Total System Services Earnings 2019-06-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2019

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from To

Commission file number: 1-10254

Total System Services, Inc.

www.tsys.com

(Exact name of registrant as specified in its charter)


Georgia	58-1493818
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One TSYS Way, Post Office Box 1755, Columbus, Georgia 31902

(Address of principal executive offices) (Zip Code)

(706) 644-4388

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 par value	TSS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☑	Accelerated Filer ◻	Non-accelerated Filer ◻
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of June 30, 2019, there were 176,977,106 shares of the registrant’s common stock, $0.10 par value, outstanding.

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Table of Contents

	Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) — June 30, 2019 and December 31, 2018	3
Consolidated Statements of Income (unaudited) — Three and six months ended June 30, 2019 and 2018	4
Consolidated Statements of Comprehensive Income (unaudited) — Three and six months ended June 30, 2019 and 2018	5
Consolidated Statements of Cash Flows (unaudited) — Six months ended June 30, 2019 and 2018	6
Consolidated Statement of Changes in Equity (unaudited) — Three and six months ended June 30, 2019 and 2018	7
Notes to Unaudited Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3. Quantitative and Qualitative Disclosures About Market Risk	49
Item 4. Controls and Procedures	50
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	50
Item 1A. Risk Factors	50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6. Exhibits	54
SIGNATURES	55

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

TOTAL SYSTEM SERVICES, INC.

Consolidated Balance Sheets

(Unaudited)


(in thousands, except per share data)	June 30, 2019		December 31, 2018
Assets
Current assets:
Cash and cash equivalents (Note 2)	$	458,220	471,156
Accounts receivable, net of allowances for doubtful accounts and billing adjustments of $6.1 million and $6.0 million as of 2019 and 2018, respectively		513,712	450,322
Contract assets (Note 3)		43,847	30,950
Prepaid expenses and other current assets (Note 2)		224,048	188,355
Total current assets		1,239,827	1,140,783
Contract assets (Note 3)		56,925	47,839
Goodwill		4,114,851	4,114,838
Other intangible assets, net of accumulated amortization of $891.1 million and $802.0 million as of 2019 and 2018, respectively		703,617	796,702
Intangible assets - computer software, net of accumulated amortization of $955.2 million and $893.4 million as of 2019 and 2018, respectively		520,494	534,536
Property and equipment, net of accumulated depreciation and amortization of $530.4 million and $522.7 million as of 2019 and 2018, respectively (Note 4)		373,868	383,074
Operating lease right-of-use assets, net (Note 4)		198,539	-
Contract cost assets, net of accumulated amortization		148,938	145,598
Equity investments, net		206,504	180,661
Deferred income tax assets		7,516	7,773
Other assets		135,727	116,905
Total assets	$	7,706,806	7,468,709
Liabilities
Current liabilities:
Accounts payable	$	57,911	97,956
Contract liabilities (Note 3)		51,553	47,227
Current portion of operating lease liabilities (Note 4)		43,346	-
Accrued salaries and employee benefits		34,922	73,143
Current portion of long-term borrowings (Note 5)		17,811	20,807
Current portion of obligations under finance leases and license agreements (Note 4)		17,712	8,318
Other current liabilities (Note 2)		278,072	268,150
Total current liabilities		501,327	515,601
Long-term borrowings, excluding current portion (Note 5)		4,003,248	3,843,394
Deferred income tax liabilities		401,486	380,278
Operating lease liabilities, excluding current portion (Note 4)		167,102	-
Obligations under finance leases and license agreements, excluding current portion (Note 4)		39,490	46,147
Contract liabilities (Note 3)		25,281	21,489
Other long-term liabilities		74,278	75,894
Total liabilities		5,212,212	4,882,803
Commitments and contingencies (Note 6)
Shareholders' Equity
Shareholders’ equity:
Common stock- $0.10 par value. Authorized 600,000 shares; 202,765 issued as of 2019 and 2018; 176,977 and 180,586 outstanding as of 2019 and 2018, respectively		20,277	20,277
Additional paid-in capital		203,098	189,889
Accumulated other comprehensive loss, net (Notes 1 and 2)		(64,200)	(60,223)
Treasury stock, at cost (25,788 and 22,179 shares as of 2019 and 2018, respectively)		(1,426,177)	(1,042,687)
Retained earnings		3,761,596	3,478,650
Total shareholders’ equity		2,494,594	2,585,906
Total liabilities and shareholders' equity	$	7,706,806	7,468,709

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Income

(Unaudited)


	Three months ended			Six months ended
	June 30,			June 30,
(in thousands, except per share data)	2019		2018	2019		2018
Total revenues (Notes 3 and 11)	$	1,035,485	1,007,580		2,070,016		1,994,750
Cost of services		630,820	617,818		1,263,032		1,231,183
Selling, general and administrative expenses		185,578	181,064		364,627		366,598
Total operating expenses		816,398	798,882		1,627,659		1,597,781
Operating income		219,087	208,698		442,357		396,969
Nonoperating expenses, net		(37,416)	(41,170)		(80,407)		(78,812)
Income before income taxes and equity in income of equity investments		181,671	167,528		361,950		318,157
Income taxes (Note 8)		31,128	37,415		61,027		55,549
Income before equity in income of equity investments		150,543	130,113		300,923		262,608
Equity in income of equity investments, net of tax		12,217	12,322		23,444		22,929
Net income		162,760	142,435		324,367		285,537
Net income attributable to noncontrolling interests		-	-		-		(1,261)
Net income attributable to Total System Services, Inc. (TSYS) common shareholders	$	162,760	142,435		324,367		284,276
Basic earnings per share (EPS) attributable to TSYS common shareholders (Note 9)	$	0.92	0.78		1.83		1.56
Diluted EPS attributable to TSYS common shareholders (Note 9)	$	0.91	0.78		1.81		1.55

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended			Six months ended
	June 30,			June 30,
(in thousands)	2019		2018	2019		2018
Net income	$	162,760	142,435		324,367	285,537
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(10,009)	(21,752)		416	(9,257)
Postretirement healthcare plan adjustments		837	(211)		659	(358)
Unrealized (loss) gain on available-for-sale securities (Note 1)		-	(1,840)		-	741
Other comprehensive (loss) income		(9,172)	(23,803)		1,075	(8,874)
Comprehensive income		153,588	118,632		325,442	276,663
Comprehensive income attributable to noncontrolling interests		-	-		-	(1,261)
Comprehensive income attributable to TSYS common shareholders	$	153,588	118,632		325,442	275,402

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Six months ended
	June 30,
(in thousands)	2019		2018
Cash flows from operating activities:
Net income	$	324,367	285,537
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		208,483	208,679
Amortization of operating lease right-of-use assets		25,555	-
Provisions for cardholder losses		25,540	34,433
Share-based compensation		22,214	20,524
Provisions for bad debt expenses and billing adjustments		5,587	5,170
Charges for transaction processing provisions		1,319	3,177
Amortization of debt issuance costs		2,652	2,362
Dividends received from equity investments		-	892
Loss (gain) on foreign currency		287	(107)
Amortization of bond discount		557	482
(Gain) loss on disposal of equipment, net		(801)	32
Deferred income tax expense		21,258	18,657
Changes in value of equity investments		(5,196)	-
Equity in income of equity investments, net of tax		(23,444)	(22,929)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(69,011)	(17,489)
Contract assets and contract liabilities		(13,965)	(8,797)
Contract cost assets		(3,214)	2,989
Prepaid expenses, other current assets and other long-term assets		(52,859)	5,111
Accounts payable		(9,156)	(3,368)
Accrued salaries and employee benefits		(38,282)	(38,784)
Other current liabilities and other long-term liabilities		(26,461)	(25,978)
Net cash provided by operating activities		395,430	470,593

Cash flows from investing activities:
Additions to licensed computer software from vendors		(61,209)	(19,216)
Purchases of property and equipment		(30,844)	(48,608)
Additions to internally developed computer software		(24,817)	(19,934)
Cash used in acquisitions, net of cash acquired		-	(1,051,629)
Other investing activities		(2,700)	(4,119)
Net cash used in investing activities		(119,570)	(1,143,506)

Cash flows from financing activities:
Principal payments on long-term borrowings, finance lease obligations and license agreements		(299,499)	(2,626,534)
Purchase of noncontrolling interest		-	(126,000)
Dividends paid on common stock		(46,534)	(47,190)
Subsidiary dividends paid to noncontrolling shareholders		-	(3,778)
Repurchase of common stock under plans and tax withholding		(400,023)	(82)
Debt issuance costs		-	(15,979)
Proceeds from borrowings of long-term debt		450,000	3,477,000
Proceeds from exercise of stock options		6,911	29,289
Net cash (used in) provided by financing activities		(289,145)	686,726

Cash, cash equivalents and restricted cash:
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(332)	(4,143)
Net (decrease) increase in cash, cash equivalents and restricted cash		(13,617)	9,670
Cash, cash equivalents and restricted cash at beginning of period		474,279	451,370
Cash, cash equivalents and restricted cash at end of period	$	460,662	461,040

Supplemental cash flow information:
Interest paid	$	85,404	71,778
Income taxes paid, net	$	59,411	21,475

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Changes in Equity

(Unaudited)


			TSYS Shareholders
							Accumulated
							Other
	Redeemable					Additional	Comprehensive
	Noncontrolling		Common Stock			Paid-In	Income (Loss),	Treasury	Retained
(in thousands, except per share data)	Interests		Shares	Dollars		Capital	Net of Tax	Stock	Earnings	Total Equity

Balance as of December 31, 2018	$	-	202,765	$	20,277	189,889	(60,223)	(1,042,687)	3,478,650	$	2,585,906
Cumulative effect adjustment from adoption of ASU No. 2016-01 (Note 1)		-	-		-	-	(5,052)	-	5,052		-
Cumulative effect adjustment from adoption of ASU No. 2016-02 (Note 1)		-	-		-	-	-	-	(203)		(203)
Net income		-	-		-	-	-	-	161,607		161,607
Other comprehensive income		-	-		-	-	10,247	-	-		10,247
Common stock issued from treasury shares for exercise of stock options		-	-		-	3,485	-	2,981	-		6,466
Common stock unissued due to forfeiture of nonvested awards		-	-		-	77	-	(77)	-		-
Common stock issued from treasury shares for nonvested awards		-	-		-	(12,812)	-	12,812	-		-
Share-based compensation (Note 7)		-	-		-	11,296	-	-	-		11,296
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(22,546)		(22,546)
Purchase of treasury shares		-	-		-	-	-	(400,013)	-		(400,013)
Balance as of March 31, 2019		-	202,765		20,277	191,935	(55,028)	(1,426,984)	3,622,560		2,352,760
Net income		-	-		-	-	-	-	162,760		162,760
Other comprehensive loss		-	-		-	-	(9,172)	-	-		(9,172)
Common stock issued from treasury shares for exercise of stock options		-	-		-	30	-	416	-		446
Common stock issued from treasury shares for nonvested awards		-	-		-	(401)	-	401	-		-
Common stock issued from treasury shares for dividend equivalents		-	-		-	602	-	-	-		602
Share-based compensation (Note 7)		-	-		-	10,932	-	-	-		10,932
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(23,724)		(23,724)
Purchase of treasury shares		-	-		-	-	-	(10)	-		(10)
Balance as of June 30, 2019	$	-	202,765	$	20,277	203,098	(64,200)	(1,426,177)	3,761,596	$	2,494,594

See accompanying Notes to Unaudited Consolidated Financial Statements

Table of Contents

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Changes in Equity

(Unaudited)


			TSYS Shareholders
							Accumulated
							Other
	Redeemable					Additional	Comprehensive
	Noncontrolling		Common Stock			Paid-In	Income (Loss),	Treasury	Retained
(in thousands, except per share data)	Interests		Shares	Dollars		Capital	Net of Tax	Stock	Earnings	Total Equity

Balance as of December 31, 2017	$	115,689	202,765	$	20,277	162,806	(36,148)	(909,960)	3,004,018	$	2,240,993
Cumulative effect adjustment from adoption of ASU No. 2014-09 (Note 3)		-	-		-	-	-	-	(4,445)		(4,445)
Net income		1,261	-		-	-	-	-	141,841		141,841
Other comprehensive income		-	-		-	-	14,929	-	-		14,929
Common stock issued from treasury shares for exercise of stock options		-	-		-	5,199	-	21,258	-		26,457
Common stock unissued due to forfeiture of nonvested awards		-	-		-	551	-	(551)	-		-
Common stock issued from treasury shares for nonvested awards		-	-		-	(12,368)	-	12,368	-		-
Common stock issued from treasury shares for dividend equivalents		-	-		-	925	-	9	-		934
Share-based compensation (Note 7)		-	-		-	6,835	-	-	-		6,835
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(23,895)		(23,895)
Purchase of treasury shares		-	-		-	-	-	(24)	-		(24)
Adjustments to redemption value of redeemable noncontrolling interest		9,051	-		-	(9,051)	-	-	-		(9,051)
Subsidiary dividends paid to noncontrolling interests		(1)	-		-	-	-	-	-		-
Balance as of March 31, 2018		126,000	202,765		20,277	154,897	(21,219)	(876,900)	3,117,519		2,394,574
Net income		-	-		-	-	-	-	142,435		142,435
Other comprehensive loss		-	-		-	-	(23,803)	-	-		(23,803)
Common stock issued from treasury shares for exercise of stock options		-	-		-	1,110	-	1,717	-		2,827
Common stock unissued due to forfeiture of nonvested awards		-	-		-	78	-	(78)	-		-
Common stock issued from treasury shares for nonvested awards		-	-		-	(577)	-	577	-		-
Share-based compensation (Note 7)		-	-		-	13,406	-	-	-		13,406
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(23,908)

Price	126.74	EPS	3
Shares	177	P/E	47
MCap	22,430	P/FCF	33
Net Debt	3,560	EBIT	579
TEV	25,990	TEV/EBIT	45
TTM 2019-06-30, in MM, except price, ratios

10-Q	2019-06-30	Filed 2019-07-31
10-Q	2019-03-31	Filed 2019-05-01
10-K	2018-12-31	Filed 2019-02-21
10-Q	2018-09-30	Filed 2018-11-06
10-Q	2018-06-30	Filed 2018-08-07
10-Q	2018-03-31	Filed 2018-05-08
10-K	2017-12-31	Filed 2018-02-23
10-Q	2017-09-30	Filed 2017-11-07
10-Q	2017-06-30	Filed 2017-08-07
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-02-24
10-Q	2016-09-30	Filed 2016-11-04
10-Q	2016-06-30	Filed 2016-08-05
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-02-25
10-Q	2015-09-30	Filed 2015-11-05
10-Q	2015-06-30	Filed 2015-08-06
10-Q	2015-03-31	Filed 2015-05-07
10-K	2014-12-31	Filed 2015-02-26
10-Q	2014-09-30	Filed 2014-11-06
10-Q	2014-06-30	Filed 2014-08-07
10-Q	2014-03-31	Filed 2014-05-08
10-K	2013-12-31	Filed 2014-02-25
10-Q	2013-09-30	Filed 2013-11-06
10-Q	2013-06-30	Filed 2013-08-08
10-Q	2013-03-31	Filed 2013-05-08
10-K	2012-12-31	Filed 2013-02-26
10-Q	2012-09-30	Filed 2012-11-05
10-Q	2012-06-30	Filed 2012-08-06
10-Q	2012-03-31	Filed 2012-05-07
10-K	2011-12-31	Filed 2012-02-24
10-Q	2011-09-30	Filed 2011-11-04
10-Q	2011-06-30	Filed 2011-08-05
10-Q	2011-03-31	Filed 2011-05-06
10-Q	2010-09-30	Filed 2010-11-04
10-Q	2010-06-30	Filed 2010-08-09
10-Q	2010-03-31	Filed 2010-05-07
10-K	2009-12-31	Filed 2010-03-01

8-K	2019-09-17
8-K	2019-08-29
8-K	2019-08-29
8-K	2019-08-20
8-K	2019-07-31
8-K	2019-05-27
8-K	2019-05-27
8-K	2019-05-02
8-K	2019-04-23
8-K	2019-01-31
8-K	2019-01-29
8-K	2018-10-23
8-K	2018-10-22
8-K	2018-07-24
8-K	2018-06-20
8-K	2018-05-11
8-K	2018-04-26
8-K	2018-04-24
8-K	2018-04-23
8-K	2018-01-23
8-K	2018-01-10

EX-10.1	tss-20190630ex101d544a8.htm
EX-10.2	tss-20190630ex1022005e0.htm
EX-31.1	tss-20190630ex311695d76.htm
EX-31.2	tss-20190630ex312a3400d.htm
EX-32	tss-20190630xex32.htm

TSS 10Q Quarterly Report

Total System Services Earnings 2019-06-30