Add
TSS to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| TSS > SEC Filings for TSS > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
Three months ended June 30, Six months ended June 30,
(in millions, except per share data and employees) 2009 2008 Percent Change 2009 2008 Percent Change
Revenues before reimbursable items $ 350.7 363.1 (3.4 )% $ 696.2 716.2 (2.8 )%
Total revenues 412.0 429.6 (4.1 ) 820.9 849.5 (3.4 )
Operating income 82.8 96.8 (14.5 ) 160.9 182.9 (12.1 )
Net income attributable to TSYS 53.4 63.1 (15.3 ) 100.0 119.7 (16.5 )
Basic earnings per share (EPS)(1):
Income from continuing operations 0.27 0.32 (16.4 ) 0.52 0.60 (13.8 )
Net income 0.27 0.32 (14.9 ) 0.51 0.60 (16.0 )
Diluted EPS(1):
Income from continuing operations 0.27 0.32 (16.2 ) 0.52 0.60 (13.7 )
Net income 0.27 0.32 (14.8 ) 0.51 0.60 (15.9 )
Cash flows from operating activities 120.4 74.5 61.6 219.1 174.5 25.6
Other:
Average accounts on file 347.9 371.6 (6.4 ) 348.9 370.9 (5.9 )
Cardholder transactions processed 1,793.5 1,951.2 (8.1 ) 3,522.3 3,758.2 (6.3 )
Average full-time equivalent employees (FTE) 8,040 7,572 6.2 8,048 7,388 8.9
|
(1) Basic and diluted EPS is computed based on the two-class method in accordance with FSP EITF 03-6-1. The impact on the first six months of 2009 and 2008 EPS (as recast to show retroactive adoption of FSP EITF 03-6-1) does not change basic or diluted EPS.
Significant highlights for 2009 include:
Corporate
Announced that TDM, a wholly owned subsidiary involved in the late stage
collection and bankruptcy business, was moved from continuing operations to
discontinued operations pending the closing of the sale of this subsidiary.
North America
Renewed a longstanding relationship with Navy Federal Credit Union to
continue offering credit card processing products to members, as a major
component of Navy Federal's consumer and credit card lending operation.
Signed an agreement with Unicard Mexico, a wholly owned subsidiary of Unibanco Brasil, one of the world's top 20 banks and TSYS' first TS2 card issuing client in Mexico.
Incurred a one-time expense related to resolution of a client issue at TDM.
International
Announced that TSYS has signed a multi-year contract with Banco Carrefour
S.A., to process its hybrid and private label card business in Brazil. The
agreement includes an initial launch of a new MasterCard hybrid card in
June 2009 which will be followed by the conversion of the existing six
million private label cards in early 2010. TSYS will process the cards on
its TS Prime multi-client payments processing platform.
Reached an agreement with Travel Bank, Inc., a financial services company that is a part of the JTB Group, to process Japan's first Visa branded Prepaid card in July 2009. Consumers can use the cards to make payments at Visa merchants when traveling overseas or to withdraw cash from Visa ATMs.
Began offering merchant payment services to PaySquare in the Benelux, which is TSYS' first acquirer-processing client to go live in Europe.
Announced China UnionPay Data Services Co., Ltd. (CUP Data) (TSYS' joint venture with China UnionPay) signed two processing agreements. One agreement was with China Postal Savings Bank, China's fifth largest bank. The other agreement was with Bank of East Asia, Hong Kong's largest local independent bank and the first foreign bank to launch a card program in China.
Introduced its market-leading CentreSuite product to Europe. The commercial card management tool was first launched in North America in 2002 and is now employed by more than 140,000 businesses.
Merchant
Responded to Bank of America's announcement on June 29, 2009 that Bank of
America and other parties are forming a new joint venture that will provide
merchant processing services. TSYS provides accounting, settlement,
authorization and other services to Bank of America pursuant to a contract
that will expire in April 2010. Bank of America has indicated to TSYS that
it is in the process of formulating its plans with respect to changes in its
merchant processing relationship with TSYS but has not yet communicated to
TSYS the timing or extent of the deconversion from TSYS' systems.
Announced availability of two new all-in-one point-of-sale (POS) solutions to help small- and mid-sized retailers integrate store operations with the point of purchase. Offered as a complete business-in-a-box, each solution includes quality hardware components and award winning Microsoft software to help retailers manage every aspect of their business.
Agreed to partner with mPay Gateway(TM) and Nova Libra to provide point-of-sale payment solutions that meet the needs of healthcare providers and their patients, as well as pharmacies and drug stores.
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.
Critical Accounting Policies and Estimates
The Company's financial position, results of operations and cash flows are
impacted by the accounting policies the Company has adopted. In order to gain a
full understanding of the Company's financial statements, one must have a clear
understanding of the accounting policies employed.
Factors that could affect the Company's future operating results and cause
actual results to vary materially from expectations are set forth 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. For a detailed discussion
regarding the Company's risk factors, see "Item 1A: Risk Factors" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2008.
For a detailed discussion regarding the Company's critical accounting
policies and estimates, see "Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Company's Annual Report on
Form 10-K for the year ended December 31, 2008. There have been no material
changes to the Company's critical accounting policies, estimates and assumptions
or the judgments affecting the application of those estimates and assumptions in
2009.
Related Party Transactions
The Company believes the terms and conditions of transactions between the
Company and its equity investments, Total System Services de M้xico, S.A. de.
C.V. (TSYS de M้xico) and CUP Data, 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.
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 provide the latest technology while avoiding
the risk of ownership. Neither the assets nor obligations related to these
leases are included on the balance sheet.
Contractual Obligations: The total liability (with state amounts tax effected)
for uncertain tax positions under FIN 48 at June 30, 2009 is $4.6 million. Refer
to Note 10 in the Notes to Unaudited Condensed 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 a significant payment related
to these obligations within the next year.
As indicated in the Company's 2008 Annual Report on Form 10-K, total
contractual cash obligations at December 31, 2008 were estimated at
$458.0 million. These contractual cash obligations include lease payments and
software arrangements.
Results of Operations
The following table sets forth certain income statement captions as a
percentage of total revenues and the percentage increases or decreases in those
items for the three months ended June 30, 2009 and 2008, respectively:
Percent Change
% of Total Revenues in Dollar Amounts
2009 2008 2009 vs. 2008
Revenues:
Electronic payment processing services 57.3 % 57.6 % (4.7 )%
Merchant acquiring services 16.9 15.3 6.2
Other services 10.9 11.6 (9.8 )
Revenues before reimbursable items 85.1 84.5 (3.4 )
Reimbursable items 14.9 15.5 (8.0 )
Total revenues 100.0 100.0 (4.1 )
Expenses:
Salaries and other personnel expenses 36.0 33.6 2.9
Net technology and facilities expenses 17.7 17.3 (1.7 )
Spin-related expenses พ 0.3 (100.0 )
Other operating expenses 11.3 10.8 0.2
Expenses before reimbursable items 65.0 62.0 0.7
Reimbursable items 14.9 15.5 (8.0 )
Total expenses 79.9 77.5 (1.1 )
Operating income 20.1 22.5 (14.5 )
Nonoperating expenses (0.6 ) (0.1 ) nm
Income from continuing operations before income
taxes and equity in income of equity investments 19.5 22.4 (16.5 )
Income taxes 7.1 7.9 (14.0 )
Income from continuing operations before equity in
income of equity investments 12.4 14.5 (17.9 )
Equity in income of equity investments 0.4 0.3 46.7
Income from continuing operations, net of tax 12.8 14.8 (16.8 )
Income from discontinued operations, net of tax 0.3 0.1 nm
Net income 13.1 14.9 (15.3 )
Net income attributable to the noncontrolling
interests (0.1 ) (0.2 ) (18.1 )
Net income attributable to TSYS 13.0 % 14.7 % (15.3 )%
|
nm = not meaningful
The following table sets forth certain income statement captions as a percentage of total revenues and the percentage increases or decreases in those items for the six months ended June 30, 2009 and 2008, respectively:
Percent Change
% of Total Revenues in Dollar Amounts
2009 2008 2009 vs. 2008
Revenues:
Electronic payment processing services 57.0 % 58.1 % (5.1 )%
Merchant acquiring services 16.5 15.0 6.2
Other services 11.3 11.3 (2.9 )
Revenues before reimbursable items 84.8 84.4 (2.8 )
Reimbursable items 15.2 15.6 (6.4 )
Total revenues 100.0 100.0 (3.4 )
Expenses:
Salaries and other personnel expenses 35.7 34.1 1.1
Net technology and facilities expenses 17.9 17.2 0.3
Spin-related expenses - 1.0 (100.0 )
Other operating expenses 11.6 10.5 7.2
Expenses before reimbursable items 65.2 62.8 0.4
Reimbursable items 15.2 15.7 (6.4 )
Total expenses 80.4 78.5 (1.0 )
Operating income 19.6 21.5 (12.1 )
Nonoperating (expenses) income (0.5 ) 0.1 nm
Income from continuing operations before income
taxes and equity in income of equity investments 19.1 21.6 (14.5 )
Income taxes 6.9 7.9 (15.3 )
Income from continuing operations before equity in
income of equity investments 12.2 13.7 (14.0 )
Equity in income of equity investments 0.3 0.4 (18.4 )
Income from continuing operations, net of tax 12.5 14.1 (14.1 )
(Loss) income from discontinued operations, net of
tax (0.3 ) 0.1 nm
Net income 12.2 14.2 (16.3 )
Net income attributable to the noncontrolling
interests (0.1 ) (0.1 ) 4.0
Net income attributable to TSYS 12.1 % 14.1 % (16.5 )%
|
nm = not meaningful
Revenues
The Company generates revenues from the fees that it charges customers for
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 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 revenue growth was moderated by currency
translation impact of foreign operations, as well as doing business in a
competitive landscape. Of the total revenue changes of 4.1% for the second
quarter of 2009, the Company estimates revenues decreased by a net 4.6% due to
foreign currency exposure and pricing, and increased 0.5% for volume changes. Of
the total revenue changes of 3.4% for the first six months of 2009, the Company
estimates revenues decreased by a net 5.5% due to foreign currency exposure and
pricing, and increased 2.2% for volume changes.
Total revenues decreased $17.6 million and $28.5 million, or 4.1% and 3.4%,
during the three and six months ended June 30, 2009, respectively, compared to
the same periods in 2008. The decrease in revenues for the three and six months
ended June 30, 2009 includes a decrease of $17.8 million and $40.4 million,
respectively, related to the effects of currency translation of its
foreign-based subsidiaries and branches. Excluding reimbursable items, revenues
decreased $12.3 million and $20.0 million, or 3.4% and 2.8%, during the three
and six months ended June 30, 2009, respectively, compared to the same periods
in 2008.
International Revenues
TSYS provides services to its clients worldwide and plans to continue to
expand its service offerings internationally in the future.
Total revenues from clients domiciled outside the United States for the three and six months ended June 30, 2009 and 2008 are summarized below:
Three months ended June 30, Six months ended June 30,
(in millions) 2009 2008 Percent Change 2009 2008 Percent Change
Europe $ 60.7 68.3 (11.1 ) $ 118.5 127.2 (6.8 )
Canada 33.5 31.3 7.1 64.1 62.9 1.9
Japan 11.1 8.1 36.0 22.2 15.6 42.3
Mexico 2.0 4.0 (49.3 ) 4.2 7.7 (45.4 )
Other 7.3 6.0 21.4 14.0 11.9 17.9
Totals $ 114.6 117.7 (2.6 ) $ 223.0 225.3 (1.0 )
|
Note: The Company has two equity investments located in Mexico and China that
are accounted for under the equity method of accounting, and therefore, TSYS
does not include the revenues of its equity investments in consolidated
revenues.
Revenues from clients in certain countries decreased as a result of pricing
compression and portfolio deconversions.
TSYS expects to continue to grow its international revenues in the future
through acquisitions, business expansion, new client signings and internal
growth.
Value Added Products and Services
The Company's revenues are impacted by the use of optional value added
products and services of TSYS' processing systems. Value added products and
services are optional features to which each client can choose to subscribe in
order to potentially increase the financial performance of its portfolio. Value
added products and services include: risk management tools and techniques, such
as credit evaluation, fraud detection and prevention, and behavior analysis
tools; revenue enhancement tools and customer retention programs; and data
warehouse services. These revenues can increase or decrease from period to
period as clients subscribe to or cancel these services. Value added products
and services are included primarily in electronic payment processing services
revenue. For the three months ended June 30, 2009 and 2008, value added products
and services represented 11.9% and 12.8%, respectively, of total revenues. For
the six months ended June 30, 2009 and 2008, value added products and services
represented 11.8% and 12.5%, respectively, of total revenues.
Major Customers
A significant amount of the Company's revenues is derived from long-term
contracts with large clients, including its major customers. TSYS derives
revenues from providing various processing, merchant acquiring and other
services to these clients, including processing of consumer and commercial
accounts, as well as revenues for reimbursable items. Refer to Note 11 in the
Notes to Unaudited Condensed Consolidated Financial Statements for more
information regarding major customers. The loss of these clients, or any
significant client, could have a material adverse effect on the Company's
financial position, results of operations and cash flows.
On June 29, 2009, Bank of America announced that it and other parties are
forming a new joint venture that will provide merchant processing services. TSYS
provides accounting, settlement, authorization and other services to Bank of
America pursuant to a contract that will expire in April 2010, which services
accounted for approximately 4.0% of TSYS' total revenues for 2008 and
approximately 4.8% of TSYS' total revenues for the second quarter of 2009.
Bank of America has indicated to TSYS that it is in the process of
formulating its plans with respect to changes in its merchant processing
relationship with TSYS but has not yet communicated to TSYS the timing or extent
of the deconversion from TSYS' systems. TSYS provides a number of additional
services to Bank of America, including commercial card processing, small
business card processing and card production services.
Approximately 29% and 31% of the total revenues derived from providing
merchant processing services to Bank of America are attributable to reimbursable
items for 2008 and the second quarter of 2009, respectively.
TSYS will operate under the current contract until Bank of America informs
TSYS of the changes to the merchant processing relationships. TSYS expects that
the merchant processing business associated with Bank of America will contribute
approximately $0.02 per share to TSYS' projected earnings per share in 2009. The
potential loss of Bank of America as a merchant processing client is not
expected to have a material adverse effect on TSYS' financial position, results
of operations or cash flows.
Revenues from major customers for the periods reported are primarily
attributable to the North America Services segment and Merchant Services
segment.
Accounts on File (AOF) Data
At June 30, Percent
(in millions) 2009 2008 Change
349.5 372.9 (6.3 )
Quarter-to-date (QTD) Average 347.9 371.6 (6.4 )
Year-to-date (YTD) Average 348.9 370.9 (5.9 )
AOF by Portfolio Type
At June 30,
2009 2008 Percent
(in millions) AOF % AOF % Change
Consumer 191.2 54.7 211.9 56.8 (9.8 )
Retail 51.7 14.8 58.6 15.7 (11.6 )
Stored value 34.4 9.9 31.2 8.4 10.1
Commercial 44.4 12.7 41.7 11.2 6.4
Government services 22.4 6.4 24.5 6.6 (8.6 )
Debit 5.4 1.5 5.0 1.3 7.7
Total 349.5 100.0 372.9 100.0 (6.3 )
AOF by Geographic Area
At June 30,
2009 2008 Percent
(in millions) AOF % AOF % Change
U.S. 261.2 74.7 289.0 77.5 (9.6 )
Outside U.S. 88.3 25.3 83.9 22.5 5.2
Total 349.5 100.0 372.9 100.0 (6.3 )
|
Note: The accounts on file distinction between U.S. and outside U.S. is based on the geographic domicile of the Company's processing clients.
Activity in AOF
June 2008 to June 2007 to
(in millions) June 2009 June 2008
Beginning balance 372.9 439.2
Internal growth of existing clients 30.6 39.5
New clients 23.1 30.1
Purges/Sales (37.0 ) (13.3 )
Deconversions (40.1 ) (122.6 )
Ending balance 349.5 372.9
|
Electronic Payment Processing Services
Electronic 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. Cardholder accounts on file include
active and inactive consumer credit, retail, debit, stored value, government
services and commercial card accounts. Revenues from electronic payment
processing services decreased $11.5 million and $25.1 million, or 4.7% and 5.1%,
for the three and six months ended June 30, 2009, respectively, compared to the
same periods in 2008. The
decrease for the three and six months is attributable to negative foreign . . .
|
|