TSYS Reports 2004 Results; To Acquire Full Ownership of Vital Processi

TSYS Reports 2004 Results; To Acquire Full Ownership of Vital Processing Services; Raises 2005 Net Income Guidance to 19% - 22%

    Business Editors

    COLUMBUS, Ga.--(BUSINESS WIRE)--Jan. 18, 2005--TSYS(R) today announced that its financial results for the fourth quarter and twelve months ended December 31, 2004 are in line with the Company's forecast. TSYS also announced earlier that it was acquiring full ownership of Vital Processing Services.
    Below is a summary of the results for the fourth quarter and twelve months ended December 31, 2004, as compared to the same periods in 2003:

Three Months Ended Twelve Months Ended ------------------------------------------- December 31, December 31, (dollars in millions, ------------------------------------------- except earnings per share data) Percent Percent 2004 2003 Change 2004 2003 Change ---------------------------------------------------------------------- Revenues Before Reimbursables $249.9 222.0 12.6 $956.6 828.3 15.5 Total Revenues 307.2 278.3 10.4 1,187.0 1,053.5 12.7 Operating Income 58.8 53.8 9.4 202.2 190.6 6.1 Net Income 43.0 39.4 9.0 150.6 141.0 6.8 Basic EPS 0.22 0.20 9.0 0.76 0.72 6.8 Diluted EPS 0.22 0.20 9.2 0.76 0.71 6.9

    Highlights for the quarter include:

--	Successfully completed the conversion of the Bank One portfolio
--	Signed contract extensions with MBNA and First Tennessee
--	Received a patent for TSYS ProphIT(R), our proprietary front-end workflow management system
--	Introduced new Internet-based Credit Care products in Europe

    "TSYS met its expectations for 2004, achieving our 21st straight year of earnings growth," said Philip W. Tomlinson, chief executive officer of TSYS. "During the year, TSYS enjoyed several successes that have become the foundation for our growth in 2005 and beyond. We signed contracts for over 100 million accounts, made strategic acquisitions to expand our product offerings in developing growth markets and made significant strides on the international front by building a world-class data centre in Knaresborough, England. With more than 47 million accounts remaining in the conversion pipeline for 2005 and the addition of Vital Processing Services, TSYS expects its net income growth to be in the range of 19% - 22% and revenue growth to be in the 30% - 33% range for 2005."
    TSYS announced today an agreement to purchase the 50-percent equity stake that Visa U.S.A. holds in Vital Processing Services. The purchase is expected to close in the first quarter of 2005, after which Vital will become a wholly-owned subsidiary of TSYS.
    "We are very excited about the acquisition of Vital Processing Services. This acquisition allows us the opportunity to offer a complete payment solution. We expect to fully leverage Vital's deep acquiring expertise into TSYS' broader view of the payment landscape. Together, we can focus on delivering product innovation on both sides of the payment chain and deliver greater value to our mutual customers," says Tomlinson.

    TSYS' net income forecast is based on the following assumptions:

    1. Revenue before reimbursable items will increase 30% - 33% in
    2005
    2. Vital Processing Services will add $225 - $235 million in
    annual revenue and contribute approximately $0.03-$0.04 in
    earnings per share
    3. Accounts on file at the end of 2005 will be approximately 425
    million
    4. No significant client losses or additions through 2005 (other
    than those previously announced)

    The expected results for 2005 include the impact of expensing stock options, which will be required beginning July 1, 2005 with the implementation of Statement of Financial Accounting Standards Board No. 123R, "Share-Based Payment."
    "We believe 2005 will be a year of exciting opportunities for TSYS. The card industry is still dynamic when you look at transaction growth and product evolution at the point of sale. Our client-centric business strategy, proven product capabilities and our technological innovation provide our clients real advantages in the marketplace. These advantages coupled with our commitment to providing the highest quality of service will allow us to continue to gain market share in our core business. Now with the addition of Vital Processing Services, we can provide our clients with a suite of products that is integral in connecting the entire transaction lifecycle. It is truly an exciting time at TSYS," said Tomlinson.

    Conference Call

    TSYS will host its quarterly conference call at 8:00 a.m. EST, January 19, 2005. The conference call can be accessed at www.tsys.com by clicking on the "Conference Call" icon on the homepage. The replay will be available approximately 30 minutes after the completion of the call.

    About TSYS

    TSYS (NYSE: TSS) brings integrity and innovation to the world of electronic payment services as the integral link between buyers and sellers in this rapidly evolving universe. Synovus (NYSE: SNV) owns an 81-percent interest in TSYS. 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' expected net income growth and revenue growth for 2005; TSYS' expectation that the closing of the Vital transaction will take place in the first quarter of 2005; TSYS' belief with respect to its opportunities in 2005; and the assumptions underlying such statements, including, with respect to TSYS' expected increase in net income for 2005, an increase in revenues before reimbursable items of 30-33%; Vital Processing Services adding $225-$235 million in annual revenues and contributing $.03 to $.04 in earnings per share; accounts on file at the end of 2005 will be approximately 425 million; and no significant client losses or previously unannounced additions through 2005. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the 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, revenues that are lower than anticipated; Vital's addition to revenue and earnings per share is lower than anticipated; accounts on file at the end of 2005 are lower than anticipated; TSYS incurs expenses associated with the signing of a significant client; internal growth rates for TSYS' existing customers are lower than anticipated; TSYS does not convert clients' portfolios as scheduled; TSYS does not close the acquisition of Vital in the first quarter of 2005 as expected as a result of the failure of Vital and/or TSYS to satisfy all closing conditions and obtain regulatory approval or otherwise; adverse developments with respect to foreign currency exchange rates; adverse developments with respect to entering into contracts with new clients and retaining current clients; the merger of TSYS clients with entities that are not TSYS clients or the sale of portfolios by TSYS clients to entities that are not TSYS clients; TSYS is unable to control expenses and increase market share; adverse developments with respect to the credit card industry in general; TSYS is unable to successfully manage any impact from slowing economic conditions or consumer spending; the impact of acquisitions, including their being more difficult to integrate than anticipated; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; the impact of changes in accounting principles; overall market conditions; and 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. 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 its 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.

TSYS Financial Highlights (In thousands, except per share data) ---------------------------------------------------------------------- Three months ended December 31, ------------------------------------- Percentage 2004 2003(a) Change ------------- ------------ ----------

Revenues Electronic payment processing services $ 204,684 183,237 11.7 % Other services 45,225 38,750 16.7 ------------- ------------ Revenues before reimbursables 249,909 221,987 12.6 Reimbursable items 57,248 56,313 1.7 ------------- ------------ Total revenues 307,157 278,300 10.4 ------------- ------------

Expenses Employment expenses 91,885 85,384 7.6 Net occupancy and equipment expenses(a) 55,722 52,785 5.6 Other operating expense 43,497 30,061 44.7 ------------- ------------ Expenses before reimbursables 191,104 168,230 13.6 Reimbursable items 57,248 56,313 1.7 ------------- ------------ Total operating expenses 248,352 224,543 10.6 ------------- ------------

Operating Income 58,805 53,757 9.4 ------------- ------------

Other Income: Interest income 1,147 522 120.1 Interest expense (64) (73) (12.4) Gain on foreign currency translation, net 117 126 (7.2) ------------- ------------ Other Income 1,200 575 109.0 ------------- ------------

Income before Income Taxes, Minority Interest and Equity in Income of Joint Ventures 60,005 54,330 10.4 Income Taxes 21,574 19,737 9.3 Minority Interest (19) (77) 75.1 Equity in Income of Joint Ventures 4,558 4,901 (7.0) ------------- ------------

Net Income $ 42,970 39,417 9.0 % ============= ============

Basic Earnings Per Share $ 0.22 0.20 9.0 % ============= ============

Diluted Earnings Per Share $ 0.22 0.20 9.2 % ============= ============

Dividends Declared Per Share $ 0.0400 0.0200 ============= ============

Average Common Shares Outstanding 196,848,529 196,821,929 ============= ============

Average Common and Common Equivalent Shares Outstanding 197,278,427 197,623,458 ============= ============

Effective Tax Rate 33.7% 33.6% ============= ============

Twelve months ended December 31, -------------------------------------- Percentage 2004 2003(a) Change ------------- ------------ ----------

Revenues Electronic payment processing services $ 785,713 707,816 11.0 % Other services 170,906 120,485 41.8 ------------- ------------ Revenues before reimbursables 956,619 828,301 15.5 Reimbursable items 230,389 225,165 2.3 ------------- ------------ Total revenues 1,187,008 1,053,466 12.7 ------------- ------------

Expenses Employment expenses 361,532 326,568 10.7 Net occupancy and equipment expenses(a) 239,179 205,820 16.2 Other operating expense 153,694 105,334 45.9 ------------- ------------ Expenses before reimbursables 754,405 637,722 18.3 Reimbursable items 230,389 225,165 2.3 ------------- ------------ Total operating expenses 984,794 862,887 14.1 ------------- ------------

Operating Income 202,214 190,579 6.1 ------------- ------------

Other Income: Interest income 2,856 2,887 (1.0) Interest expense (941) (139) 577.8 Gain on foreign currency translation, net 162 1,042 (84.5) ------------- ------------ Other Income 2,077 3,790 (45.2) ------------- ------------

Income before Income Taxes, Minority Interest and Equity in Income of Joint Ventures 204,291 194,369 5.1 Income Taxes 77,210 70,868 8.9 Minority Interest (259) (338) 23.5 Equity in Income of Joint Ventures 23,736 17,810 33.3 ------------- ------------

Net Income $ 150,558 140,973 6.8 % ============= ============

Basic Earnings Per Share $ 0.76 0.72 6.8 % ============= ============

Diluted Earnings Per Share $ 0.76 0.71 6.9 % ============= ============

Dividends Declared Per Share $ 0.1400 0.0775 ============= ============

Average Common Shares Outstanding 196,846,897 196,829,802 ============= ============

Average Common and Common Equivalent Shares Outstanding 197,235,871 197,437,744 ============= ============

Effective Tax Rate 34.2% 33.6% ============= ============

Note: nm = not meaningful (a) Note: Certain amounts in 2003 have been reclassified to conform with the presentation adopted in 2004.

EFFECTIVE INCOME TAX RATE CALCULATION ----------------------------------------------------------------------

Income taxes (A) $21,574 19,737 $ 77,210 70,868 ======== ======= ========= ========

Income before Income Taxes, Minority Interest and Equity in Income of Joint Ventures $60,005 54,330 $204,291 194,369 Adjustments: Equity in Income of Vital 4,063 4,554 21,999 16,666 Minority Interest (19) (77) (259) (338) -------- ------- --------- -------- Adjusted Income before income taxes (B) $64,049 58,807 $226,031 210,697 ======== ======= ========= ========

Effective Tax Rate (A/B) 33.7% 33.6% 34.2% 33.6% ======== ======= ========= ========

Note: nm = not meaningful (a) Note: Certain amounts in 2003 have been reclassified to conform with the presentation adopted in 2004.

TSYS Segment Breakdown (In thousands)

Three months ended December 31, 2004 ------------------------------------- Domestic- International- based based Services Services Consolidated ------------ ---------- ------------

Total revenue $ 275,736 31,424 307,160 Intersegment revenue (3) - (3) ------------ ---------- ------------ Revenues from external customers $ 275,733 31,424 307,157 ============ ========== ============ Depreciation and amortization $ 25,479 3,591 29,070 ============ ========== ============ Segment operating income $ 70,668 (11,863) 58,805 ============ ========== ============ Income tax expense $ 26,026 (4,452) 21,574 ============ ========== ============ Equity in income of joint ventures $ 4,063 495 4,558 ============ ========== ============ Net Income $ 51,465 (8,495) 42,970 ============ ========== ============ Average accounts on file 327,785 16,438 344,223 ============ ========== ============

Three months ended December 31, 2003 -------------------------------------- Domestic- International- based based Services Services Consolidated ------------ ---------- ------------

Total revenue 256,092 22,277 278,369 Intersegment revenue (69) - (69) ------------ ----------- ------------ Revenues from external customers 256,023 22,277 278,300 ============ =========== ============ Depreciation and amortization 24,650 2,708 27,358 ============ =========== ============ Segment operating income 50,454 3,303 53,757 ============ =========== ============ Income tax expense 18,443 1,294 19,737 ============ =========== ============ Equity in income of joint ventures 4,554 347 4,901 ============ =========== ============ Net Income 37,203 2,214 39,417 ============ =========== ============ Average accounts on file 258,063 13,643 271,706 ============ =========== ============

Twelve months ended December 31, 2004 -------------------------------------- Domestic- International- based based Services Services Consolidated ------------ ---------- ------------

Total revenue $ 1,071,966 115,052 1,187,018 Intersegment revenue (10) - (10) ------------ ---------- ------------ Revenues from external customers $ 1,071,956 115,052 1,187,008 ============ ========== ============ Depreciation and amortization $ 95,430 13,158 108,588 ============ ========== ============ Segment operating income $ 196,067 6,147 202,214 ============ ========== ============ Income tax expense $ 74,063 3,147 77,210 ============ ========== ============ Equity in income of joint ventures $ 21,999 1,737 23,736 ============ ========== ============ Net Income $ 146,436 4,122 150,558 ============ ========== ============ Average accounts on file 287,908 15,194 303,102 ============ ========== ============

Twelve months ended December 31, 2003 -------------------------------------- Domestic- International- based based Services Services Consolidated ------------ ---------- ------------

Total revenue 973,252 80,288 1,053,540 Intersegment revenue (74) - (74) ------------ ---------- ------------ Revenues from external customers 973,178 80,288 1,053,466 ============ ========== ============ Depreciation and amortization 87,555 10,860 98,415 ============ ========== ============ Segment operating income 179,580 10,999 190,579 ============ ========== ============ Income tax expense 66,790 4,078 70,868 ============ ========== ============ Equity in income of joint ventures 16,666 1,144 17,810 ============ ========== ============ Net Income 133,860 7,113 140,973 ============ ========== ============ Average accounts on file 249,489 13,129 262,618 ============ ========== ============

Note: Revenues for 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.

---------------------------------------------------------------------- TSYS Balance Sheet (In thousands) ---------------------------------------------------------------------- December 31, 2004 2003 -------------------- Assets Current assets: Cash and cash equivalents $ 230,451 122,874 Restricted cash 21,668 7,679 Accounts receivable, net 146,182 120,646 Deferred income tax assets 14,112 401 Prepaid expenses and other current assets 39,347 22,763 -------------------- Total current assets 451,760 274,363 Property and equipment, net 263,584 232,076 Computer software, net 242,617 258,090 Contract acquisition costs, net 132,428 125,472 Equity investments, net 54,400 66,708 Goodwill, net 70,561 29,626 Other assets 40,559 14,901 -------------------- Total assets $1,255,909 1,001,236 ====================

Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 49,158 17,549 Accrued salaries and employee benefits 46,726 32,562

Current portion of obligations under capital leases and software obligations 1,828 15,231 Billings in excess of costs on uncompleted contracts - 17,573 Other current liabilities 143,187 64,056 -------------------- Total current liabilities 240,899 146,971

Obligations under capital leases and software obligations, excluding current portion 4,508 29,748 Deferred income tax liabilities 142,077 88,544 -------------------- Total liabilities 387,484 265,263 -------------------- Minority interest in consolidated subsidiary 3,814 3,439 -------------------- Shareholders' Equity: Common stock 19,759 19,750 Additional paid-in capital 44,731 41,574 Accumulated other comprehensive income 15,373 8,314 Treasury stock (13,573) (12,426) Retained earnings 798,321 675,322 -------------------- Total shareholders' equity 864,611 732,534 -------------------- Total liabilities and shareholders' equity $1,255,909 1,001,236 ====================

---------------------------------------------------------------------- TSYS Cash Flow (In thousands) ---------------------------------------------------------------------- Years ended December 31, 2004 2003 ------------------

Cash flows from operating activities: Net income $ 150,558 140,973

Adjustments to reconcile net income to net cash provided by operating activities: Minority interest in consolidated subsidiary's net income 259 338 Equity in income of joint ventures (23,736) (17,810) Gain on currency translation adjustments, net (162) (1,042) Depreciation and amortization 108,588 98,415 Noncash charge related to impairment of developed software 10,059 -

(Recoveries of) Provisions for bad debt expenses and billing adjustments (1,086) 2,690 Charges for transaction processing 9,877 3,450 Deferred income tax expense 35,334 27,067 Loss (gain) on disposal of equipment, net 387 (25) (Increase)decrease in: Accounts receivable (20,745) 3,624 Prepaid expenses and other assets (31,883) 3,827 Increase(decrease) in: Accounts payable 31,950 3,028 Accrued salaries and employee benefits 14,134 (10,819)

Billings in excess of costs and profits on uncompleted contracts (17,573) 17,573 Other current liabilities 47,186 (4,934) ------------------ Net cash provided by operating activities 313,147 266,355 ------------------

Cash flows from investing activities: Purchase of property and equipment, net (53,898)(125,301) Additions to licensed computer software from vendors (40,697) (47,246) Additions to internally developed computer software (4,291) (17,689) Cash acquired in acquisitions 2,422 4,442 Cash used in acquisitions (53,514) (36,000) Dividends received from joint ventures 35,876 5,278 Contract acquisition costs (29,150) (18,129) ------------------ Net cash used in investing activities (143,252)(234,645) ------------------

Cash flows from financing activities: Purchase of common stock (1,188) (9,824) Proceeds from long-term debt borrowings - 20,234 Principal payments on capital lease and software obligations (42,656) (20,440) Dividends paid on common stock (23,621) (14,765) Proceeds from exercise of stock options 1,193 3,929 ------------------ Net cash used in financing activities (66,272) (20,866) ------------------ Effect of foreign currency translation on cash and cash equivalents 3,954 2,859 ------------------ Net increase in cash and cash equivalents 107,577 13,703 Cash and cash equivalents at beginning of year 122,874 109,171 ------------------ Cash and cash equivalents at end of period $ 230,451 122,874 ==================

Geographic Area Data: The following geographic area data represents revenues for the three months and twelve months ended December 31 based on where the client is domiciled: Three months ended December 31, ----------------------------------------- 2004 % 2003 % % Chg -------------------------------------- (dollars in millions): United States$ 251.4 81.9 % 230.6 82.9 % 9.0 % Canada(a) 20.9 6.8 20.8 7.5 0.6 Europe 27.9 9.0 19.3 6.9 44.2 Japan 3.7 1.2 3.3 1.2 10.5 Mexico 2.1 0.7 3.6 1.3 (42.3) Other 1.2 0.4 0.7 0.2 82.9 -------------------------------- $ 307.2 100.0 % 278.3 100.0 % 10.4 % ================================

Twelve months ended December 31, ----------------------------------------- 2004 % 2003 % % Chg -------------------------------------- (dollars in millions): United States$ 973.3 82.0 % 863.0 81.9 % 12.8 % Canada(a) 83.2 7.0 75.9 7.2 9.6 Europe 101.6 8.6 68.6 6.5 48.1 Japan 14.0 1.2 12.1 1.2 16.0 Mexico 11.2 0.9 31.4 3.0 (64.2) Other 3.7 0.3 2.5 0.2 51.1 -------------------------------- $ 1,187.0 100.0 % 1,053.5 100.0 % 12.7 % ================================

Geographic Area Revenue by Operating Segment: The following tables reconcile segment revenues to revenues by reporting segment for the three months and twelve months ended December 31:

Three months ended December 31, ------------------------------- International- Domestic-based based services services ------------------------------- (dollars in millions): 2004 2003 2004 2003 ------------------------------- United States$ 251.4 230.6 - - Canada(a) 20.9 20.8 - - Europe 0.1 0.2 27.8 19.1 Japan - 0.1 3.7 3.2 Mexico 2.1 3.6 - - Other 1.2 0.7 - - ------------------------------- $ 275.7 256.0 31.5 22.3 ===============================

Twelve months ended December 31, ------------------------------- International- Domestic-based based services services ------------------------------- (dollars in millions): 2004 2003 2004 2003 ------------------------------- United States$ 973.3 863.0 - - Canada(a) 83.2 75.9 - - Europe 0.5 0.3 101.1 68.3 Japan - 0.1 14.0 12.0 Mexico 11.2 31.4 - - Other 3.7 2.5 - - ------------------------------- $ 1,071.9 973.2 115.1 80.3 ===============================

(a) These revenues include those generated from the Caribbean accounts owned by a Canadian institution.

Supplemental Information: Accounts on File at: --------------------------------- Dec 31, Dec 31, 2004 % 2003 % -------------------------------- Accounts on File (in millions): Consumer 203.3 56.9 % 143.5 52.4 % Retail 93.6 26.2 85.5 31.2 Commercial 25.6 7.2 21.5 7.9 Government services/EBT 16.3 4.6 13.8 5.0 Debit 6.9 1.8 6.1 2.2 Stored Value 11.9 3.3 3.5 1.3 -------------------------------- 357.6 100.0 % 273.9 100.0 % ================================

Dec 31, Dec 31, 2004 2003 -------- --------- QTD Average Accounts on File (in millions) 344.2 271.7 26.7 % YTD Average Accounts on File (in millions) 303.1 262.6 15.4 %

Accounts on File at: -------------------------------- Dec 31, Dec 31, 2004 % 2003 % -------------------------------- Accounts on File (in millions): Domestic 308.2 86.2 % 229.8 83.9 % International 49.4 13.8 44.1 16.1 -------------------------------- 357.6 100.0 % 273.9 100.0 % ================================

Note: The accounts on file between domestic and international is based on the geographic domicile of processing clients.

Growth in Accounts (in millions): ------------------------------------- Dec 2003 to Dec 2002 to Dec 2004 Dec 2003 ---------------- --------------- Beginning balance 273.9 245.9 Change in accounts on file due to: Internal growth of existing clients 36.9 25.1 New clients 49.1 19.9 Purges/Sales (1.1) (13.2) Deconversions (1.2) (3.8) -------- --------- Ending balance 357.6 273.9 ======== =========

Number of Employees (FTEs): 2004 2003 ------------------------------------ -------- -------- Period ended Dec 31, 5,694 5,640 Quarterly average for period ended Dec 31, 5,662 5,644 YTD average for period ended Dec 31, 5,594 5,494

--30--JAH/at*

CONTACT: TSYS, Columbus James B. Lipham, 706-649-2262 or Investor Relations Leo S. Berard, 706-649-5220 leoberard@tsys.com

KEYWORD: GEORGIA INDUSTRY KEYWORD: HARDWARE BANKING SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: TSYS

Copyright Business Wire 2005