Company has also
granted performance-based shares to certain key employees. The performance- and market-based goals are
established by the Compensation Committee of the Board of Directors and will vest, up to a maximum of 200%.
During 2015 and 2014, the Compensation Committee established performance goals based on adjusted EPS,
revenue growth and revenues before reimbursable items and market goals based on Total Shareholder Return
(TSR) as compared to the TSR of the companies in the S&P 500 over the performance period.
Compensation expense for performance shares is measured on the grant date based on the quoted market price
of TSYS common stock. The Company estimates the probability of achieving the goals through the performance
period and expenses the awards on a straight-line basis. The fair value of market-based awards is estimated on
the grant date using a Monte Carlo simulation model. The Company expenses market-based awards on a
75
straight-line basis. Compensation costs related to performance- and market-based shares are recognized through
the longer of the performance period or the vesting period. As of December 31, 2015, there was approximately
$11.0 million of unrecognized compensation cost related to TSYS performance-based awards that is expected to
be recognized through December 2018. As of December 31, 2015, there was approximately $1.5 million of
unrecognized compensation cost related to TSYS market-based awards that is expected to be recognized
through July 2018.
The following table summarizes the performance- and market-based awards granted during the years 2015, 2014
and 2013:
Year
Awarded
Type of
Award
Performance
Period Ending
Performance
Measure
Number of
Shares
Granted
Period Expensed
Through
2015
Market
July 2016, 2017
and 2018
Total Shareholder Return
25,000
July 2018
2015
2015
2015
Performance December 2017 Adjusted EPS
135,289
December 2017
Market
December 2017 Total Shareholder Return
57,982
December 2017
Performance December 2015 Revenues before Reimbursable Items
165,543
December 2018
and Adjusted EPS
2014
Performance December 2016 Revenues before Reimbursable Items
211,593
December 2016
and Adjusted EPS
2013
Performance December 2015 NetSpend Revenues and NetSpend
87,356
December 2015
Operating Income
2013
Performance December 2015 Revenues before Reimbursable Items
237,679
December 2015
and Income from Continuing
Operations
In July 2013, TSYS issued 225,000 shares of TSYS common stock as a performance-based retention stock award
to a certain key executive with a performance-based vesting schedule through 2015. This award was forfeited in
July 2014. The Company reversed all previously recorded expense associated with this award.
A summary of the awards authorized in each year is below:
Total
Number of
Shares
Awarded
Potential Number of
Performance-and
Market-Based
Shares to be Vested
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
383,814
211,593
563,803
526,879
211,593
400,539
(2018)
(2017)
(2016)
A summary of the status of TSYS’ performance- and market-based nonvested shares as of December 31, 2015,
2014 and 2013 and changes during those periods are presented below:
(in thousands, except per share data)
Performance- and market-based Nonvested shares
Outstanding at beginning of year
. . . . . . . . . . . . .
Granted1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/canceled/adjusted . . . . . . . . . . . . . . . . . .
2015
Weighted
Average
Grant Date
Fair Value
$25.86
36.84
22.92
22.20
Shares
766
384
(241)
9
2014
2013
Weighted
Average
Grant Date
Fair Value
$22.75
30.89
17.57
25.62
Shares
1,049
211
(258)
(236)
Weighted
Average
Grant Date
Fair Value
$18.76
24.88
15.93
—
Shares
809
564
(324)
—
Outstanding at end of year . . . . . . . . . . . . . . . . . . .
918
$31.19
766
$25.86
1,049
$22.75
1
Includes the issuance of approximately 87,356 stock replacement awards in connection with the acquisition of NetSpend in
2013. These awards had a market value of $2.2 million. A portion of the expense associated with these awards has been
included as a component of the total purchase price of the NetSpend acquisition. Refer to Note 24.
76
Stock Option Awards
During 2015, 2014 and 2013, the Company granted stock options to key TSYS executive officers and non-
management members of its Board of Directors. The grants to key TSYS executive officers were issued for
services to be provided in the future and vest over a period of three years. The grants to the Board of Directors
were fully vested on the date of grant. The average fair value of the options granted was estimated on the date
of grant using the Black-Scholes-Merton option-pricing model.
On July 1, 2013, the Company issued 1,060,148 stock option replacement awards with a market value of $13.7
million as part of the NetSpend acquisition. The weighted average fair value of the options was $12.93 and was
calculated on the date of grant using a conversion factor into equivalent shares of the Company’s common stock
on the acquisition date. The grants vest over a period ranging from seven months to 45 months. The weighted
average fair value of the option grants was estimated on the date of grant using the Black-Scholes-Merton
option-pricing model with the following weighted average assumptions: exercise price of $11.68; risk-free
interest rate of 1.31%; expected volatility of 29.22%; expected term of 4.7 years; and dividend yield of 1.63%.
The following table summarizes the weighted average assumptions, and the weighted average fair value of the
options:
2015
2014
2013
Number of options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average exercise price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (years)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
613,473
1,046,372
39.01 $
1.73%
20.80%
6.3
1.04%
8.27 $
30.96 $
2.01%
25.06%
6.5
1.29%
7.66 $
1,939,796
17.42
1.31%
26.81%
6.0
1.64%
9.48
A summary of TSYS’ stock option activity as of December 31, 2015, 2014 and 2013, and changes during the years
ended on those dates is presented below:
2015
2014
2013
(in thousands, except per share data)
Options
Options:
Weighted
Average
Exercise
Price
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Outstanding at beginning of year
. . . . . . . . . . .
Granted 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/canceled . . . . . . . . . . . . . . . . . . . . . . .
4,892
613
(2,586)
(32)
$23.83
39.01
22.68
20.79
5,752
1,046
(1,850)
(56)
$20.96
30.96
18.79
28.88
6,065
1,940
(2,177)
(76)
$21.27
17.42
18.75
16.78
Outstanding at end of year . . . . . . . . . . . . . . . . .
2,887
$28.07
4,892
$23.83
5,752
$20.96
Options exercisable at year-end . . . . . . . . . . . . .
1,439
$25.17
2,781
$22.86
3,232
$23.02
Weighted average fair value of options
granted during the year . . . . . . . . . . . . . . . . . .
$ 8.27
$ 7.66
$ 9.48
1
Includes the issuance of approximately 1.1 million stock option replacement awards in connection with the acquisition of
NetSpend in 2013. These awards had a market value of $13.7 million. A portion of the expense associated with these
awards has been included as a component of the total purchase price of the NetSpend acquisition. Refer to Note 24.
77
As of December 31, 2015 the average remaining contractual life and intrinsic value of TSYS’ outstanding and
exercisable stock options were as follows:
Average remaining contractual life (in years)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate intrinsic value (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.8
$62,738
7.2
35,434
Outstanding Exercisable
Shares Issued for Options Exercised
During 2015, 2014 and 2013, employees of the Company exercised options for shares of TSYS common stock
that were issued from treasury. The table below summarizes these stock option exercises by year:
(in thousands)
Options Exercised and
Issued from Treasury
Intrinsic Value
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,586
1,850
2,177
$67,702
22,883
16,580
For awards granted before January 1, 2006 that were not fully vested on January 1, 2006, the Company will
record the tax benefits from the exercise of stock options as increases to the “Additional paid-in capital” line item
of the Consolidated Balance Sheets. If the Company does recognize tax benefits, the Company will record these
tax benefits from share-based compensation costs as cash inflows in the financing section and cash outflows in
the operating section in the Statement of Cash Flows. The Company has elected to use the short-cut method to
calculate its historical pool of windfall tax benefits.
As of December 31, 2015, there was approximately $2.9 million of total unrecognized compensation cost related
to TSYS stock options that is expected to be recognized over a remaining weighted average period of 1.5 years.
Note 20 Treasury Stock
The following table summarizes shares held as treasury stock and their related carrying value as of December 31:
(in thousands)
Number of Treasury
Shares
Treasury
Shares Cost
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,988
17,836
15,073
$641,664
453,230
326,996
Stock Repurchase Plan
In April 2010, TSYS announced a stock repurchase plan to purchase up to 10 million shares of TSYS stock. The
shares may be purchased from time to time over the next two years at prices considered attractive to the
Company. By January 2014, the TSYS Board had approved several increases in the number of shares that could
be repurchased under its share repurchase plan to up to 28 million shares of TSYS stock. The expiration date of
the plan was extended to April 30, 2015. On January 27, 2015, TSYS announced that its Board had approved a
new stock repurchase plan to purchase up to 20 million shares of TSYS stock. The shares may be purchased from
time to time at prices considered appropriate. There is no expiration date for the plan. The previous plan was
terminated.
During 2015, the Company purchased 5.2 million shares for approximately $242.1 million, at an average price of
$47.01. During 2014, the Company purchased 5.2 million shares for approximately $165.3 million, at an average
price of $31.79. During 2013, the Company purchased 3.1 million shares for approximately $97.6 million, at an
average price of $31.48.
78
The following table sets forth information regarding the Company’s purchases of its common stock on a monthly
basis during the three months ended December 31, 2015:
(in thousands, except per share data)
October 2015 . . . . . . . . . . . . . . . . .
November 2015 . . . . . . . . . . . . . . .
December 2015 . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . .
Total Number of
Shares Purchased
Average Price Paid
per Share
—
3,000
11
3,001
$ —
52.85
49.80
$52.85
1
Consists of delivery of shares to TSYS on vesting of shares to pay taxes.
Total Number of
Cumulative shares
Purchased as Part
of Publicly
announced Plans
or Programs
Maximum Number
of Shares That
May Yet Be
Purchased Under
the Plans or
Programs
2,150
5,150
5,150
17,850
14,850
14,850
Treasury Shares
In 2008, the Compensation Committee approved “share withholding for taxes” for all employee nonvested
awards, and also for employee stock options under specified circumstances. The dollar amount of the income tax
liability from each exercise is converted into TSYS shares and withheld at the statutory minimum. The shares are
added to the treasury account and TSYS remits funds to the Internal Revenue Service to settle the tax liability.
During 2015 and 2014, the Company acquired 3,344 shares for approximately $0.2 million and acquired 162,489
shares for approximately $5.2 million, respectively, as a result of share withholding for taxes.
Note 21 Other Comprehensive Income (Loss)
Comprehensive income (loss) for TSYS consists of net income, cumulative foreign currency translation
adjustments, unrealized gains on available for sale securities and the recognition of an overfunded or
underfunded status of a defined benefit postretirement plan recorded as a component of shareholders’ equity.
The income tax effects allocated to and the cumulative balance of each component of accumulated other
comprehensive income (loss) are as follows:
(in thousands)
As of December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer from NCI
Gain on available for sale securities . . . . . . . . . . . . . . . . .
Change in AOCI related to postretirement healthcare
Beginning
Balance
Pretax
amount
Tax
effect
Net-of-tax
Amount
Ending
Balance
$
$
(445)
2,272
419
3,332
28
—
(295)
—
2,810
1,033
—
1,037
1,853
(1,328)
—
1,773
$
$
1,408
2,004
28
1,773
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,952)
1,926
30
1,896
(56)
As of December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments . . . . . . . . . . . .
Transfer from NCI
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on available for sale securities . . . . . . . . . . . . . . . . .
Change in AOCI related to postretirement healthcare
$
$
1,408
2,004
28
1,773
4,441
2,100
2,341
$
3,749
(17,143)
—
(1,058)
(1,547)
—
(390)
(15,596)
—
(668)
$ (13,592)
28
1,105
plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(56)
921
332
589
533
As of December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,749
(17,280)
(1,605)
(15,675)
$ (11,926)
Foreign currency translation adjustments . . . . . . . . . . $(13,592)
28
Transfer from NCI
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on available for sale securities . . . . . . . . . . . . . . .
1,105
Change in AOCI related to postretirement
(22,997)
—
2,177
(1,548)
—
779
(21,449) $(35,041)
28
2,503
—
1,398
healthcare plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
533
(2,449)
(882)
(1,567)
(1,034)
As of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,926)
(23,269)
(1,651)
(21,618) $(33,544)
79
Consistent with its overall strategy of pursuing international investment opportunities, TSYS adopted the
permanent reinvestment exception under GAAP, with respect to future earnings of certain foreign subsidiaries. Its
decision to permanently reinvest foreign earnings offshore means TSYS will no longer allocate taxes to foreign
currency translation adjustments associated with these foreign subsidiaries accumulated in other comprehensive
income.
Note 22 Segment Reporting, including Geographic Area Data and Major Customers
TSYS provides global payment processing and other services to card-issuing and merchant acquiring institutions
in the United States and internationally through online accounting and electronic payment processing systems.
Corporate expenses, such as finance, legal, human resources, mergers and acquisitions and investor relations are
categorized as Corporate Administration and Other.
In the first quarter of 2014, the Company’s Japan-based entities qualified for discontinued operations treatment.
In July 2013, TSYS completed its acquisition of all the outstanding stock of NetSpend, which previously operated
as a publicly traded company. NetSpend’s financial results are included in the NetSpend segment.
Refer to Note 24 for more information on acquisitions.
North America Services includes electronic payment processing services and other services provided from within
the North America region. International Services includes electronic payment processing and other services
provided from outside the North America region. Merchant Services includes electronic processing and other
services provided to merchants and merchant acquirers. The NetSpend segment provides GPR prepaid debit and
payroll cards and alternative financial service solutions to the underbanked and other consumers in the United
States.
At TSYS, the chief operating decision maker (CODM) is a group consisting of Senior Executive Management and
above. In the first quarter of 2014, the CODM decided that all share-based compensation costs should be
included in the category “Corporate Administration and Other” for purposes of segment disclosures. All prior
periods were restated to reflect this change. This change is used to evaluate performance and assess resources
starting in the first quarter of 2014. The information utilized by the CODM consists of the financial statements and
the main metrics monitored are revenue growth and growth in profitability.
Upon completion of the NetSpend acquisition in 2013, the CODM implemented a new metric called adjusted
segment operating income in order to analyze each segment’s results of operations. This new metric consists of
operating income adjusted for amortization of acquisition related intangibles and corporate administrative and
other costs. All periods presented have been adjusted to reflect this new measure. Depreciation and amortization
for the segments changed as a result of this new metric removing amortization associated with intangible assets
from the total for the segments.
The Company believes the terms and conditions of transactions between the segments are comparable to those
which could have been obtained in transactions with unaffiliated parties. TSYS’ operating segments share certain
resources, such as information technology support, that TSYS allocates asymmetrically.
80
Years Ended December 31,
(in thousands)
Operating Segments
Revenues before reimbursable items
2015
2014
2013
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,147,254
331,159
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
474,040
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
580,377
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(33,481)
Intersegment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
954,082
341,785
435,649
482,686
(21,224)
860,645
321,484
446,277
207,851
(12,549)
Revenues before reimbursable items from external customers . . . . . . $ 2,499,349
2,192,978 1,823,708
Total revenues
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,334,258
354,725
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
549,369
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
580,377
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(39,188)
Intersegment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,117,764 1,000,073
341,549
533,050
207,851
(18,218)
363,359
510,120
482,686
(27,052)
Revenues from external customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,779,541
2,446,877 2,064,305
Depreciation and amortization
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Administration and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99,544
34,892
18,268
10,686
163,390
92,522
2,352
86,513
38,909
14,571
7,509
147,502
96,971
2,147
74,480
41,708
12,034
3,121
131,343
65,893
1,790
Total depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . $
258,264
246,620
199,026
Adjusted segment operating income
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total adjusted segment operating income . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition intangible amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NetSpend merger and acquisition operating expenses . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate Administration and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429,064
60,087
150,225
137,837
777,213
(92,522)
—
(41,549)
(109,035)
351,512
55,123
134,872
128,285
669,792
(96,971)
(3,217)
(30,790)
(107,174)
321,619
42,068
155,643
66,353
585,683
(65,893)
(14,220)
(28,933)
(94,137)
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
534,107
431,640
382,500
As of December 31,
Total assets
2015
2014
North America Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,516,328
348,714
International Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
689,781
Merchant Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,504,740
NetSpend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,151,263)
Intersegment assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,327,160
356,590
695,744
1,556,369
(2,202,282)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,908,300
3,733,581
81
GEOGRAPHIC AREA DATA: The Company maintains property and equipment, net of accumulated
depreciation and amortization, in the following geographic areas:
As of December 31,
(in thousands)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $241,814 237,865
45,503
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,217
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $289,898 290,585
41,953
6,131
2014
2015
GEOGRAPHIC AREA REVENUE BY OPERATING SEGMENT: The following tables reconcile segment external
revenue to revenues by geography for the years ended December 31:
(in thousands)
North
America
Services
International
Services
Merchant
Services NetSpend
2015
United States . . . . . . . . . . . . . . . . . . . . $ 981,588
796
Europe1 . . . . . . . . . . . . . . . . . . . . . . . . .
288,728
Canada1 . . . . . . . . . . . . . . . . . . . . . . . . .
16,558
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . .
18,329
Other1 . . . . . . . . . . . . . . . . . . . . . . . . . .
— 548,079
22
355
—
679
303,832
—
—
40,198
580,377
—
—
—
—
Total
$2,110,044
304,650
289,083
16,558
59,206
%
75.9
11.0
10.4
0.6
2.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $1,305,999
344,030
549,135
580,377
$2,779,541 100.0
(in thousands)
North
America
Services
International
Services
Merchant
Services NetSpend
2014
United States . . . . . . . . . . . . . . . . . . . . . . . $ 778,766
Europe1 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
781
290,248
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,216
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,305
— 508,747
—
248
—
684
304,308
—
—
47,888
482,686
—
—
—
—
Total
$1,770,199
305,089
290,496
16,216
64,877
%
72.3
12.5
11.9
0.7
2.7
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,102,316
352,196
509,679
482,686
$2,446,877 100.0
(in thousands)
North
America
Services
International
Services
Merchant
Services NetSpend
2013
United States . . . . . . . . . . . . . . . . . . . . . . . . . $712,252
Europe1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
774
242,975
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,513
Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other1
14,492
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— 533,939
—
178
—
566
293,803
—
—
40,962
207,851
—
—
—
—
Total
$1,454,042
294,577
243,153
16,513
56,020
%
70.4
14.3
11.8
0.8
2.7
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $987,006
334,764
534,683
207,851
$2,064,305 100.0
1
Revenues are impacted by movements in foreign currency exchange rates
MAJOR CUSTOMER: For the years ended December 31, 2015, 2014 and 2013, the Company had no major
customers.
82
Note 23 Supplemental Cash Flow Information
Nonvested Share Awards
The Company has issued shares of TSYS common stock to certain key employees and non-management
members of its Board of Directors. The grants to certain key employees were issued in the form of nonvested
stock bonus awards for services to be provided in the future by such officers and employees. The grants to the
Board of Directors were fully vested on the date of grant. Refer to Note 18 for more information on nonvested
share awards.
Equipment and Software Acquired Under Capital Lease Obligations
The Company acquired computer equipment and software under capital leases in the amount of $4.1 million,
$17.9 million and $14.8 million in 2015, 2014 and 2013, respectively.
Software Acquired Under Direct Financing
The Company acquired software under direct financing in the amount of $30.0 million in 2015. The Company
acquired software under direct financing in the amount of $13.6 million in 2014. The Company did not acquire
any software under direct financing in 2013. Refer to Note 13 for more information.
Note 24 Acquisitions
2015
In September 2015, TSYS purchased certain assets for its NetSpend segment for $750,000. The purchase
qualifies as a business combination in accordance with GAAP. The Company recorded an acquisition technology
intangible asset for the amount of the purchase price. This acquisition intangible asset represents software and is
being amortized over a five year life. There were no other material assets included in the purchase. The
acquisition included the employment of certain key employees which resulted in the transaction qualifying as a
business combination.
2014
In February 2014, the Company acquired an additional 15% equity interest in CPAY from its privately held owner
for $37.5 million, which increased its equity interest in CPAY from 60% to 75%. This purchase reduced the
remaining redeemable noncontrolling interest in CPAY to 25% of its total outstanding equity.
2013
On July 1, 2013, TSYS acquired all the outstanding stock of NetSpend, which previously operated as a publicly
traded company and is a leading provider of GPR prepaid debit and payroll cards and related financial services to
underbanked and other consumers in the U.S. The acquisition complements the Company’s existing presence in
the prepaid processing space. The results of the newly acquired business are being reported by TSYS as a new
operating segment titled NetSpend.
Under the terms of the Merger Agreement, TSYS acquired 100 percent ownership of NetSpend for approximately
$1.4 billion, including $1.2 billion of cash to shareholders, $70.7 million of cash for payment to holders of vested
stock options and awards, $58.3 million of cash for repayment of NetSpend’s revolving credit facility and $15.6
million in replacement stock options and awards. NetSpend shareholders received $16.00 in cash for each share
of NetSpend common stock. There were 1.6 million NetSpend shares held by five shareholders who asserted
appraisal (or dissenters’) rights with respect to their NetSpend shares, for a preliminary value of $25.7 million at
$16.00 per share that were not funded at the closing of the acquisition. During 2014, TSYS paid $38.6 million to
dissenting shareholders to settle the lawsuit.
83
Under the terms of the Merger Agreement, the Company replaced unvested share-based awards for certain
current employees of NetSpend. The following table provides a list of all replacement awards and the estimated
fair value of those awards issued in conjunction with the acquisition of NetSpend:
Time-based restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-qualified stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance-based restricted stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
870,361
530,696
529,452
87,356
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,017,865
$21.5
8.4
5.3
2.2
$37.4
Number of Shares
and Options Issued
Fair Value
(in millions)
The portion of the fair value of the replacement awards related to services provided prior to the business
combination was included in the total purchase price. The portion of the fair value associated with future service
is recognized as expense over the future service period, which varies by award. The Company determined that
$15.6 million ($11.1 million net of tax) of the replacement awards was related to services rendered prior to the
business combination.
The goodwill amount of $1.0 billion arising from the acquisition consists largely of expansion of customer base,
differentiation in market opportunity and economies of scale expected from combining the operations of TSYS
and NetSpend. All of the goodwill was assigned to TSYS’ new NetSpend segment. The goodwill recognized is
not expected to be deductible for income tax purposes.
The following table summarizes the consideration paid for NetSpend and the initially recognized amounts of the
identifiable assets acquired and liabilities assumed on July 1, 2013 (the acquisition date).
(in thousands)
Consideration
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,355,270
15,557
Equity instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,723
Dissenting shareholder liability* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of total consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,396,550
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
40,610
11,335
11,657
480,086
10,165
36,660
(155,945)
(62,452)
Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
372,116
1,024,434
$1,396,550
* Represents 1.6 million NetSpend shares held by dissenting shareholders
In 2015, the Company adjusted goodwill for NetSpend to include an additional $627,000 for a change in a sales
and use tax reserve associated with the acquisition. As of December 31, 2014, goodwill related to NetSpend
increased $8.5 million due to changes during the measurement period. For more information, refer to Note 7.
Identifiable intangible assets acquired in the NetSpend acquisition include channel relationships, current
technology, a prospect database, the NetSpend trade name and non-compete agreements.
84
The identifiable intangible assets had no significant estimated residual value. These intangible assets are being
amortized over their estimated useful lives of five to eight years based on the pattern of expected future
economic benefit, which approximates a straight-line basis over the useful lives of the assets. The fair value of the
acquired identifiable intangible assets of $480.1 million was estimated using the income approach (discounted
cash flow and relief from royalty methods) and cost approach. The fair values and useful lives of the identified
intangible assets were primarily determined using forecasted cash flows, which included estimates for certain
assumptions such as revenues, expenses, attrition rates and royalty rates.
The estimated fair value of identifiable intangible assets acquired in the acquisitions and the related estimated
weighted average useful lives are as follows:
(in thousands)
Channel relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Covenants-not-to-compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Favorable lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair Value
$317,000
78,711
44,000
28,000
11,500
875
Total acquired identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$480,086
Weighted Average
Useful Life
(in years)
8.0
7.0
5.0
5.0
6.0
4.9
7.3
The fair value measurement of the identifiable intangible assets represents Level 2 and Level 3 measurements.
Key assumptions include (a) cash flow projections based on market participant and internal data, (b) a discount
rate of 11%, (c) a pre-tax royalty rate range of 2.5-7.0%, (d) attrition rates of 5%-40%, (e) an effective tax rate of
40%, and (f) a terminal value based on a long-term sustainable growth rate of 3%.
In connection with the acquisition, TSYS incurred $3.2 million and $14.2 million in acquisition-related costs
primarily related to professional legal, finance, and accounting costs for the years ended December 31, 2014 and
2013, respectively. These costs were expensed as incurred and are included in selling, general and administrative
expenses on the income statement.
85
Pro Forma Results of Operations
The amounts of NetSpend revenue and earnings included in TSYS’ consolidated income statement for the year
ended December 31, 2013, and the pro forma revenue and earnings of the combined entity had the acquisition
date been January 1, 2013 are:
Actual
Supplemental pro
forma
Year Ended
December 31 ,2013
Year Ended
December 31, 2013
(in thousands, except per share data)
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,064,305
Net income attributable to TSYS common shareholders . . . . . . . . . . . .
$ 244,750
Basic EPS attributable to TSYS common shareholders . . . . . . . . . . . . . .
Diluted EPS attributable to TSYS common shareholders . . . . . . . . . . . .
$
$
1.30
1.29
2,286,348
239,775
1.28
1.27
The unaudited pro forma financial information presented above does not purport to represent what the actual
results of operations would have been if the acquisition of NetSpend’s operations had occurred prior to
January 1, 2013, nor is it indicative of the future operating results of TSYS. The unaudited pro forma financial
information does not reflect the impact of future events that may occur after the acquisition, including, but not
limited to, anticipated cost savings from operating synergies.
The unaudited pro forma financial information presented in the table above has been adjusted to give effect to
adjustments that are (1) directly related to the business combination; (2) factually supportable; and (3) expected
to have a continuing impact. These adjustments include, but are not limited to, the application of accounting
policies; and depreciation and amortization related to fair value adjustments to property, plant and equipment
and intangible assets.
The pro forma adjustments do not reflect the following material items that result directly from the acquisition and
which impacted the statement of operations following the acquisition:
•
•
Acquisition and related financing transactions costs relating to fees to investment bankers, attorneys,
accountants, and other professional advisors, and other transaction-related costs that were not capitalized as
deferred financing costs; and
The effect of anticipated cost savings or operating efficiencies expected to be realized and related
restructuring charges such as technology and infrastructure integration expenses, and other costs related to
the integration of NetSpend into TSYS.
Redeemable Noncontrolling Interest
The fair value of the noncontrolling interest in CPAY, owned by a private company, was based on the actual
purchase price paid for the controlling interest in CPAY. Next, adjustments were made for lack of control and lack
of marketability that market participants would consider when estimating the fair value of the noncontrolling,
non-marketable interest in CPAY.
In connection with the acquisition of CPAY, the Company is party to call and put arrangements with respect to
the membership units that represent the remaining noncontrolling interest of CPAY. The call arrangement is
exercisable by TSYS and the put arrangement is exercisable by the Seller. The put arrangement is outside the
control of the Company by requiring the Company to purchase the Seller’s entire equity interest in CPAY at a put
price at fair market value. At the time of the original acquisition, the redemption of the put option was
considered probable based upon the passage of time of the second anniversary date. The put arrangement is
recorded on the balance sheet and is classified as redeemable noncontrolling interest outside of permanent
equity.
86
In February 2014, the Company purchased an additional 15% equity interest in CPAY for $37.5 million, reducing
its redeemable noncontrolling interest in CPAY to 25%. As a result of this transaction, the call and put
arrangements for CPAY, representing 25% of its total outstanding equity interests, were extended and may now
be exercised at the discretion of TSYS or the Seller on the third anniversary of the closing of the additional
purchase and upon the recurrence of certain other specified events.
The put option is not currently redeemable, but redemption is considered probable based upon the passage of
time of the third anniversary date of the 2014 purchase of additional equity. As such, the Company has adopted
the accounting policy to accrete changes in the redemption value over the period from the date of issuance to
the earliest redemption date, which the Company believes to be in 2017. If the put option was redeemable as of
December 31, 2015, the redemption value was estimated to be approximately $23.4 million. The Company did
not accrete any changes to the redemption value as the balance as of December 31, 2015 exceeded the
accretion fair value amount.
Pro forma Results of Operations
The pro forma revenue and earnings of TSYS’ acquisitions other than NetSpend are not material to the
consolidated financial statements.
Note 25 Collaborative Arrangement
TSYS has a 45% ownership interest in an enterprise jointly owned with two other entities which operates aircraft
for the owners’ internal use. The arrangement allows each entity access to the aircraft and each entity pays for its
usage of the aircraft. Each quarter, the net operating costs of the enterprise are shared among the owners based
on their respective ownership percentage.
TSYS records its usage of the aircraft and its share of net operating costs of the enterprise in selling, general and
administrative expenses.
87
Note 26 Earnings Per Share
The following table illustrates basic and diluted EPS under the guidance of GAAP for the years ended
December 31, 2015, 2014 and 2013:
(in thousands, except per share data)
2015
2014
2013
Common
Stock
Participating
Securities
Common
Stock
Participating
Securities
Common
Stock
Participating
Securities
Basic EPS:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $364,044
Less income allocated to nonvested
$322,872
$244,750
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,164)
3,164
(3,308)
3,308
(1,595)
1,595
Net income allocated to common stock
for EPS calculation(a) . . . . . . . . . . . . . . . . $360,880
3,164
$319,564
3,308
$243,155
1,595
Average common shares
outstanding(b)
. . . . . . . . . . . . . . . . . . . . . 182,465
1,617
184,297
1,925
187,145
1,246
Basic EPS(a)/(b) . . . . . . . . . . . . . . . . . . . . . . . $
1.98
1.96
$
1.73
1.72
$
1.30
1.28
Diluted EPS:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $364,044
Less income allocated to nonvested
$322,872
$244,750
awards . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,148)
3,148
(3,288)
3,288
(1,585)
1,585
Net income allocated to common stock
for EPS calculation(c)
. . . . . . . . . . . . . . . . $360,896
3,148
$319,584
3,288
$243,165
1,585
Average common shares outstanding . . . . 182,465
Increase due to assumed issuance of
shares related to common equivalent
shares outstanding . . . . . . . . . . . . . . . . . .
1,157
Average common and common
1,617
184,297
1,925
187,145
1,246
1,459
1,648
equivalent shares outstanding(d)
. . . . . . 183,622
1,617
185,756
1,925
188,793
1,246
Diluted EPS(c)/(d) . . . . . . . . . . . . . . . . . . . . . $
1.97
1.95
$
1.72
1.71
$
1.29
1.27
The diluted EPS calculation excludes stock options and nonvested awards that are convertible into 0.6 million,
1.1 million and 2.9 million common shares for the years ended December 31, 2015, 2014 and 2013, respectively,
because their inclusion would have been anti-dilutive.
88
Note 27 Subsequent Events
Agreement to Acquire Capital Stock of TransFirst Holdings Corp.
On January 26, 2016, TSYS announced it entered into a definitive agreement with Vista Equity Partners Fund V,
L.P. and certain related funds (collectively, “Vista”) to acquire TransFirst Holdings Corp. (“TransFirst”), a Vista
portfolio company and leading U S. merchant solutions provider, in an all-cash transaction valued at
approximately $2.35 billion. The Company intends to finance the TransFirst acquisition with cash on hand and
approximately $2.4 billion of additional indebtedness. In connection with the transaction, the Company entered
into a commitment letter with certain of its lenders to provide a $2.0 billion bridge term loan facility (the “Bridge
Term Loan Facility”) to finance the TransFirst acquisition to the extent the Company has not obtained alternative
financing before the closing of the transaction. The transaction is currently expected to close in the second
quarter of 2016 and is subject to regulatory approvals and other customary closing conditions. For additional
information regarding the transaction, see TSYS’ Current Reports on Form 8-K filed on January 26, 2016 and
January 27, 2016, which include the press release announcing the transaction, the stock purchase agreement for
the transaction and the commitment letter for the Bridge Term Loan Facility. There can be no assurance that the
proposed acquisition will be completed, or if it is completed, that the expected benefits of the transaction will be
realized.
Entry into Credit Agreement
On February 23, 2016, TSYS entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase
Bank, N.A., as Administrative Agent and L/C Issuer, Bank of America, N.A., as Syndication Agent and L/C Issuer,
The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Bank, National
Association, as Co-Documentation Agents, and the other lenders party thereto, with J.P. Morgan Securities LLC
and Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank
National Association and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners. The Credit
Agreement provides TSYS with a $700 million five-year term loan facility broken consisting of (i) a $300 million
term loan (the “Refinancing Term Loan”) funded upon entry into the Credit Agreement and (ii) a $400 million
term loan (the “Delayed Draw Term Loan”). The Credit Agreement also provides TSYS with a $800 million
unsecured revolving credit facility (the “Revolving Credit Facility”), which includes a $50 million sub-facility for the
issuance of standby letters of credit.
The Refinancing Term Loan was used to repay in full TSYS’ outstanding loans and other obligations under that
certain Credit Agreement, dated as of September 10, 2012, by and among the Company, the lenders party
thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended, and that certain
Credit Agreement, dated as of April 8, 2013, by and among the Company, the lenders party thereto and
JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended. The Delayed Draw Term Loan will
be available to be drawn to finance, in part, the TransFirst acquisition and related transactions, upon satisfaction
of a limited set of conditions precedent. The Revolving Loan Facility will be available for draws for purposes of
working capital and other general corporate purposes, including to finance, in part, the TransFirst acquisition and
related transactions upon satisfaction of a limited set of conditions precedent.
Upon entering into the Credit Agreement, the total commitments under the Bridge Term Loan Facility were
reduced from $2.0 billion to $1.15 billion by the amount of the Delayed Draw Term Loan commitment and the
portion of the Revolving Loan Facility commitments in excess of $350 million.
For additional information regarding the Credit Agreement, see TSYS’ Current Report on Form 8-K filed on
February 23, 2016.
Management performed an evaluation of the Company’s activity as of the date these audited financial statements
were issued, and has concluded that, other than as set forth above, there are no significant subsequent events
requiring disclosure.
89
Report of Independent Registered Public Accounting Firm
The Board of Directors
Total System Services, Inc.:
We have audited the accompanying consolidated balance sheets of Total System Services, Inc. and subsidiaries
(the Company) as of December 31, 2015 and 2014, and the related consolidated statements of income,
comprehensive income, cash flows and changes in equity for each of the years in the three-year period ended
December 31, 2015. We also have audited the Company’s internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management
is responsible for these consolidated financial statements, for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on these consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement and whether effective internal control
over financial reporting was maintained in all material respects. Our audits of the consolidated financial
statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Total System Services, Inc. and subsidiaries as of December 31, 2015 and 2014, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,
2015, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Total System
Services, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Atlanta, Georgia
February 24, 2016
90
Management’s Report on Internal Control Over Financial
Reporting
The management of Total System Services, Inc. (the Company) is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934. The Company maintains accounting and internal control systems which are intended to provide
reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions
are executed in accordance with management’s authorization and accounting records are reliable for preparing
financial statements in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. Internal control over financial reporting is a process that involves
human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human
failures. Internal control over financial reporting also can be circumvented by collusion or improper management
override. Because of such limitations, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting. However, these inherent limitations are
known features of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, risk.
The Company’s management assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2015. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated
Framework 2013.
Based on our assessment, management believes that, as of December 31, 2015, the Company’s internal control
over financial reporting is effective based on those criteria.
KPMG LLP, the independent registered public accounting firm who audited the Company’s consolidated financial
statements, has issued an attestation report on the effectiveness of internal control over financial reporting as of
December 31, 2015 that appears on the preceding page.
M. Troy Woods
Chairman, President &
Chief Executive Officer
Paul M. Todd
Senior Executive Vice President &
Chief Financial Officer
91
Quarterly Financial Data (Unaudited), Stock Price, Dividend
Information
TSYS’ common stock trades on the New York Stock Exchange (NYSE) under the symbol “TSS.” Price and volume
information appears under the abbreviation “TotlSysSvc” in NYSE daily stock quotation listings. As of
February 19, 2016, there were 20,477 holders of record of TSYS common stock, some of whom are holders in
nominee name for the benefit of different shareholders.
The 2015 fourth quarter dividend of $0.10 per share was declared on December 2, 2015, and was paid January 4,
2016, to shareholders of record on December 17, 2015. The 2014 fourth quarter dividend of $0.10 per share was
declared on December 2, 2014, and was paid January 2, 2015, to shareholders of record on December 19, 2014.
Total dividends declared in 2015 and in 2014 amounted to $73.7 million and $74.8 million, respectively. It is the
present intention of the Board of Directors of TSYS to continue to pay cash dividends on its common stock.
Presented here is a summary of the unaudited quarterly financial data for the years ended December 31, 2015
and 2014.
(in thousands, except per share data)
2015 Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TSYS common shareholders . . . . . . . . . . .
Basic earnings per share attributable to TSYS common
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$662,156
122,496
77,755
692,652
130,602
82,839
707,890
163,104
120,622
716,843
117,905
82,828
2014
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.42
0.45
0.66
0.45
Diluted earnings per share attributable to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to TSYS common shareholders . . . . . . . . . . . . . .
Basic earnings per share attributable to TSYS common shareholders . . . .
Diluted earnings per share attributable to TSYS common
shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock prices:
High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Close . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.42
0.10
39.02
33.27
38.15
0.45
0.10
42.72
37.89
41.77
0.65
0.10
48.64
41.52
45.43
0.45
0.10
56.37
45.82
49.80
$ 592,848
80,697
49,303
0.26
602,036
98,763
109,904
0.59
616,891
129,407
83,805
0.45
635,104
122,773
79,860
0.43
0.26
0.10
33.28
28.71
30.41
0.58
0.10
32.70
28.70
31.41
0.45
0.10
32.41
30.63
30.96
0.43
0.10
34.41
28.83
33.96
92
STOCK PERFORMANCE GRAPH
The following graph compares the yearly percentage change in cumulative shareholder return on TSYS stock with
the cumulative total return of the Standard & Poor’s 500 Index and the Standard & Poor’s Systems Software Index
for the last five fiscal years (assuming a $100 investment on December 31, 2010 and reinvestment of all
dividends).
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among TSYS, the S&P 500 Index, and the S&P Systems Software Index
2010
2011
2012
2013
2014
2015
TSYS
S&P 500
S&P SS
TSYS
S&P 500
S&P SS
2010
2011
2012
2013
2014
2015
$100.00 $129.35 $144.12 $227.30 $234.93 $347.59
$100.00 $102.11 $118.45 $156.82 $178.29 $180.75
$100.00 $ 90.05 $103.76 $137.89 $169.62 $187.38
$400
$350
$300
$250
$200
$150
$100
$50
$0
93
Shareholder Information
Corporate Headquarters
TSYS
One TSYS Way
P.O. Box 2567
Columbus, GA 31902-2567
www.tsys.com
+1.706.649.2310
Stock Trading Information
TSYS common stock is traded as “TSS” on the New York Stock
Exchange (NYSE). Price and volume information appear under
the abbreviation “TSS” in NYSE daily stock quotation listings.
Dividend Reinvestment and
Direct Stock Purchase Plan
The TSYS Dividend Reinvestment and Direct Stock Purchase Plan
(“Plan”) provides a comprehensive package of services designed
to make investing in TSYS stock easy, convenient and more
(cid:68)(cid:374)(cid:82)(cid:85)(cid:71)(cid:68)(cid:69)(cid:79)(cid:72)(cid:17)(cid:3)(cid:60)(cid:82)(cid:88)(cid:3)(cid:80)(cid:68)(cid:92)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:69)(cid:82)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:79)(cid:68)(cid:81)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)
the phone at +1.877.833.6707.
New Investors
You can join the Plan by making an initial investment of at
least $250.
TSYS Shareholders
You can participate by submitting a completed enrollment
form. If your shares are held in a brokerage account, you
(cid:80)(cid:88)(cid:86)(cid:87)(cid:3)(cid:192)(cid:85)(cid:86)(cid:87)(cid:3)(cid:85)(cid:72)(cid:74)(cid:76)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:17)
Dividend Reinvestment
You can invest all or a part of your cash dividends to
accumulate more shares without paying fees.
Optional Cash Investments
You can purchase additional shares by investing between $50 at
any one time and $250,000 in total per calendar year. If you wish,
we can withdraw funds automatically from your bank account
each month to purchase shares. Purchases are made weekly,
or more often if volume dictates. Fees are lower than those
(cid:87)(cid:92)(cid:83)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:17)
Annual Shareholders’ Meeting
The Annual Meeting of Shareholders will be held on
April 28, 2016 at 10 a.m. ET at the TSYS Riverfront
Campus Auditorium in Columbus, Georgia.
Independent Auditors
KPMG LLP, Atlanta, Georgia
Safekeeping
(cid:60)(cid:82)(cid:88)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:3)(cid:92)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:192)(cid:70)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:88)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:86)(cid:68)(cid:73)(cid:72)(cid:78)(cid:72)(cid:72)(cid:83)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:87)(cid:3)(cid:81)(cid:82)(cid:3)
(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:92)(cid:82)(cid:88)(cid:17)(cid:3)(cid:60)(cid:82)(cid:88)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:3)(cid:70)(cid:72)(cid:85)(cid:87)(cid:76)(cid:192)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:81)(cid:82)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:17)
Investor Relations
Analysts, investors and others seeking additional
information not available at tsys.com should contact:
Shawn Roberts
TSYS Investor Relations
One TSYS Way
Columbus, GA 31901
+1.706.644.6081
shawnroberts@tsys.com
Current shareholders requiring assistance should contact:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
+1.877.833.6707
www.amstock.com
Gifts and Transfers of Shares
You can make gifts or transfers to others. Contact American
Stock Transfer & Trust Company, LLC at +1.877.833.6707 or
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Sale of Shares
You can sell some or all of your shares when you choose at
(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:87)(cid:92)(cid:83)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:192)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)
services industry. Shares are sold weekly, or more often
if volume dictates.
Form 10-K
A copy of the company’s 2015 Annual Report on Form 10-K,
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at no charge upon written request to Investor Relations at
the address below:
TSYS Investor Relations
One TSYS Way
Columbus, GA 31901
ir@tsys.com
Online Access
Online Services at tsys.com
You can purchase your initial shares online at tsys.com. TSYS makes it easy and convenient to get current information about your shareholder account any time.
You will have access to:
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(cid:135)(cid:3)(cid:53)(cid:72)(cid:84)(cid:88)(cid:72)(cid:86)(cid:87)(cid:3)(cid:68)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:3)(cid:85)(cid:72)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)
(cid:135)(cid:3)(cid:53)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:80)(cid:72)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:3)(cid:72)(cid:79)(cid:72)(cid:70)(cid:87)(cid:85)(cid:82)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)
Cautionary language regarding forward-looking statements:
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© 2016 Total System Services, Inc.® All rights reserved worldwide. Total System Services, Inc. and TSYS® are federally registered service marks of Total System Services, Inc. in the United States. Total System Services,
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About TSYS
TSYS® (NYSE: TSS) unlocks opportunities in payments for payment providers, businesses and consumers.
Our headquarters are in Columbus, Georgia, USA, and we operate in more than 80 countries with local
offices across the Americas, EMEA and Asia-Pacific.
We provide seamless, secure and innovative solutions across the payments spectrum — from issuer
processing and merchant acquiring to prepaid program management — delivered through partnership
and expertise. We succeed because we put people, and their needs, at the heart of every decision.
It’s an approach we call ‘People-Centered Payments®’.
Our industry is changing every day — and we’re leading the way towards the payments of tomorrow.
For more, visit us at tsys.com.
For the fourth time in five years, TSYS was named one of the 2016 World’s Most Ethical
Companies by Ethisphere, a global ethics think tank.
NYSE: TSS
TSYS®
One TSYS Way
P.O. Box 2567
Columbus, GA 31902-2567
+1.706.649.2310
www.tsys.com