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TSYS Reports Operating Income Growth Of 12.0% And EPS Of $0.32 For The Third Quarter

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, October 23. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the link under "Webcasts" on the main homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. A slide presentation to accompany the call will be available by clicking on the link under "Webcasts" on the main homepage of tsys.com.

Non-GAAP Measures

The financial highlights section of this release contains the non-GAAP financial measures of revenues and operating results on a constant currency basis to describe TSYS’ performance. Management uses these non-GAAP financial measures to better understand and assess TSYS’ operating results and financial performance. TSYS believes these non-GAAP financial measures provide meaningful additional information about TSYS to assist investors in understanding and evaluating its operating results.

Additional information about non-GAAP financial measures and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 11 and 12 of this release.

About TSYS

At TSYS, (NYSE: TSS), we believe payments should revolve around people — not the other way around. We call this belief "People-Centered Payments." By putting people at the center of every decision we make, with unmatched customer service and industry insight, TSYS is able to support financial institutions, businesses and governments in more than 80 countries. Offering merchant payment-acceptance solutions as well as services in credit, debit, prepaid, mobile, chip, healthcare and more, we make it possible for those in the global marketplace to conduct safe and secure electronic transactions with trust and convenience.

TSYS’ headquarters are located in Columbus, Georgia, with local offices spread across the Americas, EMEA and Asia-Pacific. TSYS provides services to more than half of the top 20 international banks, is a Fortune 1000 company and was named one of the 2012 World's Most Ethical Companies by Ethisphere magazine. For more information, please visit us at www.tsys.com.

Forward-Looking Statements

This press release contains “forward-looking statements” – that is, statements related to future, not past, events. Forward-looking statements often address our expected future business and financial performance and often contain words such as “expect,” “anticipate,” “intend,” “believe,” “should,” “plan,” “will,” “could,” and similar expressions. These forward-looking statements include, among others, statements regarding TSYS expectation that the investments TSYS makes will grow the company and enhance shareholder return, and the assumptions underlying such statements. These statements are based on the current beliefs and expectations of TSYS' management, are based on management’s assumptions 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 our forward-looking statements in this press release. Many of these factors are beyond TSYS' ability to control or predict. These factors include, but are not limited to, the ultimate results of TSYS’ investments may not have a positive impact on TSYS’ business as is currently expected for a number of reasons including fluctuations in the price of our stock and acquired companies not performing as expected. Additional risks and other factors that could cause actual results to differ materially from those contemplated in this release can be found in TSYS' filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise.

TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
                     
Three Months Ended Nine Months Ended
September 30, September 30,
Percent Percent
2012 2011 Change 2012 2011 Change
 
Total revenues $ 468,059 459,747 1.8 % $ 1,391,872 1,336,732 4.1 %
 
Cost of services 315,685 321,481 (1.8 ) 946,612 935,024 1.2
Selling, general and administrative expenses 61,481   57,086   7.7 177,439   168,970   5.0
 
Operating income 90,893 81,180 12.0 267,821 232,738 15.1
 
Nonoperating expenses (579 ) (3,794 ) 84.7 (2,802 ) (5,363 ) 47.8
 
Income before income taxes, noncontrolling interests and equity in income of equity investments
90,314 77,386 16.7 265,019 227,375 16.6
Income taxes 30,228   24,286   24.5 84,336   73,102   15.4
Income before noncontrolling interests and equity in income of equity investments
60,086 53,100 13.2 180,683 154,273 17.1
Equity in income of equity investments 1,957   4,588   (57.3 ) 6,983   7,475   (6.6 )
Net income 62,043 57,688 7.5 187,666 161,748 16.0
Net income attributable to noncontrolling interests (1,731 ) 460   nm (4,248 ) (1,064 ) nm
 
Net income attributable to TSYS common shareholders $ 60,312   58,148   3.7 % $ 183,418   160,684   14.1 %
 
Basic earnings per share $ 0.32   0.30   5.7 % $ 0.97   0.83   16.6 %
 
Diluted earnings per share $ 0.32   0.30   5.2 % $ 0.97   0.83   16.1 %
 
 
Dividends declared per share $ 0.10   0.07   $ 0.30   0.21  
 
nm = not meaningful
 
 
TSYS
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
                   
 
Three Months Ended Nine Months Ended
September 30,   September 30,
 
2012 2011 2012 2011
 
Net income $ 62,043 57,688 187,666 161,748
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments 9,999 (9,244 ) 2,935 2,713
Postretirement healthcare plan adjustments (1,537 ) 1,156   (1,250 ) 793
Other comprehensive income (loss) 8,462   (8,088 ) 1,685   3,506
Comprehensive income 70,505 49,600 189,351 165,254
Comprehensive income attributable to

 

noncontrolling interests

1,709   (265 ) 3,844   1,934
Comprehensive income attributable to
TSYS common shareholders $ 68,796   49,865   185,507   163,320
 
 
TSYS
Earnings Per Share
(unaudited)
(in thousands, except per share data)
                           
 
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2012 September 30, 2011 September 30, 2012 September 30, 2011
Common Participating Common Participating Common Participating Common Participating
Stock Securities Stock Securities Stock Securities Stock Securities
 
Basic Earnings per share:
Net income $ 60,312 58,148 $ 183,418 160,684
Less income allocated to nonvested awards (191 ) 191 (208 ) 208 (613 ) 613 (592 ) 592

Net income allocated to common stock for EPS calculation (a)

$ 60,121   191 57,940   208 $ 182,805   613 160,092   592
 

Average common shares outstanding (b)

187,269   609 190,706   691 187,911   642 191,823   715
 
Average common shares and participating securities 187,878   191,397   188,553   192,538  
 

Basic Earnings per share (a)/(b)

$ 0.32   0.31 0.30   0.30 $ 0.97   0.96 0.83   0.83
 
Diluted Earnings per share:
Net income $ 60,312 58,148 $ 183,418 160,684
Less income allocated to nonvested awards (191 ) 191 (208 ) 208 (611 ) 611 (591 ) 591

Net income allocated to common stock for EPS calculation (c)

$ 60,121   191 57,940   208 $ 182,807   611 160,093   591
 
Average common shares outstanding 187,269 609 190,706 691 187,911 642 191,823 715
Increase due to assumed issuance of shares related to common equivalent shares outstanding
1,218     376     1,138     392    
 
Average common and common

equivalent shares outstanding (d)

188,487   609 191,082   691 189,049   642 192,215   715
 
Average common and common equivalent shares and participating securities
189,096   191,773   189,691   192,930  
 

Diluted Earnings per share (c)/(d)

$ 0.32   0.31 0.30   0.30 $ 0.97   0.95 0.83   0.83
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                 
Three Months Ended September 30,   Nine Months Ended September 30,  
 
Change Change
2012   2011   $   % 2012   2011   $   %
Revenues before reimbursable items
North America Services $ 203,497 206,087 (2,590 ) (1.3 ) % 613,111 599,451 13,660 2.3 %
International Services 98,184 96,140 2,044 2.1 % 293,722 277,337 16,385 5.9 %
Merchant Services 107,786 93,220 14,566 15.6 % 303,842 272,780 31,062 11.4 %
Intersegment revenues (3,415 )   (5,285 )   1,870   35.4 % (10,753 )   (16,553 )   5,800   35.0 %
Revenues before reimbursable items from external customers
$ 406,052     390,162     15,890   4.1 % 1,199,922     1,133,015     66,907   5.9 %
 
Total revenues
North America Services $ 237,625 243,899 (6,274 ) (2.6 ) % 717,781 708,360 9,421 1.3 %
International Services 102,691 99,891 2,800 2.8 % 306,466 288,271 18,195 6.3 %
Merchant Services 132,746 122,933 9,813 8.0 % 383,167 361,774 21,393 5.9 %
Intersegment revenues (5,003 )   (6,976 )   1,973   28.3 % (15,542 )   (21,673 )   6,131   28.3 %
Revenues from external customers $ 468,059     459,747     8,312   1.8 % 1,391,872     1,336,732     55,140   4.1 %
 
Depreciation and amortization
North America Services $ 18,583 19,996 (1,413 ) (7.1 ) % 55,857 59,387 (3,530 ) (5.9 ) %
International Services 14,701 12,847 1,854 14.4 % 42,617 36,515 6,102 16.7 %
Merchant Services 9,290 8,772 518 5.9 % 26,743 27,232 (489 ) (1.8 ) %
Corporate Admin 669     753     (84 ) (11.2 ) % 2,112     2,269     (157 ) (6.9 ) %
Total depreciation and amortization $ 43,243     42,368     875   2.1 % 127,329     125,403     1,926   1.5 %
 
Segment operating income
North America Services $ 69,561 68,016 1,545 2.3 % 209,794 187,284 22,510 12.0 %
International Services 7,725 8,278 (553 ) (6.7 ) % 21,277 29,426 (8,149 ) (27.7 ) %
Merchant Services 34,508 27,398 7,110 26.0 % 101,677 80,029 21,648 27.1 %
Corporate Admin (20,901 )   (22,512 )   1,611   7.2 % (64,927 )   (64,001 )   (926 ) (1.4 ) %
Operating income $ 90,893     81,180     9,713   12.0 % 267,821     232,738     35,083   15.1 %
 
Other:
Reimbursable items:
North America Services $ 34,128 37,812 (3,684 ) (9.7 ) % 104,670 108,910 (4,240 ) (3.9 ) %
International Services 4,507 3,751 756 20.2 % 12,745 10,934 1,811 16.6 %
Merchant Services 24,960 29,713 (4,753 ) (16.0 ) % 79,324 88,993 (9,669 ) (10.9 ) %
Intersegment revenues (1,588 )   (1,690 )   102   6.0 % (4,789 )   (5,118 )   329   6.4 %
Reimbursable items $ 62,007     69,586     (7,579 ) (10.9 ) % 191,950     203,719     (11,769 ) (5.8 ) %
 
Volumes:
FTEs (full-time equivalents)
North America Services 4,014 4,306 (292 ) (6.8 ) %
International Services 2,517 2,318 199 8.6 %
Merchant Services 1,427 1,167 260 22.3 %
Corporate Admin 425     398     27   6.8 %
FTEs 8,383     8,189     194   2.4 %
 
At   Change
Total assets (in thousands) 9/30/2012   12/31/2011   $   %
North America Services 1,693,048 1,621,664 71,384 4.4 %
International Services 459,423 433,203 26,220 6.1 %
Merchant Services 582,250 487,858 94,392 19.3 %
Intersegment assets (764,802 )   (684,333 )   (80,469 ) (11.8 ) %
Total assets 1,969,919     1,858,392     111,527   6.0 %
 
 
Three Months Ended September 30, Nine Months Ended September 30,
 
Change Change
2012   2011   Inc(Dec)   % 2012   2011   Inc(Dec)   %
North America Segment:
Accounts on File (AOF) (in millions) 413.4 341.9 71.5 20.9 %
Transactions (in millions) 2,036.6 1,860.2 176.5 9.5 % 5,907.7 5,270.6 637.1 12.1 %
 
International Segment:
AOF (in millions) 53.0 50.5 2.5 4.9 %
Transactions (in millions) 415.1 360.5 54.6 15.1 % 1,200.5 1,027.2 173.3 16.9 %
 
Merchant Segment:
Point-of-sale Transactions (in millions) 1,225.1 1,263.3 (38.2 ) (3.0 ) % 3,724.5 3,739.1 (14.6 ) (0.4 ) %
 
 
TSYS
Balance Sheet
(unaudited)
(in thousands)
  Sep 30, 2012   Dec 31, 2011
Assets
Current assets:
Cash and cash equivalents $ 356,569 316,337
Accounts receivable, net 248,441 248,541
Deferred income tax assets 8,987 12,872
Prepaid expenses and other current assets 76,956 72,431
   
Total current assets 690,953 650,181
Goodwill 422,508 355,498
Property and equipment, net 264,803 266,608
Computer software, net 198,973 215,244
Contract acquisition costs, net 162,790 162,987
Equity investments, net 83,037 82,924
Other intangible assets, net 102,278 81,250
Deferred income tax assets, net 6,037 4,069
Other assets 38,540 39,631
   
Total assets $ 1,969,919   1,858,392  
 
Liabilities
Current liabilities:
Current portion of notes payable $ 23,743 181,251
Accounts payable 32,824 26,095
Accrued salaries and employee benefits 19,826 33,004
Current portion of obligations under capital leases 13,806 14,363
Other current liabilities 131,237 125,863
   
Total current liabilities 221,436 380,576
Long-term debt, excluding current portion 176,935 39,104
Deferred income tax liabilities 33,199 32,889
Obligations under capital leases, excluding current portion 20,422 24,489
Other long-term liabilities 67,575 60,325
   
Total liabilities 519,567   537,383  
Redeemable noncontrolling interest 38,641   -  
Equity
Shareholders' equity:
Common stock 20,245 20,186
Additional paid-in capital 135,657 125,948
Accumulated other comprehensive loss, net 1,644 (445 )
Treasury stock (274,143 ) (225,034 )
Retained earnings 1,507,542   1,380,634  
Total shareholders' equity 1,390,945   1,301,289  
Noncontrolling interests in consolidated subsidiaries 20,766   19,720  
Total equity 1,411,711   1,321,009  
Total liabilities and equity $ 1,969,919   1,858,392  
 
 
TSYS
Cash Flow
(unaudited)
(in thousands)
  Nine Months Ended September 30,
2012   2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 187,666 161,748
Adjustments to reconcile net income to net cash

   provided by operating activities:

Equity in income of equity investments (6,983 ) (7,475 )
Dividends received from equity investments 7,523 6,835
Net loss on foreign currency translation 2,259 2,751
Depreciation and amortization 127,329 125,403
Amortization of debt issuance costs 180 115
Share-based compensation 12,348 12,693

Excess tax benefit from share-based payment arrangements

(1,236 ) (50 )
Asset impairments - 798

Provisions for bad debt expense and billing adjustments

813 328
Charges for transaction processing provisions 1,348 3,684
Deferred income tax expense (benefit) (2,355 ) 15,833
(Gain) loss on disposal of equipment, net 77 (1,396 )
Changes in operating assets and liabilities:
Accounts receivable 1,730 (4,382 )
Prepaid expenses, other current assets and other long-term assets 4,406 (766 )
Accounts payable 6,688 (15,629 )
Accrued salaries and employee benefits (13,567 ) (2,610 )
Other current liabilities and other long-term liabilities 5,761   (215 )
Net cash provided by operating activities 333,987   297,665  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (24,296 ) (18,121 )
Additions to licensed computer software from vendors (19,385 ) (10,033 )
Additions to internally developed computer software (15,202 ) (13,331 )
Proceeds from sale of trade name - 4,500
Cash used in acquisitions, net of cash acquired (66,250 ) (45,309 )
Purchase of private equity investments (2,370 ) (1,573 )
Additions to contract acquisition costs (25,700 ) (22,506 )
Net cash used in investing activities (153,203 ) (106,373 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on long-term debt borrowings and capital lease obligations

(188,395 ) (21,052 )
Proceeds from borrowings of long-term debt 158,633 -
Proceeds from exercise of stock options 9,451 1,743
Excess tax benefit from share-based payment arrangements 1,236 50
Repurchase of common stock (61,556 ) (73,361 )
Debt issuance costs (1,996 ) -
Purchase of noncontrolling interests - (174,050 )
Subsidiary dividends paid to noncontrolling shareholders (2,797 ) (433 )
Dividends paid on common stock (56,719 ) (40,616 )
Net cash used in financing activities (142,143 ) (307,719 )
 
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash and cash equivalents 1,591   2,345  
Net increase (decrease) in cash and cash equivalents 40,232 (114,082 )
Cash and cash equivalents at beginning of period 316,337   394,795  
Cash and cash equivalents at end of period $ 356,569   280,713  
 
 
Supplemental Information:
          Accounts on File
Total
  September   September   %

(in millions)

2012   2011   Change
Consumer Credit 195.0 194.2 0.4
Government Services 48.8 32.6 49.7
Retail 24.1 23.2 4.1
Total Consumer 267.9 250.0 7.2
Commercial 36.3 33.4 8.7
Other 11.1 7.0 58.0
Subtotal 315.3 290.4 8.6
Prepaid/Stored Value 114.3 75.8 50.7
Commercial Card Single Use 36.8 26.2 40.6
Total AOF 466.4 392.4 18.9
Growth in Accounts on File (in millions):              
September 2011 to September 2010 to
September 2012   September 2011
Beginning balance 392.4 339.2
Change in accounts on file due to:
Internal growth of existing clients 30.3 31.2
New clients 75.5 32.9
Purges/Sales

(29.0)

(10.0)

Deconversions

(2.8)

 

(0.9)

Ending balance 466.4   392.4
 
 

Reconciliation of GAAP to Non-GAAP

Non-GAAP Measures

The schedule below provides a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents year-to-date 2012 financial results using the previous year’s foreign currency exchange rates. On a year-to-date constant currency basis, TSYS’ total revenues grew 4.6% as compared to a reported GAAP increase of 4.1%.

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