TSYS Reports 26.7% Increase in Net Income for Third Quarter 2007

TSYS today announced the results for the third quarter with total revenues of $457.6 million, and a 26.7% increase in net income over the same period in 2006. For the first nine months of 2007, TSYS’ total revenues were $1.3 billion, operating income increased 19.2% to $272.8 million, and net income increased to $191.8 million, an 18.3% increase over the same period in 2006. "Our financial results are exciting with operating margins year-to-date up 300 basis points from 22.6% to 25.6%. This is the sixth quarter in a row that we have shown margin improvement over the same quarter for the prior year. For the third quarter, our operating and net income both were up 26% over the third quarter of 2006. Our revenue growth continues to pick up steam with international revenues growing 38% year-to-date over 2006,” said Philip W. Tomlinson, chairman and chief executive officer of TSYS. "We are especially proud of our new client commitments for the quarter. These wins in a very competitive market will help drive future growth globally. We remain laser focused on existing clients who generated organic revenue growth of 15% year-to-date in our core processing business. When you consider the obstacles and challenges we faced a year ago, our team has done a magnificent job and we look forward to our future with a great deal of optimism,” said Tomlinson. Financial Highlights   (dollars in millions, except earnings per share data) Three Months Ended Nine Months Ended September 30, September 30, 2007   2006   Percent Change   2007   2006   Percent Change Revenues Before Reimbursables $359.0   342.3   4.9%   $1,066.7   1,014.7   5.1% Total Revenues 457.6   441.8   3.6%   1,347.3   1,283.3   5.0% Operating Income 91.2   72.3   26.2%   272.8   228.8   19.2% Net Income 68.8   54.3   26.7%   191.8   162.1   18.3% Basic EPS 0.35   0.28   26.5%   0.98   0.82   18.5% Diluted EPS 0.35   0.28   26.5%   0.97   0.82   18.4% Recent Highlights TSYS and Discover Financial Services signed an issuer processor agreement. Under the terms of the agreement, TSYS will begin processing prepaid and credit card transactions on the Discover Network, a business unit of Discover Financial Services. In the UK, TSYS has signed a long-term agreement with Nationwide, the world’s largest Building Society, to process Nationwide’s credit card account portfolio and to build, operate and manage a new customer care center for member support services. Based on the scope of services, Nationwide would rank among TSYS’ largest clients. Servicing of Nationwide’s more than 1 million credit card Visa accounts and operation of a customer care center for Nationwide is planned for the first quarter of 2008. TSYS signed Tinkoff Credit Systems, a Moscow-based consumer lending bank, to supply its card management and authorization system. The bank plans to become the first credit card monoliner in Russia and will focus exclusively on issuing credit cards. TSYS and Lloyds TSB have successfully launched a new money transfer card in the UK. The new Silver account from Lloyds TSB includes an innovative money transfer prepaid product, aimed particularly at the growing number of newly arrived immigrants living and working in the U.K. TSYS and The Gift Voucher Shop (GVS) announced the successful launch of GVS’ One4all retail gift card campaign in hundreds of Post Offices in Ireland and on the GVS Web site. Commerce Bancorp, Inc. in New Jersey selected the TSYS Collections and Recovery System to manage its entire collections and recovery inventory. This allows the bank to more effectively work all of its delinquent and charged-off card and installment accounts, including automobile loans and mortgages. TSYS announced a multi–year agreement to provide merchant processing services to Veracity Payment Solutions headquartered in Atlanta, Ga. Veracity will offer complete electronic payment processing services as well as card acceptance consultancy to businesses nationwide Projected Outlook for 2007 Excluding the one time Bank of America contract termination fee in 2006 of approximately $68.9 million and the acceleration of amortization of Bank of America contract acquisition costs of approximately $6 million, net income is expected to increase between 20%–22% in 2007 compared to 2006. Based on generally accepted accounting principles (GAAP), TSYS’ estimated 2007 net income is expected to increase between 0%–2% as compared to 2006. TSYS’ earnings guidance does not include the expenses associated with the potential spin-off of TSYS by Synovus Financial Corp. TSYS’ 2007 earnings guidance is based on the following assumptions: 1. Including the Bank of America contract termination fee of approximately $68.9 million in 2006 and an acceleration of amortization of contract acquisition costs of approximately $6 million, estimated total revenues will decline 3%–2% in 2007. Excluding the termination fee and reimbursable items, revenues will increase by 3%-5% over 2006. 2. Expense reductions in employment, equipment, leases and other areas that are included in 2007 estimates will be accomplished. 3. TSYS will not incur significant expenses associated with the conversion of new large clients and/or acquisitions, or any significant impairment of goodwill or other intangibles. Presentation of revenues and net income excluding the Bank of America termination fee, acceleration of amortization of contract acquisition costs and reimbursable items are non-GAAP financial measures. The following table reconciles the range of changes from 2006 to 2007, comparing non-GAAP financial measures to GAAP financial measures. Range of Guidance($ in millions) 2007 Forecast   2006 Actual   Percent Change Net income $250 to $255 $249 0% to 2% Less: termination fee, net of acceleration of amortization of contract acquisition costs, net of tax ($41) Net income, excluding impact of termination fee, net of acceleration of amortization of contract acquisition costs $250 to $255 $208 20% to 22% Total revenues $1,742 to $1,760 $1,787 (3%) to (2%) Less: reimbursable items ($329) ($353) Less: termination fee, net of related contract acquisition cost amortization(1) ($65) Revenues, excluding reimbursable items and net termination fee $1,413 to $1,431 $1,369 3% to 5% (1) Note: TSYS accelerated the amortization of approximately $6 million in contract acquisition costs (comprised of $4 million of amortization related to payments for processing rights, which was recorded as a reduction of revenues, and $2 million of amortization expense related to conversion costs). TSYS believes the table above presents meaningful information to assist investors in understanding the company’s financial estimates for changes in total revenues and net income from 2006 to 2007 as a result of the Bank of America consumer portfolio deconversion as the non-GAAP financial measures exclude amounts that the company does not consider part of ongoing operating results. The non-GAAP financial percentage changes should not be considered by themselves or as a substitute for the GAAP percentage changes year over year. The non-GAAP measures should be considered as an additional view of the way TSYS’ financial measures are affected by the one-time Bank of America contract termination fee, acceleration of amortization of contract acquisition costs and reimbursable items; and should be used in conjunction with all publicly filed financial statements and reports. Conference Call TSYS will host its quarterly conference call at 8:30 a.m. EDT, Tuesday, October 23. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the "Conference Call” icon on the homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. About TSYS TSYS is one of the world’s largest payment-services companies, offering a broad range of packaged or outsourced issuing and acquiring technologies that support consumer finance, credit, debit, healthcare, loyalty and prepaid services for financial institutions and retail companies worldwide. Based in Columbus, Ga., TSYS (NYSE: TSS) is 81-percent held by Synovus (NYSE: SNV), one of FORTUNE magazine’s "Most Admired Companies” and a member of its "100 Best Companies to Work For” for 10 consecutive years. For more information, contact news@tsys.com. This press release contains statements that constitute "forward-looking statements” within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding TSYS’ planned servicing of Nationwide’s Visa accounts in the first quarter of 2008 and TSYS’ expected net income growth for 2007, and the assumptions underlying such statements, including, with respect to TSYS’ expected increase in net income for 2007: (1) including the Bank of America contract termination fee of approximately $68.9 million in 2006 and an acceleration of amortization of contract-acquisition costs of approximately $6 million, estimated total revenues will decline 3-2% in 2007 and excluding the termination fee and reimbursable items, estimated revenues will increase by 3%-5% over 2006; (2) expense reductions in employment, equipment, leases and other areas which are included in 2007 estimates will be accomplished; and (3) TSYS will not incur significant expenses associated with the conversion of new large clients and/or acquisitions, or any other significant impairment of goodwill or other intangibles. These statements are based on 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 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, one or more of the assumptions upon which TSYS’ 2007 net income forecast is based are inaccurate. Additional 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 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-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,       Percentage Change   PercentageChange 2007   2006   2007   2006     Revenues Electronic payment processing services(a) $ 240,608 232,175 3.6 % $ 715,417 685,537 4.4 % Merchant acquiring services 65,163 65,548 (0.6 ) 190,120 195,317 (2.7 ) Other services(a) 53,251   44,615   19.4 161,190   133,827   20.4 Revenues before reimbursables 359,022 342,338 4.9 1,066,727 1,014,681 5.1 Reimbursable items 98,543   99,477   (0.9 ) 280,597   268,589   4.5 Total revenues 457,565   441,815   3.6 1,347,324   1,283,270   5.0   Expenses Salaries & other personnel expense(a) 144,990 139,206 4.2 430,966 380,931 13.1 Net occupancy & equipment expense(a) 68,715 77,883 (11.8 ) 205,342 234,453 (12.4 ) Other operating expenses(a) 54,098   52,992   2.1 157,605   170,452   (7.5 ) Expenses before reimbursable items 267,803 270,081 (0.8 ) 793,913 785,836 1.0 Reimbursable items 98,543   99,477   (0.9 ) 280,597   268,589   4.5 Total operating expenses 366,346   369,558   (0.9 ) 1,074,510   1,054,425   1.9   Operating income 91,219   72,257   26.2 272,814   228,845   19.2   Other income: Interest income 6,983 3,363 107.6 18,630 9,297 100.4 Interest expense (916 ) (235 ) (289.8 ) (1,492 ) (364 ) (309.9 ) Gain on foreign currency translation, net 905 282 220.9 744 195 281.5 Dividend income 21   -   nm 79   -   nm Other income 6,993   3,410   105.1 17,961   9,128   96.8   Income before income taxes, minority interest and equity in income of equity investments 98,212 75,667 29.8 290,775 237,973 22.2 Income taxes 30,947   22,380   38.3 101,442   78,492   29.2 Income before minority interest and equity in income of equity investments 67,265 53,287 26.2 189,333 159,481 18.7 Minority interest (483 ) (183 ) (163.9 ) (1,435 ) (448 ) (220.3 ) Equity in income of equity investments 2,020   1,202   68.1 3,865   3,073   25.8   Net income $ 68,802   54,306   26.7 % $ 191,763   162,106   18.3 %   Basic earnings per share $ 0.35   0.28   26.5 % $ 0.98   0.82   18.5 %   Diluted earnings per share $ 0.35   0.28   26.5 % $ 0.97   0.82   18.4 %   Dividend declared per share $ 0.07   0.07   $ 0.21   0.20     Average common shares outstanding 196,740   196,500   196,641   196,891     Average common and common equivalent shares outstanding 197,089   196,831   197,070   197,193     (a) Certain amounts have been previously reclassed to conform with the presentation adopted in 2007.   nm = not meaningful                           TSYS Segment Breakdown (Unaudited) (In thousands)   Three Months Ended September 30, 2007 Three Months Ended September 30, 2006 Merchant acquiring services Merchant acquiring services Domestic-based support services International-based support services Domestic-based support services International-based support services Consolidated Consolidated Revenues before reimbursables $ 243,404 64,148 58,641 366,193 242,584 44,320 59,723 346,627 Intersegment revenues (6,960 ) (106 ) (105 ) (7,171 ) (4,258 ) -   (31 ) (4,289 ) Revenues before reimbursables from external customers $ 236,444   64,042   58,536   359,022   238,326   44,320   59,692   342,338   Total revenues $ 324,803 66,779 75,356 466,938 325,919 51,591 70,592 448,102 Intersegment revenues (9,162 ) (106 ) (105 ) (9,373 ) (6,256 ) -   (31 ) (6,287 ) Revenues from external customers $ 315,641   66,673   75,251   457,565   319,663   51,591   70,561   441,815   Depreciation and amortization $ 24,591   6,455   6,561   37,607   32,156   5,328   6,674   44,158   Intersegment expenses $ 3,506   (4,995 ) (7,884 ) (9,373 ) 3,668   (2,343 ) (7,599 ) (6,274 ) Segment operating income $ 59,889   12,569   18,761   91,219   48,666   7,946   15,645   72,257   Income before income taxes, minority interest and equity income of equity investments 67,060   12,130   19,022   98,212   52,688   6,602   16,377   75,667   Income tax expense $ 20,084   4,033   6,830   30,947   14,722   (31 ) 7,689   22,380   Equity in income of equity investments $ -   2,020   -   2,020   -   1,202   -   1,202   Net Income $ 48,890   7,720   12,192   68,802   38,821   6,797   8,688   54,306   Identifiable assets 1,623,928 365,066 188,765 2,177,759 Intersegment eliminations (349,626 ) (1,094 ) (153 ) (350,873 ) Total assets 1,274,302   363,972   188,612   1,826,886       Nine Months Ended September 30, 2007 Nine Months Ended September 30, 2006 Merchant acquiring services Merchant acquiring services Domestic-based support services International-based support services Domestic-based support services International-based support services Consolidated Consolidated Revenues before reimbursables $ 738,712 175,154 171,694 1,085,560 740,341 109,178 178,729 1,028,248 Intersegment revenues (17,495 ) (701 ) (637 ) (18,833 ) (13,471 ) -   (96 ) (13,567 ) Revenues before reimbursables from external customers $ 721,217   174,453   171,057   1,066,727   726,870   109,178   178,633   1,014,681   Total revenues $ 973,133 182,913 216,354 1,372,400 963,855 128,163 211,659 1,303,677 Intersegment revenues (23,738 ) (701 ) (637 ) (25,076 ) (20,311 ) -   (96 ) (20,407 ) Revenues from external customers $ 949,395   182,212   215,717   1,347,324   943,544   128,163   211,563   1,283,270   Depreciation and amortization $ 76,305   17,762   20,146   114,213   95,759   14,101   20,446   130,306   Intersegment expenses $ 9,897   (11,961 ) (23,007 ) (25,071 ) 18,949   (15,448 ) (23,864 ) (20,363 ) Segment operating income $ 190,336   35,570   46,908   272,814   176,412   12,029   40,404   228,845   Income before income taxes, minority interest and equity income of equity investments 210,027   32,661   48,087   290,775   186,170   9,718   42,085   237,973   Income tax expense $ 73,737   10,441   17,264   101,442   58,636   2,461   17,395   78,492   Equity in income of equity investments $ -   3,865   -   3,865   -   3,073   -   3,073   Net Income $ 138,625   22,316   30,822   191,763   128,352   9,064   24,690   162,106       Note: Revenues from domestic-based services include electronic payment processing services and other services provided from the United States to clients domiciled in the United States or other countries. Revenues from international-based services include electronic payment processing services and other services provided from outside the United States to clients based mainly outside the United States. Revenues from merchant processing services include TSYS Acquiring's merchant acquiring and related services.                         TSYS Balance Sheet (In thousands) Sept 30, 2007 Dec 31, 2006 (unaudited)   (audited) Assets Current assets: Cash and cash equivalents $ 592,834 389,123 Restricted cash 32,079 31,568 Accounts receivable, net 251,778 246,637 Deferred income tax assets 27,909 21,556 Prepaid expenses and other current assets 58,809     55,832   Total current assets 963,409 744,716 Property and equipment, net 276,113 271,321 Computer software, net 190,338 216,450 Contract acquisition costs, net 161,239 167,449 Goodwill, net 142,450 133,337 Equity investments, net 65,669 62,064 Other intangible assets, net 13,999 21,314 Other assets 13,669     17,590   Total assets $ 1,826,886     1,634,241     Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 37,419 31,589 Accrued salaries and employee benefits 71,335 80,697 Current portion of notes payable and obligations under capital leases 5,822 3,156 Other current liabilities 137,704     180,345   Total current liabilities 252,280 295,787 Deferred income tax liabilities 72,318 75,019 Obligations under notes payable and capital leases excluding current portion 73,862 3,625 Other long-term liabilities 30,718     36,221   Total liabilities 429,178     410,652   Minority interest in consolidated subsidiary 7,943     6,229   Shareholders' Equity: Common stock 19,920 19,868 Additional paid-in capital 84,835 66,677 Treasury stock (34,300 ) (35,233 ) Accumulated other comprehensive income 25,575 20,641 Retained earnings 1,293,735     1,145,407   Total shareholders' equity 1,389,765     1,217,360   Total liabilities and shareholders' equity $ 1,826,886     1,634,241             TSYS Cash Flow (Unaudited) (In thousands) Nine Months Ended September 30, 2007   2006     Cash flows from operating activities: Net income $ 191,763 162,106 Adjustments to reconcile net income to net cash provided by operating activities:   Minority interests in consolidated subsidiaries' net income 1,435 448 Equity in income of equity investments (3,865 ) (3,073 ) Dividends received from equity investments 2,994 2,371 Gain on currency translation adjustments, net (744 ) (195 ) Depreciation and amortization 114,213 130,306 Share-based compensation 9,881 6,574 Asset impairments 1,158 - Provisions for bad debt expense and billing adjustments 1,612 948 Charges for transaction processing provisions 531 7,914 Deferred income tax benefit (6,828 ) (24,150 ) Loss on disposal of equipment, net 497 105 (Increase) decrease in: Accounts receivable (5,627 ) (40,765 ) Prepaid expenses, other current assets and other long-term assets (1,041 ) 8,923 Increase (decrease) in: Accounts payable 6,148 14,323 Accrued salaries and employee benefits (9,341 ) (18,936 ) Excess tax benefit from share-based payment arrangements (4,022 ) (1,646 ) Other current liabilities and other long-term liabilities (51,286 ) (14,849 ) Net cash provided by operating activities 247,478   230,404     Cash flows from investing activities: Purchases of property and equipment, net (36,420 ) (21,203 ) Additions to licensed computer software from vendors (8,194 ) (9,650 ) Additions to internally developed computer software (11,749 ) (13,699 ) Cash acquired in acquisitions - 4,341 Cash used in acquisitions (472 ) (74,919 ) Additions to contract acquisition costs (20,878 ) (39,578 ) Net cash used in investing activities (77,713 ) (154,708 )   Cash flows from financing activities: Proceeds from borrowings of long-term debt 73,968 - Principal payments on long-term debt borrowings and capital lease obligations (3,893 ) (1,561 ) Proceeds from exercise of stock options 5,258 3,725 Excess tax benefit from share-based payment arrangements 4,022 1,646 Repurchase of common stock - (21,843 ) Dividends paid on common stock (41,425 ) (37,504 ) Net cash provided by (used in) financing activities 37,930   (55,537 ) Effect of exchange rate changes on cash and cash equivalents (3,984 ) (2,006 ) Net increase in cash and cash equivalents 203,711 18,153 Cash and cash equivalents at beginning of year 389,123   237,569   Cash and cash equivalents at end of period $ 592,834   255,722             Geographic Area Data: The following geographic area data represents revenues for the three months ended September 30 based on where the client is domiciled:   Three Months Ended September 30, (dollars in millions): 2007   %       2006   %     % Chg United States $ 352.2 77.0 % $ 359.6 81.4 % (2.1 ) % Europe 56.1 12.3 43.7 9.9 28.4 Canada 32.4 7.1 25.4 5.8 27.7 Japan 6.3 1.4 5.0 1.1 25.5 Mexico 3.6 0.8 3.2 0.7 14.4 Other 7.0 1.4     4.9 1.1 41.4 $ 457.6 100.0 % $ 441.8 100.0 % 3.6 %   The following geographic area data represents revenues for the nine months ended September 30 based on where the client is domiciled:   Nine Months Ended September 30, (dollars in millions): 2007   %       2006   %     % Chg United States $ 1,052.4 78.1 % $ 1,069.8 83.3 % (1.6 ) % Europe 151.1 11.2 112.6 8.8 34.2 Canada 93.2 6.9 71.5 5.6 30.4 Japan 17.7 1.3 13.4 1.0 32.0 Mexico 10.2 0.8 8.5 0.7 18.9 Other 22.7 1.7     7.5 0.6 204.4 $ 1,347.3 100.0 % $ 1,283.3 100.0 % 5.0 %   Geographic Area Revenue by Operating Segment: The following table reconciles segment revenues to revenues by reporting segment for the three months ended September 30:   Three Months Ended September 30, Domestic-based support services International-based support services Merchant acquiring services     (dollars in millions): 2007 2006     2007 2006   2007   2006 United States $ 276.8 289.3 0.5 - 74.9 70.3 Europe 0.4 0.4 55.7 43.3 - - Canada 32.2 25.2 - - 0.2 0.1 Japan - - 6.3 5.0 - - Mexico 3.6 3.2 - - - - Other 2.6 1.6     4.2 3.3   0.2   0.1 $ 315.6 319.7     66.7 51.6   75.3   70.5   The following table reconciles segment revenues to revenues by reporting segment for the nine months ended September 30:     Nine Months Ended September 30, Domestic-based support services International-based support services Merchant acquiring services     (dollars in millions): 2007 2006     2007 2006   2007   2006 United States $ 837.1 859.0 0.6 - 214.7 210.7 Europe 1.3 1.1 149.8 111.5 - - Canada 92.8 71.1 - - 0.4 0.4 Japan - - 17.7 13.4 - - Mexico 10.2 8.5 - - - - Other 8.0 3.8     14.1 3.3   0.6   0.5 $ 949.4 943.5     182.2 128.2   215.7   211.6   Supplemental Information: Accounts on File at September 30,   (in millions) 2007   %   2006   %   % Change   Consumer 197.0 55.2 % 259.3 64.8 % (24.0 ) % Retail 47.9 13.4 51.5 12.9 (7.0 ) Commercial 37.5 10.5 32.5 8.1 15.6 Government services/EBT 23.2 6.5 20.7 5.2 11.8 Stored Value 46.3 13.0 31.7 7.9 46.2 Debit 5.2   1.4   4.3   1.1 19.4 357.1   100.0 % 400.0   100.0 % (10.7 ) %     (in millions) September 30, 2007 September 30, 2006 % Change   QTD Average Accounts on File 384.3 385.8 (0.4 ) %   YTD Average Accounts on File 412.1 413.6 (0.4 )     Accounts on File at September 30, (in millions) 2007   %   2006   %   % Change   Domestic 284.5 79.7 % 334.0 83.5 % (14.8 ) %   International 72.6   20.3   66.0   16.5 10.0   357.1   100.0 % 400.0   100.0 % (10.7 ) %     Note: The accounts on file between domestic and international is based on the geographic domicile of processing clients.   Growth in Accounts on File (in millions): September 2006to September 2007 September 2005to September 2006   Beginning balance 400.0 430.1 Change in accounts on file due to: Internal growth of existing clients 32.0 38.0 New clients 71.0 33.1 Purges/Sales (9.6 ) (13.9 ) Deconversions (136.3 ) (87.3 ) Ending balance 357.1   400.0       Number of Employees (FTEs): 2007   2006   At September 30, 6,775 6,788 Quarterly average for period ended September 30, 6,751 6,640 YTD average for period ended September 30, 6,752 6,616