TOTAL SYSTEM SERVICES INC (Form: 10-Q, Received: 08/09/2010 15:06:58)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: June 30, 2010


o		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) 649-2310
(Registrant’s telephone number, including area code)

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

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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


	CLASS			OUTSTANDING AS OF: August 9, 2010
	Common Stock, $0.10 par value			197,412,493 shares

TOTAL SYSTEM SERVICES, INC.
INDEX


	Page
	Number
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (unaudited) — June 30, 2010 and December 31, 2009		3
Condensed Consolidated Statements of Income (unaudited) — Three and six months ended June 30, 2010 and 2009		4
Condensed Consolidated Statements of Cash Flows (unaudited) — Six months ended June 30, 2010 and 2009		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		31
Item 4. Controls and Procedures		33
Part II. Other Information
Item 1A. Risk Factors		34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		34
Item 6. Exhibits		34
Signatures		35
Exhibit Index		36
EX-10.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

TOTAL SYSTEM SERVICES, INC.

Part I — Financial Information

Condensed Consolidated Balance Sheets
(Unaudited)


(in thousands, except per share data)	June 30, 2010			December 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	387,993			449,955
Restricted cash		8,199			46,190
Accounts receivable, net of allowance for doubtful accounts and billing adjustments of $5.1 million and $6.8 million at 2010 and 2009, respectively		231,598			231,325
Deferred income tax assets		7,692			11,302
Prepaid expenses and other current assets		102,921			72,124

Total current assets		738,403			810,896
Property and equipment, net of accumulated depreciation and amortization of $297.7 million and $309.1 million at 2010 and 2009, respectively		293,046			289,198
Computer software, net of accumulated amortization of $467.4 million and $482.9 million at 2010 and 2009, respectively		215,643			197,134
Contract acquisition costs, net of accumulated amortization of $243.0 million and $229.7 million at 2010 and 2009, respectively		125,495			128,038
Goodwill		317,755			168,121
Equity investments		75,751			75,495
Other intangible assets, net of accumulated amortization of $20.6 million and $16.7 million at 2010 and 2009, respectively		92,735			14,132
Other assets		37,036			27,940

Total assets	$	1,895,864			1,710,954

Liabilities
Current liabilities:
Current portion of long-term debt	$	5,319			6,988
Current portion of obligations under capital leases		10,024			6,289
Accrued salaries and employee benefits		16,601			32,457
Accounts payable		48,300			21,729
Other current liabilities		128,411			153,316

Total current liabilities		208,655			220,779
Long-term debt, excluding current portion		191,097			192,367
Deferred income tax liabilities		51,145			47,162
Obligations under capital leases, excluding current portion		33,807			12,756
Other long-term liabilities		44,811			48,443

Total liabilities		529,515			521,507

Redeemable noncontrolling interest in consolidated subsidiary		113,347			—

Equity
Shareholders’ equity:
Common stock — $0.10 par value. Authorized 600,000 shares; 201,331 and 200,860 issued at 2010 and 2009, respectively; 197,337 and 197,180 outstanding at 2010 and 2009, respectively		20,130			20,086
Additional paid-in capital		146,553			139,742
Accumulated other comprehensive income (loss), net		(11,044	)		5,673
Treasury stock, at cost (shares of 3,717 and 3,680 at 2010 and 2009, respectively)		(70,519	)		(69,950	)
Retained earnings		1,153,670			1,080,250

Total shareholders’ equity		1,238,790			1,175,801

Noncontrolling interests in consolidated subsidiaries		14,212			13,646

Total equity		1,253,002			1,189,447

Total liabilities and equity	$	1,895,864			1,710,954

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Condensed Consolidated Statements of Income
(Unaudited)


	Three months ended June 30,						Six months ended June 30,
(in thousands, except per share data)	2010			2009			2010			2009
Total revenues	$	433,746			411,993			849,100			820,927


Cost of services		298,485			280,111			590,677			564,787
Selling, general and administrative expenses		55,963			49,103			100,054			95,246

Total operating expenses		354,448			329,214			690,731			660,033

Operating income		79,298			82,779			158,369			160,894
Nonoperating expenses		(1,172	)		(2,278	)		(1,433	)		(3,737	)

Income from continuing operations before income taxes and equity in income of equity investments		78,126			80,501			156,936			157,157
Income taxes		28,099			29,229			55,982			56,644

Income from continuing operations before equity in income of equity investments		50,027			51,272			100,954			100,513
Equity in income of equity investments, net of tax		2,366			1,626			3,259			2,669

Income from continuing operations, net of tax		52,393			52,898			104,213			103,182
Income (loss) from discontinued operations, net of tax		84			1,120			84			(2,223	)

Net income		52,477			54,018			104,297			100,959
Net income attributable to noncontrolling interests		(2,773	)		(571	)		(3,267	)		(986	)

Net income attributable to TSYS	$	49,704			53,447			101,030			99,973


Basic earnings per share (EPS) (Note 15)*:
Income from continuing operations to TSYS common shareholders	$	0.25			0.27			0.51			0.52
Loss from discontinued operations to TSYS common shareholders		0.00			0.01			0.00			(0.01	)

Net income attributable to TSYS common shareholders	$	0.25			0.27			0.51			0.51


Diluted EPS*:
Income from continuing operations to TSYS common shareholders	$	0.25			0.27			0.51			0.52
Loss from discontinued operations to TSYS common shareholders		0.00			0.01			0.00			(0.01	)

Net income attributable to TSYS common shareholders	$	0.25			0.27			0.51			0.51


Amounts attributable to TSYS common shareholders:
Income from continuing operations	$	49,620			52,327			100,946			102,196
(Loss) income from discontinued operations		84			1,120			84			(2,223	)

Net income	$	49,704			53,447			101,030			99,973


*		Note: Basic and diluted EPS amounts for continuing operations and net income do not total due to rounding.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Condensed Consolidated Statements of Cash Flows
(Unaudited)


	Six months ended June 30,
(in thousands)	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	104,297			100,959
Adjustments to reconcile net income to net cash provided by operating activities:
Net gain on foreign currency		136			3,953
Equity in income of equity investments, net of tax		(3,259	)		(2,669	)
Dividends received from equity investments		2,698			4,718
Depreciation and amortization		78,966			77,967
Amortization of debt issuance costs		77			77
Share-based compensation		7,956			9,237
Excess tax benefit from share-based payment arrangements		(111	)		(6	)
Provisions for (recoveries of) bad debt expenses and billing adjustments		(366	)		646
Charges for transaction processing provisions		2,109			4,014
Deferred income tax expense (benefit)		7,754			(6,502	)
Loss on disposal of equipment, net		11			9
Gain on disposal of subsidiary		(131	)		—
Changes in operating assets & liabilities:
Accounts receivable		(2,698	)		22,198
Prepaid expenses, other current assets and other long-term assets		(25,383	)		18,830
Accounts payable		27,276			(7,376	)
Accrued salaries and employee benefits		(14,031	)		(20,218	)
Other current liabilities and other long-term liabilities		10,407			13,258

Net cash provided by operating activities		195,708			219,095


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net		(17,189	)		(13,784	)
Additions to licensed computer software from vendors		(20,812	)		(12,709	)
Additions to internally developed computer software		(9,406	)		(12,918	)
Cash used in acquisitions, net of cash acquired		(148,531	)		(293	)
Additions to contract acquisition costs		(19,888	)		(17,105	)

Net cash used in investing activities		(215,826	)		(56,809	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings of long-term debt		—			5,334
Dividends paid on common stock		(27,605	)		(27,595	)
Repurchase of common stock		(1,075	)		(329	)
Subsidiary dividends paid to noncontrolling shareholders		(250	)		(235	)
Excess tax benefit from share-based payment arrangements		111			6
Principal payments on long-term debt borrowings and capital lease obligations		(7,858	)		(9,786	)
Proceeds from exercise of stock options		378			2

Net cash used in financing activities		(36,299	)		(32,603	)


CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash and cash equivalents		(5,545	)		(3,422	)

Net increase (decrease) in cash and cash equivalents		(61,962	)		126,261
Cash and cash equivalents at beginning of period		449,955			220,019

Cash and cash equivalents at end of period	$	387,993			346,280


Supplemental cash flow information:
Interest paid	$	1,391			1,753

Income taxes paid, net	$	72,192			(35,511	)

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 — Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Total System Services, Inc. ^® (TSYS ^® or the Company) include the accounts of TSYS and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

These financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts. All adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of financial position and results of operations for the periods covered by this report, have been included.

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s summary of significant accounting policies, consolidated financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Results of interim periods are not necessarily indicative of results to be expected for the year.

Certain reclassifications have been made to the 2009 financial statements to conform to the presentation adopted in 2010.

Note 2 — Discontinued Operations

The Company sold TSYS Debt Management, Inc. (TDM) on August 31, 2009. Final adjustments related to the sale are included in 2010 results. The decision to sell the TDM business was the result of management’s decision to divest non-strategic businesses and focus resources on core products and services. TDM was part of the North America Services segment.

In accordance with the provisions of Accounting Standards Codification (ASC) 205, “Presentation of Financial Statements,” the Company determined that the TDM business became a discontinued operation in the first quarter of 2009.

The following table presents the summarized results of discontinued operations for the three and six months ended June 30, 2010, as compared to 2009:


	Three months ended June 30,				Six months ended June 30,
(in millions)	2010		2009		2010		2009
Revenues before reimbursable items	$	—		7.6		—		15.0
Total revenues		—		60.7		—		127.5
Operating (loss) income		—		1.8		—		(3.5	)
Income taxes		—		0.7		—		(1.2	)

Income (loss) from discontinued operations, net of tax	$	0.1		1.1		0.1		(2.2	)

The Unaudited Condensed Consolidated Statements of Cash Flows included TDM through the date of disposition.

Note 3 — Fair Value Measurement

ASC 820, “Fair Value Measurements and Disclosure,” previously referred to as Statements of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant level of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 – Quoted prices for identical assets and liabilities in active markets.

		Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

		Level 3 – Unobservable inputs for the asset or liability.

In February 2007, the Financial Accounting Standards Board (FASB) issued authoritative guidance under ASC 825, “Financial Instruments,” previously referred to as SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” ASC 825 permits the Company to choose to measure many financial instruments and certain other items at fair value. Upon adoption of the guidance on January 1, 2008, TSYS did not elect the fair value option for any financial instrument it did not currently report at fair value.

Goodwill and certain intangible assets not subject to amortization are assessed annually for impairment in the second quarter of each year using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

The estimate of fair value of the Company’s reporting units is determined using various valuation techniques, including using the combination of the income approach and the market approach. The market approach, which contains Level 2 inputs, utilizes readily available market valuation multiples to estimate fair value. The income approach is a valuation technique that utilizes the discounted cash flow (DCF) method, which includes Level 3 inputs. Under the DCF method, the fair value of the asset reflects the present value of the projected earnings that will be generated by each asset after taking into account the revenues and expenses associated with the asset, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of the invested capital. Cash flows are estimated for future periods based upon historical data and projections by management.

At June 30, 2010, the Company had recorded goodwill in the amount of $317.8 million. The Company performed its annual impairment of its unamortized goodwill balance as of May 31, 2010, and this test did not indicate any impairment. The fair value of the reporting units substantially exceeds the carrying value.

The fair value of the Company’s long-term debt and obligations under capital leases is not significantly different from its carrying value.

Note 4 — Supplementary Balance Sheet Information

Cash and Cash Equivalents

The Company maintains accounts outside the United States denominated in currencies other than the U.S. dollar. All amounts in domestic accounts are denominated in U.S. dollars.

Cash and cash equivalent balances are summarized as follows:


(in thousands)	June 30, 2010		December 31, 2009
Cash and cash equivalents in domestic accounts	$	326,740		403,421
Cash and cash equivalents in foreign accounts		61,253		46,534

Total	$	387,993		449,955

At June 30, 2010 and December 31, 2009, the Company had approximately $388.0 million and $450.0 million, respectively, of cash and cash equivalents of which $33.2 million and $32.2 million was in Money Market accounts that had an original maturity date of 90 days or less. The Company considers cash equivalents to be short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of change in interest rates.

Prepaid Expenses and Other Current Assets

Significant components of prepaid expenses and other current assets are summarized as follows:


(in thousands)	June 30, 2010		December 31, 2009
Prepaid expenses	$	21,618		14,071
Supplies inventory		7,975		10,285
Other		73,328		47,768

Total	$	102,921		72,124

Contract Acquisition Costs, net

Significant components of contract acquisition costs, net of accumulated amortization, are summarized as follows:


(in thousands)	June 30, 2010		December 31, 2009
Conversion costs, net of accumulated amortization of $80.6 million and $75.0 million at 2010 and 2009, respectively	$	74,717		68,953
Payments for processing rights, net of accumulated amortization of $161.4 million and $154.7 million at 2010 and 2009, respectively		50,778		59,085

Total	$	125,495		128,038

Amortization related to payments for processing rights, which is recorded as a reduction of revenues, was $4.6 million and $5.6 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, amortization related to payments for processing rights was $10.4 million and $13.7 million, respectively.

Amortization expense related to conversion costs, which is recorded in cost of services, was $3.8 million and $4.2 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, amortization related to conversion costs was $7.9 million and $8.2 million, respectively.

Other Current Liabilities

Significant components of other current liabilities are summarized as follows:


(in thousands)	June 30, 2010		December 31, 2009
Accrued expenses	$	43,800		33,274
Deferred revenues		32,044		31,243
Dividends payable		13,834		13,828
Client liabilities		7,628		45,824
Transaction processing provisions		4,720		5,483
Client postage deposits		3,459		3,736
Accrued income taxes		2,063		252
Other		20,863		19,676

Total	$	128,411		153,316

Note 5 — Long-Term Debt

Refer to Note 13 of the Company’s audited financial statements for the year ended December 31, 2009, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC, for a discussion regarding long-term debt.

Note 6 — Equity and Noncontrolling Interests

Below is a summary of the changes in the equity and redeemable noncontrolling interests for the six months ended June 30, 2010:


			TSYS Shareholders
										Accumulated
	Redeemable									Other
	Non-						Additional			Comprehensive									Non-
	controlling		Common Stock				paid-in			Income (Loss)			Treasury			Retained			controlling			Total
(in thousands, except per share data)	Interests		Shares		Dollars		Capital			(OCI)			Stock			Earnings			Interests			Equity

Balance, December 31, 2009	$	¾		200,860	$	20,086		139,742			5,673			(69,950	)		1,080,250			13,646		$	1,189,447
Fair value of put option associated with acquisition of FNMS		111,000
Comprehensive income:
Net income		2,347															101,030			920			101,950
Other comprehensive income, net of tax:
Foreign currency translation											(16,350	)								(104	)		(16,454	)
Change in accumulated OCI related to postretirement healthcare plans											(367	)								¾			(367	)

Other comprehensive income											(16,717	)								(104	)		(16,821	)

Comprehensive income																							85,129

Common stock issued from treasury shares for exercise of stock options								(129	)					506									377
Common stock issued for nonvested awards				471		44		(44	)														—
Share-based compensation								7,883															7,883
Cash dividends and dividend equivalents declared ($0.14 per share)																	(27,610	)					(27,610	)
Purchase of treasury shares														(1,075	)								(1,075	)
Subsidiary dividends paid to noncontrolling interests																				(250	)		(250	)
Tax shortfalls associated with share-based payment arrangements								(899	)														(899	)

Balance, June 30, 2010	$	113,347		201,331	$	20,130		146,553			(11,044	)		(70,519	)		1,153,670			14,212		$	1,253,002

Note 7 — Comprehensive Income

For the three months ended June 30, comprehensive income is summarized below:


	Three months ended June 30, 2010									Three months ended June 30, 2009
	TSYS			Noncontrolling						TSYS		Noncontrolling
(in thousands)	Shareholders			Interests			Total			Shareholders		Interests		Total

Net income	$	49,704			2,773		$	52,477		$	53,447		571	$	54,018
OCI, net of tax:
Foreign currency translation adjustments		(3,494	)		(1,978	)		(5,472	)		18,398		245		18,643
Change in accumulated OCI related to postretirement healthcare plans		(404	)		¾			(404	)		46		¾		46

Total	$	45,806			795		$	46,601		$	71,891		816	$	72,707

For the six months ended June 30, comprehensive income is summarized below:


	Six months ended June 30, 2010									Six months ended June 30, 2009
	TSYS			Noncontrolling						TSYS		Noncontrolling
(in thousands)	Shareholders			Interests			Total			Shareholders		Interests			Total

Net income	$	101,030			3,267		$	104,297		$	99,973		986		$	100,959
Other comprehensive income (OCI), net of tax:
Foreign currency translation adjustments		(16,350	)		(104	)		(16,454	)		14,622		(342	)		14,280
Change in accumulated OCI related to postretirement healthcare plans		(367	)		¾			(367	)		67		¾			67

Total	$	84,313			3,163		$	87,476		$	114,662		644		$	115,306

The income tax effects allocated to and the cumulative balance of accumulated other comprehensive income are as follows:

Beginning Balance

Pretax

Ending Balance

(in thousands)

December 31, 2009

Amount

Tax Effect

Net-of-Tax Amount

June 30, 2010

Foreign currency translation adjustments

6,287

(19,256

)

2,905

( 16,351

)

(10,064

)

Change in accumulated OCI related to postretirement healthcare plans

(614

)

(569

)

203

(366

)

(980

)

Total

5,673

(19,825

)

3,108

( 16,717

)

(11,044

)

Consistent with its overall strategy of pursuing international investment opportunities, TSYS adopted the permanent reinvestment exception under ASC 740, “Income Taxes,” previously referred to as Accounting Principles Board Opinion No. 23 (APB 23) “Accounting for Income Taxes — Special Areas,” with respect to future earnings of certain foreign subsidiaries. Its decision to permanently reinvest foreign earnings offshore means TSYS will no longer allocate taxes to foreign currency translation adjustments associated with these foreign subsidiaries accumulated in other comprehensive income.

Note 8 — Share-Based Compensation

The Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC, contains a discussion of the Company’s share-based compensation plans and policy.

Share-Based Compensation

TSYS’ share-based compensation costs are included as expenses and classified as cost of services and selling, general, and administrative expenses. TSYS does not include amounts associated with share-based compensation as costs capitalized as software development and contract acquisition costs, as these awards are typically granted to individuals not involved in capitalizable activities. For the three months ended June 30, 2010, share-based compensation was $5.0 million, compared to $4.0 million for the same period in 2009. Included in the $5.0 million amount for 2010 and $4.0 million amount for 2009 is approximately $2.6 million and $1.0 million, respectively, related to expensing the fair value of stock options. For the six months ended June 30, 2010, share-based compensation was $8.0 million, compared to $9.2 million for the same period in 2009. Included in the $8.0 million amount for 2010 and $9.2 million amount for 2009 is approximately $3.5 million and $3.4 million, respectively, related to expensing the fair value of stock options.

Nonvested and Performance Share Awards

During the first six months of 2010, the Company issued 189,934 shares of TSYS common stock with a market value of $3.0 million to certain key employees and non-management members of its Board of Directors under nonvested stock bonus awards for services to be provided in the future by such officers, directors and employees. The market value of the TSYS common stock at the date of issuance is amortized as compensation expense over the vesting period of the awards.

During the first six months of 2009, the Company issued 457,220 shares of TSYS common stock with a market value of $6.0 million to certain key employees and non-management members of its Board of Directors under nonvested stock bonus awards for services to be provided in the future by such officers, directors and employees. The market value of the TSYS common stock at the date of issuance is amortized as compensation expense over the vesting period of the awards.

As of June 30, 2010, there was approximately $11.5 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted average period of 2.08 years.

During the first six months of 2008, TSYS authorized a total grant of 182,816 shares of nonvested stock to two key executives with a performance schedule (2008 performance shares). These 2008 performance shares have seven one-year performance periods (2008-2014) during each of which the Compensation Committee establishes an earnings per share goal and, if such goal is attained during any performance period, 20% of the performance shares will vest, up to a maximum of 100% of the total grant. Compensation expense for each year’s award is measured on the grant date based on the quoted market price of TSYS common stock and is expensed on a straight-line basis for the year.

As of June 30, 2010, there was approximately $342,000 of total unrecognized compensation cost related to the 2008 grant of nonvested performance share-based compensation arrangements. That cost is expected to be recognized over the remainder of 2010.

On March 31, 2010, TSYS authorized a total grant of 279,831 performance shares to certain key executives with a performance based vesting schedule (2010 performance shares). These 2010 performance shares have a 2010-2012 performance period for which the Compensation Committee established two performance goals: revenues before reimbursables and income from continuing operations and, if such goals are attained in 2012, the performance shares will vest, up to a maximum of 200% of the total grant. Compensation expense for the award is measured on the grant date based on the quoted market price of TSYS common stock. The Company will estimate the probability of achieving the goals through the performance period and will expense the award on a straight-line basis.

As of June 30, 2010, there was approximately $3.9 million of total unrecognized compensation cost related to the 2010 performance shares compensation arrangement. That cost is expected to be recognized until the end of 2012.

Stock Option Awards

On April 30, 2010, the Company granted 1.4 million stock options to key TSYS executive officers that are performance- and/or market conditions-based. The options will vest if basic EPS in 2012 is at least $1.115, or the stock price of TSYS common stock on April 30, 2013 is at least 1.25 times the grant date price. Given the market conditions component, TSYS evaluated the impact using the Monte Carlo simulation to value these awards and ultimately determined that the impact was minimal. The average fair value of the option grants was $3.48 per option and was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions: exercise price of $16.19; risk-free interest rate of 2.07%; expected volatility of 30.0%; expected term of 4.0 years; and dividend yield of 1.79%.

During the first six months of 2010, the Company also granted 736,389 stock options to key TSYS executive officers. The average fair value of the option grant was $5.33 per option and was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions: exercise price of $15.66; risk-free interest rate of 3.77%; expected volatility of 30.0%; expected term of 8.6 years; and dividend yield of 1.79%. The grant will vest over a period of 3 years.

During the first six months of 2009, the Company granted 1,047,949 million stock options to key TSYS executive officers. The average fair value of the option grant was $5.31 per option and was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions: exercise price of $13.11; risk-free interest rate of 3.19%; expected volatility of 42.00%; expected term of 8.6 years; and dividend yield of 2.14%. The grant will vest over a period of 3 years.

As of June 30, 2010, there was approximately $10.7 million of total unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 2.16 years.

Note 9 — Income Taxes

TSYS is the parent of an affiliated group that files a consolidated U.S. federal income tax return and most state and foreign income tax returns on a separate entity basis. In the normal course of business, the Company is subject to examinations by these taxing authorities unless statutory examination periods lapse. TSYS is no longer subject to U.S. federal income tax examinations for years before 2006 and with a few exceptions, the Company is no longer subject to income tax examinations from state, local or foreign authorities for years before 2001. There are currently no federal tax examinations in progress. However, a number of tax examinations are in progress by the relevant foreign and state tax authorities. Although TSYS is unable to determine the ultimate outcome of these examinations, TSYS believes that its liability for uncertain tax positions relating to these jurisdictions for such years is adequate.

TSYS’ effective tax rate attributable to continuing operations was 36.2% and 35.9% for the three months ended June 30, 2010 and June 30, 2009, respectively. TSYS’ effective tax rate attributable to continuing operations was 35.7% and 35.8% for the six months ended June 30, 2010 and June 30, 2009, respectively. The decreased rate during the June 30, 2010 period was mostly due to changes in the jurisdictional sources of income.

TSYS adopted the provisions of ASC 740, “Income Taxes,” previously referred to as Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109,” on January 1, 2007. This interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken in a tax return. The amount of unrecognized tax benefits did not change significantly during the six months ended June 30, 2010.

TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax expense in the condensed consolidated statements of income. Gross accrued interest and penalties on unrecognized tax benefits totaled $1.1 million and $0.7 million as of June 30, 2010 and December 31, 2009, respectively. The total amounts of unrecognized income tax benefits as of June 30, 2010 and December 31, 2009 that, if recognized, would affect the effective tax rates are $4.5 million and $4.2 million (net of the federal benefit on state tax issues), respectively, which include interest and penalties of $0.9 million and $0.6 million. TSYS does not expect any material changes to its calculation of uncertain tax positions during the next twelve months.

Note 10 — Segment Reporting and Major Customers

The Company reports selected information about operating segments in accordance with ASC 280, “Segment Reporting,” previously referred to as SFAS No. 131, “ Disclosures about Segments of an Enterprise and Related Information .” The Company’s segment information reflects the information that the chief operating decision maker (CODM) uses to make resource allocations and strategic decisions. The CODM at TSYS consists of the chairman of the board and chief executive officer, the president and the four senior executive vice presidents.

TSYS provides electronic payment processing and other services to card-issuing and merchant acquiring institutions in the United States and internationally through online accounting and electronic payment processing systems. During the first quarter of 2010, TSYS reorganized its operating segments in a manner that reflects the way the CODM now views the business. The change involved accumulating corporate administration expenses, such as finance, legal, human resources, mergers and acquisitions and investor relations, that existed in all operating segments and categorizing them as Corporate Administration.

North America Services includes electronic payment processing services and other services provided from within the North America region. International Services includes electronic payment processing and other services provided from outside the North America region. Merchant Services includes electronic processing and other services provided to merchant acquiring institutions.

Operating Segments


	Three months ended June 30,												Six months ended June 30,
							Change												Change
(in thousands)	2010			2009			$			%			2010			2009			$			%

Revenues before reimbursable items
North America Services	$	202,061			222,950			(20,889	)		(9.4	)	$	417,371			446,732			(29,361	)		(6.6	)
International Services		74,769			73,283			1,486			2.0			151,050			143,867			7,183			5.0
Merchant Services		94,748			62,153			32,595			52.4			153,411			120,359			33,052			27.5
Intersegment revenues		(5,980	)		(7,664	)		1,684			(22.0	)		(11,682	)		(14,791	)		3,109			(21.0	)

Revenues before reimbursable items from external customers	$	365,598			350,722			14,876			4.2		$	710,150			696,167			13,983			2.0


Total revenues
North America Services	$	236,810			264,984			(28,174	)		(10.6	)	$	491,038			533,773			(42,735	)		(8.0	)
International Services		77,987			76,433			1,554			2.0			157,379			150,234			7,145			4.8
Merchant Services		126,765			80,338			46,427			57.8			215,974			155,836			60,138			38.6
Intersegment revenues		(7,816	)		(9,762	)		1,946			(19.9	)		(15,291	)		(18,916	)		3,625			(19.2	)

Revenues from external customers	$	433,746			411,993			21,753			5.3		$	849,100			820,927			28,173			3.4


Depreciation and amortization
North America Services	$	18,891			20,799			(1,908	)		(9.2	)	$	39,294			44,029			(4,735	)		(10.8	)
International Services		8,597			8,424			173			2.1			17,192			15,849			1,343			8.5
Merchant Services		12,302			8,149			4,153			51.0			20,888			16,235			4,653			28.7
Corporate Administration		612			922			(310	)		(33.6	)		1,592			1,658			(66	)		(4.0	)

Total depreciation and amortization	$	40,402			38,294			2,108			5.5		$	78,966			77,771			1,195			1.5

Operating Segments


	Three months ended June 30,												Six months ended June 30,
							Change												Change
(in thousands)	2010			2009			$			%			2010			2009			$			%

Segment operating income
North America Services	$	66,218			70,558			(4,340	)		(6.2	)	$	136,006			142,052			(6,046	)		(4.3	)
International Services		11,673			12,836			(1,163	)		(9.1	)		22,956			22,367			589			2.6
Merchant Services		22,928			16,690			6,238			37.4			40,253			32,209			8,044			25.0
Corporate Administration		(21,521	)		(17,305	)		(4,216	)		24.4			(40,846	)		(35,734	)		(5,112	)		14.3

Operating income	$	79,298			82,779			(3,481	)		(4.2	)	$	158,369			160,894			(2,525	)		(1.6	)


							Change
	At June 30, 2010			At December 31, 2009			$			%

Total assets
North America Services	$	1,589,005			1,535,129			53,876			3.5
International Services		380,211			379,606			605			0.2
Merchant Services		504,426			215,855			288,571			133.7
Intersegment assets		(577,778	)		(419,636	)		(158,142	)		37.7

Total assets	$	1,895,864			1,710,954			184,910			10.8

Revenues by Geographic Area

Revenues for North America Services and Merchant Services include electronic payment processing and other services provided from the United States to clients domiciled in the United States or other countries. Revenues for International Services include electronic payment processing and other services provided from facilities outside the United States to clients based predominantly outside the United States.

The following geographic data presents revenues based on the domicile of the Company’s customers.


	Three months ended June 30,				Six months ended June 30,
(in millions)	2010		2009		2010		2009
United States	$	314.4		297.4		609.8		597.9
Europe*		57.9		60.7		120.4		118.5
Canada		37.7		33.5		74.4		64.1
Japan*		14.9		11.1		27.1		22.2
Mexico		1.7		2.0		3.5		4.2
Other		7.1		7.3		13.9		14.0

Total	$	433.7		412.0		849.1		820.9


*		Revenues are impacted by movements in foreign currency exchange rates. Refer to the discussion under “Revenues” in the Results of Operations.

The following table reconciles geographic revenues to revenues by operating segment based on the domicile of the Company’s customers.


	Three months ended June 30,
	North America Services				International Services				Merchant Services
(in millions)	2010		2009		2010		2009		2010		2009
United States	$	189.2		217.7		0.4		—		124.8		79.7
Europe		0.2		0.2		57.7		60.5		—		—
Canada		37.6		33.4		—		—		0.1		0.1
Japan		—		—		14.9		11.1		—		—
Mexico		1.7		2.0		—		—		—		—
Other		2.3		2.9		4.4		4.2		0.4		0.2

Total	$	231.0		256.2		77.4		75.8		125.3		80.0


	Six months ended June 30,
	North America Services				International Services				Merchant Services
(in millions)	2010		2009		2010		2009		2010		2009
United States	$	396.0		443.4		0.4		—		213.4		154.5
Europe		0.4		0.4		120.0		118.1		—		—
Canada		74.1		63.9		—		—		0.3		0.2
Japan		—		—		27.1		22.2		—		—


	Six months ended June 30,
	North America Services				International Services				Merchant Services
(in millions)	2010		2009		2010		2009		2010		2009
Mexico		3.5		4.2		—		—		—		—
Other		4.5		5.1		8.8		8.5		0.6		0.4

Total	$	478.5		517.0		156.3		148.8		214.3		155.1

The Company maintains property and equipment, net of accumulated depreciation and amortization, in the following geographic areas:


(in millions)	At June 30, 2010		At December 31, 2009
United States	$	205.7		203.6
Europe		57.3		60.7
Japan		7.3		6.4
Other		22.7		18.5

Total	$	293.0		289.2

Major Customers

For the three months ended June 30, 2010, the Company had one major customer which accounted for approximately 13%, or $56.6 million, of total revenues. For the three months ended June 30, 2009, this major customer accounted for approximately 12.6%, or $51.7 million, of total revenues. For the six months ended June 30, 2010, the Company had one major customer which accounted for approximately 13%, or $111.3 million, of total revenues. For the six months ended June 30, 2009, this major customer accounted for approximately 12.8%, or $104.9 million, of total revenues. Revenues from major customers for the periods reported are primarily attributable to the North America Services and Merchant Services segments.

Note 11 — Supplementary Cash Flow Information

Contract Acquisition Costs

Cash used for contract acquisition costs are summarized as follows:


	Six months ended June 30,
(in thousands)	2010		2009
Conversion costs	$	15,988		14,394
Payments for processing rights		3,900		2,711

Total	$	19,888		17,105

Nonvested Awards

During the first six months of 2010 and 2009, the Company issued shares of common stock to certain key employees and non-management members of its Board of Directors under nonvested stock bonus awards for services to be provided by such key employees and directors in the future. Refer to Note 8 for more information.

Equipment and Software Acquired Under Capital Lease Obligations

The Company acquired equipment and software under capital lease obligations in the amount of $14.9 million during 2010 related to storage and other peripheral hardware. The Company acquired equipment and software under capital lease obligations in the amount of $4.3 million during 2009 related to storage and other peripheral hardware.

Note 12 — Legal Proceedings

The Company is subject to various legal proceedings and claims and is also subject to information requests, inquiries and investigations arising out of the ordinary conduct of its business. In the opinion of management, based in part upon the advice of legal counsel, all matters are believed to be adequately covered by insurance, or if not covered, are believed to be without merit or are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably. The Company establishes reserves for litigation and similar matters when those

matters present loss contingencies that TSYS determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies,” previously referred to as SFAS No. 5, “Accounting for Contingencies. ”

Note 13 — Guarantees and Indemnifications

The Company has entered into processing and licensing agreements with its clients that include intellectual property indemnification clauses. The Company generally agrees to indemnify its clients, subject to certain exceptions, against legal claims that TSYS’ services or systems infringe on certain third party patents, copyrights or other proprietary rights. In the event of such a claim, the Company is generally obligated to hold the client harmless and pay for related losses, liabilities, costs and expenses, including, without limitation, court costs and reasonable attorney’s fees. The Company has not made any indemnification payments pursuant to these indemnification clauses. In addition, the Company has indemnification obligations to Synovus Financial Corp. pursuant to the disaffiliation and related agreements entered into by the parties in connection with the spin-off.

The Company has not recorded a liability for guarantees or indemnities in the accompanying condensed consolidated balance sheets, since neither a range nor a maximum amount of potential future payments under such guarantees and indemnities is determinable.

Note 14 — Business Combinations

First National Merchant Solutions

On March 1, 2010, TSYS announced the signing of an Investment Agreement with First National Bank of Omaha (FNBO) to form a new joint venture company, First National Merchant Solutions, LLC (FNMS).

FNMS offers transaction processing, merchant support and underwriting, and business and value-added services, as well as Visa ^® - and MasterCard ^® -branded prepaid cards for businesses of any size.

Under the terms of the Investment Agreement, TSYS acquired 51 percent ownership of FNMS Holding, LLC (“FNMS Holding”), which owns 100 percent of FNMS, for approximately $150.5 million, while FNBO owns the remaining 49 percent. The transaction closed on April 1, 2010. Unless otherwise specified in this filing, references to FNMS shall include both FNMS and FNMS Holding, collectively.

The goodwill amount of $151.8 million arising from the acquisition consists largely of synergies and economies of scale expected to be realized from combining the operations of TSYS and FNMS. FNMS is included within the Merchant Services segment, and as such, all of the goodwill was assigned to such. The goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the consideration paid for FNMS and the amounts of the assets acquired and liabilities assumed recognized on April 1, 2010 (the acquisition date), as well as the fair value at the acquisition date of the noncontrolling interest in FNMS. TSYS assumed no liabilities in connection with the acquisition.


(in thousands)

Consideration :
Cash	$	150,450
Equity instruments		—
Contingent consideration arrangement		—

Fair value of total consideration transferred		150,450
Fair value of TSYS’ equity interest in FNMS held before the business combination		—

	$	150,450

Acquisition-related costs (included in selling, general, and administrative expenses in TSYS’ income statement for the six months ended June 30, 2010)	$	3,621


Preliminary recognized amounts of identifiable assets acquired and liabilities assumed :
Cash	$	1,919
Property and equipment		2,101
Identifiable intangible assets		104,400
Other assets		1,204
Financial liabilities		—
Liability arising from a contingency		—

Total identifiable net assets	$	109,624
Noncontrolling interest in FNMS		(111,000	)
Goodwill		151,826

	$	150,450

The Investment Agreement includes a contingent right of TSYS to receive a return of consideration paid (“contingently returnable consideration”) if certain specified major customer contracts are terminated or modified prior to the first anniversary of the closing. Contingently returnable consideration is recognized as an asset and measured at fair value. Based upon the probability of outcomes, TSYS has determined the fair value of the contingently returnable consideration would approximate zero. The maximum amount of contingently returnable consideration is not significant.

The fair value of the acquired identifiable intangible assets of $104.4 million was estimated using the income approach (discounted cash flow and relief from royalty methods) and cost approach. At the time of the acquisition, TSYS had identified certain intangible assets that are expected to generate future earnings for the Company: customer-related intangible assets (such as customer lists), contract-based intangible assets (such as referral agreements), technology, and trademarks. The useful lives of the identified intangible assets were primarily determined by forecasted cash flows, which include estimates for certain assumptions such as revenues, expenses, attrition rates, and royalty rates. The useful lives of these identified assets ranged from 3 to 10 years and are being amortized on a straight-line basis.

This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. Key assumptions include (a) cash flow projections based on market participant and internal data, (b) a discount rate range of 4 percent to 14 percent, (c) a royalty rate range of 1.5 percent to 7 percent, (d) an attrition rate range of 10 percent to 30 percent, and (e) an effective tax rate of approximately 36 percent.

The fair value of the noncontrolling interest in FNMS, owned by a private company, was estimated by applying the income and market approaches. In particular, a discounted cash flow method, a guideline companies method, and a recent equity transaction were employed. This fair value measurement is based on significant inputs that are both observable (Level 2) and non-observable (Level 3) in the market as defined in ASC 820. Key assumptions include (a) cash flow projections based on market participant data and developed by Company management, (b) a discount rate range of 12 percent to 14 percent, (c) a terminal value based on long-term sustainable growth rates ranging between 3 percent and 5 percent, (d) an effective tax rate of approximately 36 percent, (e) financial multiples of companies deemed to be similar to FNMS, and (f) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in FNMS

The amounts of FNMS’ revenue and earnings included in TSYS’ consolidated income statement for the three months and six months ended June 30, 2010, and the revenue and earnings of the combined entity had the acquisition date been January 1, 2010, or January 1, 2009, are:


(in thousands)	Revenue		Net Income

Quarter

Actual from 4/1/2010-6/30/2010	$	433,746	$	49,704
Actual from 4/1/2009-6/30/2009	$	411,993	$	53,447
Supplemental pro forma for 4/1/2009-6/30/2009	$	438,070	$	54,501


Year-to-Date

Actual from 1/1/2010-6/30/2010	$	849,100	$	101,030
Actual from 1/1/2009-6/30/2009	$	820,927	$	99,973
Supplemental pro forma for 1/1/2010-6/30/2010	$	876,767	$	104,736
Supplemental pro forma for 1/1/2009-6/30/2009	$	872,793	$	102,254

Note 15 – Earnings Per Share

In June 2008, the FASB issued authoritative guidance under ASC 260, “Earnings Per Share,” previously referred to as FASB Staff Position EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” The guidance under ASC 260 holds that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are “participating securities” as defined in ASC 260, previously referred to as EITF 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128, ‘Earnings per Share,’” and therefore should be included in computing earnings per share (EPS) using the two-class method.

The two-class method is an earnings allocation method for computing EPS when an entity’s capital structure includes two or more classes of common stock or common stock and participating securities. It determines EPS based on dividends declared on common stock and participating securities and participation rights of participating securities in any undistributed earnings.

The following table illustrates basic and diluted EPS under the guidance of ASC 260 for the three months ended June 30, 2010 and 2009:


	Three months ended					Three months ended
	June 30, 2010					June 30, 2009
(in thousands, except	Common			Participating		Common			Participating
per share data)	Stock			Securities		Stock			Securities

Basic EPS:
Net income	$	49,704					53,447
Less income allocated to nonvested awards		(250	)		250		(413	)		413

Net income allocated to common stock for EPS calculation (a)	$	49,454			250		53,034			413

Average common shares outstanding (b)		196,347			998		195,634			1,530

Basic EPS (a)/(b)	$	0.25			0.25		0.27			0.27


Diluted EPS:
Net income	$	49,704					53,447
Less income allocated to nonvested awards		(250	)		250		(413	)		413

Net income allocated to common stock for EPS calculation (c)	$	49,454			250		53,034			413

Average common shares outstanding		196,347			998		195,634			1,530
Increase due to assumed issuance of shares related to common equivalent shares outstanding		85					351

Average common and common equivalent shares and participating securities (d)		196,432			998		195,985			1,530

Diluted EPS (c)/(d)	$	0.25			0.25		0.27			0.27

The following table illustrates basic and diluted EPS under the guidance of ASC 260 for the six months ended June 30, 2010 and 2009:


	Six months ended					Six months ended
	June 30, 2010					June 30, 2009
(in thousands, except	Common			Participating		Common			Participating
per share data)	Stock			Securities		Stock			Securities

Basic EPS:
Net income	$	101,030					99,973
Less income allocated to nonvested awards		(514	)		514		(816	)		816

Net income allocated to common stock for EPS calculation (a)	$	100,516			514		99,157			816

Average common shares outstanding (b)		196,254			1,007		195,466			1,614

Basic EPS (a)/(b)	$	0.51			0.51		0.51			0.51


Diluted EPS:
Net income	$	101,030					99,973
Less income allocated to nonvested awards		(514	)		514		(815	)		815

Net income allocated to common stock for EPS calculation (c)	$	100,516			514		99,158			815

Average common shares outstanding		196,254			1,007		195,466			1,614
Increase due to assumed issuance of shares related to common equivalent shares outstanding		87					358

Average common and common equivalent shares and participating securities (d)		196,341			1,007		195,824			1,614

Diluted EPS (c)/(d)	$	0.51			0.51		0.51			0.51

The diluted EPS calculation excludes stock options and nonvested awards that are convertible into 8.6 million common shares for the three and six months ended June 30, 2010 and excludes 6.8 million common shares for the three and six months ended June 30, 2009 because their inclusion would have been anti-dilutive.

Note 16 — Redeemable Noncontrolling Interests

In connection with the acquisition of FNMS, the Company is party to call and put arrangements with respect to the membership units that represent the remaining noncontrolling interest of FNMS Holding. The call arrangement is exercisable by TSYS and the put arrangement is exercisable by FNBO. The put arrangement is outside the control of the Company by requiring the Company to purchase FNBO’s entire equity interest in FNMS Holding at a put price at fair market value. The put arrangement is recorded on the balance sheet and is classified as redeemable noncontrolling interest outside of permanent equity.

The call and put arrangements for FNMS Holding, representing 49% of its total outstanding equity interests, may be exercised at the discretion of TSYS or FNBO on April 1, 2015, 2016 and 2017, upon the dilution of FNBO’s equity ownership in FNMS Holding below a designated threshold and in connection with certain acquisitions by TSYS or FNMS Holding in excess of designated value thresholds.

The Company believes the put option is not currently redeemable, but it is probable based upon the passage of time of the anniversary dates. As such, the Company has adopted the accounting policy to accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date, which the Company believes to be five years. If the put option was currently redeemable, the redemption value at June 30, 2010 is estimated to be approximately $155.6 million. The Company did not accrete any changes to the redemption value due to the balance at June 30, 2010 exceeded the accretion fair value amount.

Note 17 — Recent Accounting Pronouncements

The Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC, contains a discussion of recent accounting pronouncements and the expected impact on the Company’s financial statements.

Accounting Standards Update No. 2010-17, “ Revenue Recognition — Milestone Method (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force)”

In April 2010, the Task Force issued Accounting Standards Update No. 2010-17 (ASU 2010-17), " Revenue Recognition (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. ASU 2010-17 will be effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2010-17 on its financial position, results of operations and cash flows, but has yet to complete its assessment.

Accounting Standards Update No. 2010-13, “ Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (A consensus of the FASB Emerging Issues Task Force)”

In April 2010, the Task Force issued Accounting Standards Update No. 2010-13 (ASU 2010-13), " Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus that an employee share-based payment with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade should be considered an equity classified award assuming all other criteria for equity classification are met. ASU 2010-13 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2010-13 on its financial position, results of operations and cash flows, but has yet to complete its assessment.

Note 18 — Subsequent Events

Management performed an evaluation of the Company’s activity through the date these unaudited financial statements were issued, and has concluded that there are no significant subsequent events requiring disclosure.

TOTAL SYSTEM SERVICES, INC.

Item 2 — Management’s Discussion and Analysis of Financial

Condition and Results of Operations

Financial Overview

Total System Services, Inc.’s (TSYS’ or the Company’s) revenues are derived from providing payment processing, merchant services and related services to financial and nonfinancial institutions, generally under long-term processing contracts. The Company’s services are provided through three of the Company’s operating segments: North America Services, International Services and Merchant Services. Through the Company’s North America Services and International Services segments, TSYS processes information through its cardholder systems to financial and nonfinancial institutions throughout the United States and internationally. The Company’s North America Services segment provides these services in the United States to clients in the United States, Canada, Mexico and the Caribbean.

The Company’s International Services segment provides services in England, Japan and Brazil to clients in the United States, Europe, Asia Pacific and Brazil.

The Company’s Merchant Services segment provides merchant services to financial institutions and other organizations, predominately in the United States.

For a detailed discussion regarding the Company’s Operations, 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, 2009.

A summary of the financial highlights for 2010, as compared to 2009, is provided below:


	Three months ended June 30,								Six months ended June 30,
(in millions, except per share data and employees)	2010		2009		Percent Change			2010		2009		Percent Change
Total revenues	$	433.7		412.0		5.3	%	$	849.1		820.9		3.4	%
Operating income		79.3		82.8		(4.2	)		158.4		160.9		(1.6	)
Net income attributable to TSYS common shareholders		49.7		53.4		(7.0	)		101.0		100.0		1.1
Cash flows from operating activities		67.0		120.4		(44.4	)		195.7		219.1		(10.7	)
Other:
Average accounts on file		327.0		347.9		(6.0	)		328.7		348.9		(5.8	)
Cardholder transactions processed		1,861.5		1,793.5		3.8			3,601.0		3,522.3		2.2
Average full-time equivalent employees (FTE)		7,722		8,040		(4.0	)		7,660		7,987		(4.1	)

Significant highlights for 2010 include:

Consolidated

•

Announced a partnership agreement with Serverside Group to launch TSYS Card Shop, a digital card fulfillment and marketing solution that combines ‘on-demand’ manufacturing processes with industry-leading card management and customization capabilities.

North America

	•		Signed an agreement with Caterpillar Financial Services Corporation, the financial arm of Caterpillar Inc. Under terms of the agreement, TSYS’ industry leading TS2 ^® platform will be used to process commercial credit accounts.

	•		Announced the signing of a new long-term agreement with U.S. Bank to continue to support the bank’s commercial card payment services, as well as become its exclusive partner in providing card processing services for the bank’s Consumer Directed Healthcare benefit cards, issued by its Healthcare Payment Solutions business line.

	•		Introduced an innovative payment card that allows consumers to choose how they want to pay through the patent-pending TSYS Hybrid ^SM product which combines credit and checking payment functionality on a single card, creating an easy-to-manage payment solution that gives consumers greater financial control.

	•		Announced the signing of a multi-year strategic marketing alliance agreement with Alaska Option Ò to provide feature-rich VISA and MasterCard credit and signature debit card programs, PIN-based ATM/POS network services, and fraud management solutions for credit unions.

	•		Announced an agreement with Lighthouse1, an industry leader in consumer-driven healthcare (CDH) administration software solutions, to provide an integrated end-to-end healthcare payment solution.

International

	•		Announced the signing of a multi-year payment services agreement with Degussa Bank of Germany to provide a broad range of products and services for its corporate and business clients.

	•		Signed an agreement to provide B+S Card Service with back-office merchant acceptance services across Europe.

	•		Announced it will provide card and payments services to Cedacri through its fully outsourced processing solution.

	•		Announced that SBI Sumishin Net Bank, one of the leading internet-based banks in Japan, selected TSYS to process its payment card portfolio.

	•		Announced the extension of Canadian Imperial Bank of Commerce’s (CIBC) payment services agreement with a multi-year contract renewal for the processing of CIBC’s Visa consumer credit card portfolio.

	•		Announced an agreement to support Tesco Bank’s credit card business in the UK with full customer account management services using the TS2 ^® processing platform.

Merchant

	•		Signed a joint venture agreement with First National Bank of Omaha (FNBO) to form a new company, First National Merchant Solutions, LLC (FNMS). Ranked as the 10th-largest merchant acquirer in North America by dollar volume, FNMS has a 57-year history in the acquiring industry with more than 300,000 merchant outlets in its diverse portfolio.

	•		Announced the signing of an agreement to provide authorization and capture services to Central Payment Co., one of the fastest-growing, transaction processing providers in the country.

	•		Announced a multi-year extension of their multi-currency processing agreement with Planet Payment ^® . Under the agreement, TSYS Acquiring Solutions will continue to offer Planet Payment’s Dynamic Currency Conversion and Multi-Currency Pricing solutions to its customers.

	•		Announced the extension of its agreement with Sage Payment Solutions, the payments division for Sage North America, to be their exclusive provider of authorization, settlement and terminal deployment services.

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

With the acquisition of a controlling interest in FNMS, the Company added a new critical accounting policy to the Company’s critical accounting policies, estimates and assumptions.

RESERVE FOR MERCHANT LOSSES: The Company has potential liability for losses resulting from disputes between a cardholder and a merchant that arise as a result of, among other things, the cardholder’s dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer by the card-issuing bank and charged to the merchant. If the merchant is unable to fund the refund, FNMS must do so. FNMS also bears the risk of reject losses arising from the fact that FNMS collects fees from its merchants on the first day after the monthly billing period. If the merchant has gone out of business during such

period, FNMS may be unable to collect such fees. FNMS maintains cash deposits or requires the pledge of a letter of credit from certain merchants, generally those with higher average transaction size where the card is not present when the charge is made or the product or service is delivered after the charge is made, in order to offset potential contingent liabilities such as chargebacks and reject losses that would arise if the merchant went out of business. Most chargeback and reject losses are charged to cost of services as they are incurred. However, the Company also maintains a loss reserve against losses, including major fraud losses, which are both less predictable and involve larger amounts. The loss reserve was established using historical loss rates, applied to recent bankcard processing volume. TSYS only acquired liabilities as of April 1, 2010 on a go forward basis and thus, has no material merchant loss reserve recorded.

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,” and 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, 2009.

Related Party Transactions

The Company believes the terms and conditions of transactions between the Company and its equity investments, Total System Services de México, S.A. de. C.V. (TSYS de México) and China UnionPay Data Co., Ltd. (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 ASC 740, “Income Taxes,” previously referred to as FASB Interpretation No. 48 (FIN 48), at June 30, 2010 is $3.6 million. Refer to Note 9 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 Annual Report on Form 10-K for the year ended December 31, 2009, total contractual cash obligations at December 31, 2009 were estimated at $415.0 million. These contractual cash obligations include lease payments and software arrangements.

Redeemable Noncontrolling Interest: With the acquisition of FNMS, the Company is a party to put and call arrangements with respect to the membership units that represent the remaining noncontrolling interest of FNMS Holding. The call and put arrangements may be exercised at the discretion of TSYS or FNBO on April 1, 2015, 2016 and 2017, upon the dilution of FNBO’s equity ownership in FNMS Holding below a designated threshold and in connection with certain acquisitions by TSYS or FNMS Holding in excess of designated value thresholds. Refer to Note 14 of the Notes to the Unaudited Condensed Consolidated Financial Statements for more information on the acquisition of FNMS.

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 and six months ended June 30, 2010 and 2009, respectively:


	Three months ended June 30,									Six months ended June 30,
							Percent Change in									Percent Change in
	% of Total Revenue						Dollar Amounts			% of Total Revenue						Dollar Amounts
	2010			2009			2010 vs. 2009			2010			2009			2010 vs. 2009
Total revenues		100.0	%		100.0	%		5.3	%		100.0	%		100.0	%		3.4	%
Cost of services		68.8			67.9			6.6			69.5			68.7			4.6
Selling, general and administrative expenses		12.9			12.0			14.0			11.8			11.7			5.0

Total operating expenses		81.7			79.9			7.7			81.3			80.4			4.7

Operating income		18.3			20.1			(4.2	)		18.7			19.6			(1.6	)
Nonoperating expenses		(0.3	)		(0.6	)		48.6			(0.2	)		(0.5	)		61.6


	Three months ended June 30,									Six months ended June 30,
							Percent Change in									Percent Change in
	% of Total Revenue						Dollar Amounts			% of Total Revenue						Dollar Amounts
	2010			2009			2010 vs. 2009			2010			2009			2010 vs. 2009
Income from continuing operations before income taxes and equity in income of equity investments		18.0			19.5			(2.9	)		18.5			19.1			(0.1	)
Income taxes		6.5			7.1			(0.4	)		6.6			6.9			(1.2	)

Income from continuing operations before equity in income of equity investments		11.5			12.4			(2.4	)		11.9			12.2			0.4
Equity in income of equity investments		0.6			0.4			45.5			0.4			0.4			22.1

Income from continuing operations, net of tax		12.1			12.8			(1.0	)		12.3			12.6			1.0
(Loss) income from discontinued operations, net of tax		0.0			0.3			(92.5	)		0.0			(0.3	)	nm

Net income		12.1			13.1			(2.9	)		12.3			12.3			3.3
Net income attributable to the noncontrolling interests		(0.6	)		(0.1	)	nm				(0.4	)		(0.1	)	nm

Net income attributable to TSYS		11.5	%		13.0	%		(7.0	)%		11.9	%		12.2	%		1.1	%


nm = not meaningful

Revenues

The Company generates revenues by 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 revenues are impacted by currency translation of foreign operations, as well as doing business in the current economic environment.

Total revenues increased $21.8 million and $28.2 million, or 5.3% and 3.4%, during the three and six months ended June 30, 2010, respectively, compared to the same period in 2009. The increase in revenues for the three and six months ended June 30, 2010 includes a decrease of $1.3 million and an increase of $4.5 million, respectively, related to the effects of currency translation of foreign-based subsidiaries and branches. The Company has included reimbursements received for out-of-pocket expenses as revenues and expenses. The largest reimbursable expense item for which TSYS is reimbursed by clients is postage. The Company’s reimbursable items are impacted with changes in postal rates and changes in the volumes of all mailing activities by its clients. Reimbursable items for the three and six months ended June 30, 2010 were $68.1 million and $139.0 million, an increase of $6.9 million or 11.2% and $14.2 million or 11.4%, respectively, compared to $61.3 million and $124.8 million for the same periods last year. The increase in reimbursable items was the result of increased Visa access fees. Excluding reimbursable items, revenues increased $14.9 million and $14.0 million, or 4.2% and 2.0%, during the three and six months ended June 30, 2010, respectively, compared to the same period in 2009.

The impact of the acquisition of FNMS was approximately $29.9 million in revenues for the three and six months ended June 30, 2010.

Major Customers

A significant amount of the Company’s revenues is derived from long-term contracts with large clients, including a major customer. TSYS derives revenues from providing various processing and other services to these clients, including processing of consumer and commercial accounts, as well as revenues for reimbursable items. The loss of the Company’s major customer could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

In June 2009, Bank of America announced that it formed a new joint venture to provide merchant services. TSYS provides accounting, settlement, authorization and other services to Bank of America pursuant to a contract that expired in April 2010, which services accounted for approximately 6.2% and 4.2% of TSYS’ total revenues for 2010 and 2009, respectively.

Bank of America has indicated to TSYS that it is in the process of formulating its plans with respect to changes in its merchant 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 47% and 31% of the total revenues derived from providing merchant services to Bank of America are attributable to reimbursable items for 2010 and 2009, respectively, which are provided at no margin.

The loss of Bank of America as a merchant services client is not expected to have a material adverse effect on TSYS’ financial position, results of operations or cash flows.

Revenues from the major customer for the periods reported are primarily attributable to the North America Services segment and Merchant Services segment.

Accounts on File (AOF) Data


					Percent
(in millions)	2010		2009		Change
At June 30, 2010		332.8		349.5		(4.8	)
Quarter-to-date (QTD) Average		327.0		347.9		(6.0	)
Year-to-date (YTD) Average		328.7		348.9		(5.8	)

AOF by Portfolio Type


	At June 30,
	2010				2009				Percent
(in millions)	AOF		%		AOF		%		Change
Consumer		180.9		54.4		191.2		54.7		(5.4	)
Commercial		48.1		14.5		44.4		12.7		8.4
Stored value		47.6		14.3		34.3		9.8		38.7
Government services		27.0		8.1		22.4		6.4		20.4
Retail		23.7		7.1		51.7		14.8		(54.3	)
Debit		5.0		1.5		5.4		1.5		(6.2	)
Healthcare		0.5		0.1		0.1		0.1	nm

Total		332.8		100.0		349.5		100.0		(4.8	)


nm = not meaningful

Activity in AOF


	June 2009 to			June 2008 to
(in millions)	June 2010			June 2009
Beginning balance		349.5			372.9
Internal growth of existing clients		22.5			30.6
New clients		31.4			23.1
Purges/Sales		(41.2	)		(37.0	)
Deconversions		(29.4	)		(40.1	)

Ending balance		332.8			349.5

TSYS’ services are provided through three of its operating segments: North America Services, International Services and Merchant Services.

A summary of each segment’s results follows:

North America Services

The North America Services segment provides payment processing and related services to clients based primarily in North America. This segment has two major customers.

Below is a summary of the North America Services segment:


	Three months ended June 30,									Six months ended June 30,
(in millions, except per share data and employees)	2010			2009			Percent Change			2010			2009			Percent Change
Total revenues	$	236.8			265.0			(10.6	)%	$	491.0			533.8			(8.0	)%
Operating income		66.2			70.6			(6.2	)		136.0			142.1			(4.3	)
Operating Margin		28.0	%		26.6	%					27.7	%		26.6	%
Key indicators:
AOF											290.7			311.7			(6.8	)
Transactions		1,563.7			1,522.3			2.7			3,021.9			3,003.3			0.6

The decline in total segment revenues for the three and six months ended June 30, 2010, as compared to the same periods in 2009, is the result of a decrease in revenues associated with client portfolio deconversions, as well as overall economic conditions causing existing clients to be selective in the services being utilized.

International Services

The International Services segment provides payment processing and related services to clients based primarily outside the North America region. This segment has three major customers.

Below is a summary of the International Services segment:


	Three months ended June 30,									Six months ended June 30,
(in millions, except per share data and employees)	2010			2009			Percent Change			2010			2009			Percent Change
Total revenues	$	78.0			76.4			2.0	%	$	157.4			150.2			4.8	%
Operating income		11.7			12.8			(9.1	)		23.0			22.4			2.6
Operating Margin		15.0	%		16.8	%					14.6	%		14.9	%
Key indicators:
AOF											42.1			37.8			11.6
Transactions		297.9			271.1			9.8			579.1			519.1			11.6

The increase in total segment revenues for the three and six months ended June 30, 2010, as compared to the same periods in 2009, is the result of internal growth and an increase of cardholder transactions.

Merchant Services

The Merchant Services segment provides merchant processing and related services to clients based primarily in the United States. This segment has one major customer.

Below is a summary of the Merchant Services segment:


	Three months ended June 30,									Six months ended June 30,
(in millions, except per share data and employees)	2010			2009			Percent Change			2010			2009			Percent Change
Total revenues	$	126.8			80.3			57.8	%	$	216.0			155.8			38.6	%
Operating income		22.9			16.7			37.4			40.3			32.2			25.0
Operating Margin		18.1	%		20.8	%					18.6	%		20.7	%
Key indicator:
POS Transactions		1,423.1			1,311.6			8.5			2,737.3			2,656.6			3.0

The increase in total segment revenues for the three and six months ended June 30, 2010, as compared to the same periods in 2009, is the result of the acquisition of FNMS and higher transaction volumes that resulted from organic growth and slower deconversions.

Merchant Services segment’s results are driven by the authorization and capture transactions processed at the point-of-sale and clearing and settlement transactions. This segment’s authorization and capture transactions are primarily through dial-up or Internet connectivity.

Refer to the discussion of Bank of America under “Major Customers.”

Operating Expenses

The Company’s operating expenses consist of cost of services and selling, general and administrative expenses. Cost of services describes the direct expenses incurred in performing a particular service for our customers, including the cost of direct labor expense in putting the service in saleable condition. Selling, general and administrative expenses are incurred in selling or marketing and for the direction of the enterprise as a whole, including accounting, legal fees, officers’ salaries, investor relations and mergers and acquisitions.

The Company’s cost of services were $297.4 million and $589.6 million during the three and six months ended June 30, 2010, respectively, an increase of 6.2% and 4.4%, compared to $280.1 million and $564.8 million for the same periods last year. During the first six months of 2010, TSYS implemented a plan that reduced its workforce through attrition and job elimination. As part of the workforce reduction, the Company incurred approximately $2.6 million in severance payments.

The Company’s selling, general and administrative expenses were $57.0 million and $101.1 million during the three and six months ended June 30, 2010, respectively, an increase of 16.1% and 6.1%, compared to $49.1 million and $95.2 million for the same periods last year. The increase is the result of the impact of the acquisition of FNMS.

As a result of the acquisition of FNMS, TSYS incurred $0.7 million and $3.6 million during the three and six months ended June 30, 2010, respectively, of acquisition related costs.

Federal legislation was recently enacted which makes extensive changes to the current system of health care insurance and benefits. The Company has reviewed the legislation and determined that it will not have a material impact upon the Company’s financial position, results of operations or cash flows for 2010. The Company is still in the process of reviewing the impact of the legislation on future periods.

Operating Income

Operating income decreased 4.2% and 1.6% for the three and six months ended June 30, 2010, respectively, over the same periods in 2009. The Company’s operating profit margin for the three and six months ended June 30, 2010 was 18.3% and 18.7%, respectively, compared to 20.1% and 19.6% for the same periods last year. TSYS’ operating margin decreased for the three and six months ended June 30, 2010, as compared to the same periods in 2009, as the result of the loss of revenues associated with deconverted clients, an increase in reimbursable items and non-recurring expenses associated with the acquisition of FNMS.

Nonoperating Income (Expense)

Interest income for the three months ended June 30, 2010 was $0.2 million, a decrease of $0.3 million, compared to $0.5 million for the same period in 2009. Interest income for the six months ended June 30, 2010 was $0.4 million, a decrease of $0.9 million, compared to $1.3 million for the same period in 2009. The decrease in interest income is primarily attributable to the decline in interest rates.

Interest expense for the three months ended June 30, 2010 was $0.4 million, a decrease of $0.7 million compared to $1.1 million for the same period in 2009. Interest expense for the six months ended June 30, 2010 was $1.3 million, a decrease of $0.9 million compared to $2.2 million for the same period in 2009. The decrease in interest expense in 2009 compared to 2008 relates to the decline in interest rates.

For the three months ended June 30, 2010 and 2009, the Company recorded a translation loss of approximately $0.4 million and $3.1 million, respectively, related to intercompany loans and foreign-denominated balance sheet accounts. For the six months ended June 30, 2010 and 2009, the Company recorded a translation loss of approximately $0.1 million and $4.0 million, respectively, related to intercompany loans and foreign-denominated balance sheet accounts.

Occasionally, the Company will provide financing to its subsidiaries in the form of an intercompany loan, which is required to be repaid in U.S. dollars. For its subsidiaries whose functional currency is something other than the U.S. dollar, the translated balance of the financing (liability) is adjusted upward or downward to match the U.S. dollar obligation (receivable) on the Company’s financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation.

The Company records foreign currency translation adjustments on foreign-denominated balance sheet accounts. The Company maintains several cash accounts denominated in foreign currencies, primarily in Euros and British Pounds Sterling. As the Company translates the foreign-denominated cash balances into U.S. dollars, the translated cash balance is adjusted upward or downward depending upon the foreign currency exchange movements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in the Company’s statements of income. As those cash accounts have increased, the upward or downward adjustments have increased. The Company recorded a net translation loss of approximately $0.4 million and $3.1 million for the three

and six months ended June 30, 2010, respectively, related to the translation of foreign-denominated balance sheet accounts, most of which were cash.

The balance of the Company’s foreign-denominated cash accounts subject to risk of translation gains or losses at June 30, 2010 was approximately $6.2 million, the majority of which is denominated in Euros.

Income Taxes

TSYS’ effective income tax rate attributable to continuing operations for the three months ended June, 2010 was 36.2%, compared to 35.9% for the same period in 2009. TSYS’ effective income tax rate for the six months ended June 30, 2010 was 35.7%, compared to 35.8% for the same period in 2009. The calculation of the effective tax rate is income taxes plus income taxes associated with equity income divided by TSYS’ pretax income adjusted for minority interests in consolidated subsidiaries’ net income and equity pre-tax earnings of its equity investments. Refer to Note 20 in the Notes to Unaudited Condensed Consolidated Financial Statements for more information on income taxes.

In the normal course of business, TSYS is subject to examinations from various tax authorities. These examinations may alter the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions.

TSYS continually monitors and evaluates the potential impact of current events and circumstances on the estimates and assumptions used in the analysis of its income tax positions, and, accordingly, TSYS’ effective tax rate may fluctuate in the future.

Equity in Income of Equity Investments

The Company has two equity investments located in Mexico and China that are accounted for under the equity method of accounting. TSYS’ share of income from its equity in equity investments was $2.4 million and $1.6 million for the three months ended June 30, 2010 and 2009, respectively. TSYS’ share of income from its equity in equity investments was $3.3 million and $2.7 million for the six months ended June 30, 2010 and 2009, respectively.

Income (Loss) from Discontinued Operations, net of tax

Loss from discontinued operations, net of tax, for the six months ended June 30, 2009 was $2.2 million. A final adjustment related to the sale was incurred and is included in the financial results for the second quarter of 2010. Income from discontinued operations, net of tax, for the six months ended June 30, 2010 was $84,000.

Net Income

Net income for the three months ended June 30, 2010 decreased 2.9%, or $1.5 million, to $52.5 million, compared to $54.0 million for the same period in 2009. Net income for the six months ended June 30, 2010 increased 3.3%, or $3.3 million, to $104.3 million, compared to $101.0 million for the same period in 2009.

Net income attributable to TSYS common shareholders for the three months ended June 30, 2010 decreased 7.0%, or $3.7 million, to $49.7 million, or basic and diluted earnings per share of $0.25, compared to $53.5 million, or basic and diluted earnings per share of $0.27, for the same period in 2009. Net income attributable to TSYS common shareholders for the six months ended June 30, 2010 increased 1.1%, or $1.1 million, to $101.0 million, or basic and diluted earnings per share of $0.51, compared to $100.0 million, or basic and diluted earnings per share of $0.51, for the same period in 2009.

Projected Outlook for 2010

As compared to 2009, TSYS expects its 2010 total revenues to increase by 1% to 3%, revenues before reimbursable items to increase by 1% to 3%, income from continuing operations to decline by 14%-12%, and EPS from continuing operations to decline by 14% — 12% based on the following assumptions: (1) there will be no significant movements in LIBOR and TSYS will not make any significant draws on the remaining balance of its revolving credit facility; (2) anticipated levels in employment, technology and other expenses, which are included in 2010 estimates, will be accomplished; (3) there will be no significant movement in foreign currency exchange rates related to TSYS’ business during 2010; (4) TSYS will not incur significant expenses associated with the conversion of new large clients or acquisitions, or any significant impairment of goodwill or other intangibles; (5) there will be no deconversions of large clients during the year other than as previously announced; and (6) the economy will not worsen during 2010.

Financial Position, Liquidity and Capital Resources

The Condensed Consolidated Statements of Cash Flows detail the Company’s cash flows from operating, investing and financing activities. TSYS’ primary method of funding its operations and growth has been cash generated from current operations and the use of leases. TSYS has occasionally used borrowed funds to supplement financing of capital expenditures, acquisitions and, most recently, the spin-off.

Cash Flows From Operating Activities


	Six months ended June 30,
(in thousands)	2010			2009
Net income	$	104,297			100,959
Depreciation and amortization		78,966			77,967
Other noncash items and charges, net		17,005			13,477
Disposal of subsidiary		(131	)		—
Net change in current and other assets and current and other liabilities		(4,429	)		26,692

Net cash provided by operating activities	$	195,708			219,095

TSYS’ main source of funds is derived from operating activities, specifically net income. The increase in 2010 in net cash provided by operating activities was primarily the result of the net change in current and other assets and current and other liabilities.

Net change in current and other assets and current and other liabilities include accounts receivable, prepaid expenses, other current assets and other assets, accounts payable, accrued salaries and employee benefits, other current liabilities and other liabilities. The change in accounts receivable at June 30, 2010, as compared to December 31, 2009, is the result of timing of collections compared to billings. The change in accounts payable and other liabilities for the same period is the result of the timing of payments, funding of performance-based incentives and payments of vendor invoices.

Cash Flows From Investing Activities


	Six months ended June 30,
(in thousands)	2010			2009
Cash used in acquisitions, net of cash acquired	$	(148,531	)		(293	)
Additions to licensed computer software from vendors		(20,812	)		(12,709	)
Additions to contract acquisition costs		(19,888	)		(17,105	)
Purchases of property and equipment, net		(17,189	)		(13,784	)
Additions to internally developed computer software		(9,406	)		(12,918	)

Net cash used in investing activities	$	(215,826	)		(56,809	)

The major uses of cash for investing activities have been the business acquisitions, addition of property and equipment, primarily computer equipment, the purchase of licensed computer software and internal development of computer software, and investments in contract acquisition costs associated with obtaining and servicing new or existing clients. The major uses of cash for investing activities in 2010 was for additions to contract acquisition costs, equipment, licensed computer software from vendors, internally developed computer software, and business acquisitions. The major uses of cash for investing activities in 2009 was for additions of equipment and contract acquisition costs.

Contract Acquisition Costs

TSYS makes cash payments for processing rights, third-party development costs and other direct salary-related costs in connection with converting new customers to the Company’s processing systems. The Company’s investments in contract acquisition costs were $9.7 million for the three months ended June 30, 2010, bringing the total for 2010 to $19.9 million compared to $17.1 million for the six months ended June 30, 2009.

The Company had cash payments for processing rights of approximately $0.8 million and $3.9 million during the three and six months ended June 30, 2010, respectively, compared to $2.7 million during the six months ended June 30, 2009.

Conversion cost additions were $16.0 million and $14.4 million for the six months ended June 30, 2010 and 2009, respectively. The increase in the amount of conversion cost additions for 2010, as compared to 2009, is the result of the timing of conversion activity in 2010 versus 2009.

Cash Flows From Financing Activities


	Six months ended June 30,
(in thousands)	2010			2009
Dividends paid on common stock	$	(27,605	)		(27,595	)
Proceeds from borrowings of long-term debt		—			5,334
Repurchase of common stock		(1,075	)		(329	)
Principal payments on long-term debt borrowings and capital lease obligations		(7,858	)		(9,786	)
Other		239			(227	)

Net cash used in financing activities	$	(36,299	)		(32,603	)

The major use of cash from financing activities has been the payment of dividends and repurchase of common stock. The main source of cash from financing activities has been the occasional use of borrowed funds and the exercise of stock options. The major use of cash from financing activities in 2010 was for the payment of dividends. The major uses of cash from financing activities in 2009 was for the payment of dividends and the repurchase of common stock.

Borrowings

For a detailed discussion regarding the Company’s borrowings, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and for a detailed discussion regarding the Company’s long-term debt, see “Note 13 Long-term Debt and Capital Lease Obligations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

Stock Repurchase Plan

On April 20, 2006, TSYS announced that its Board had approved a stock repurchase plan to purchase up to 2 million shares, which at the time represented slightly more than five percent of the shares of TSYS stock held by shareholders other than Synovus. The shares were to be purchased from time to time over a two-year period and would depend on various factors, including price, market conditions, acquisitions and the general financial position of TSYS. Repurchased shares are to be used for general corporate purposes.

With the completion of the spin-off, the TSYS Board of Directors extended to April 2010 TSYS’ current share repurchase program that was set to expire in April 2008 and increased the number of shares that may be repurchased under the plan from 2 million to 10 million. The plan expired on April 19, 2010.

On April 20, 2010, TSYS announced a new stock repurchase plan to purchase up to 10 million shares of TSYS stock. This equates to approximately $136 million of TSYS stock based on current market prices. The shares may be purchased from time to time over the next two years at prices considered attractive to the Company.

Dividends

Dividends on common stock of $13.8 million were paid during the three months ended June 30, 2010, bringing the total for 2010 to $27.6 million compared to $27.6 million paid during the six months ended June 30, 2009.

Significant Noncash Transactions

Refer to Note 11 of the Notes to Unaudited Condensed Consolidated Financial Statements for more information about supplementary cash flow information.

Foreign Exchange

TSYS operates internationally and is subject to adverse movements in foreign currency exchange rates. Since December 2000, TSYS has not entered into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes. TSYS continues to analyze potential hedging instruments to safeguard it from significant foreign currency translation risks.

Impact of Inflation

Although the impact of inflation on its operations cannot be precisely determined, the Company believes that by controlling its operating expenses, and by taking advantage of more efficient computer hardware and software, it can minimize the impact of inflation.

Working Capital

TSYS may seek additional external sources of capital in the future. The form of any such financing will vary depending upon prevailing market and other conditions and may include short-term or long-term borrowings from financial institutions or the issuance of additional equity and/or debt securities such as industrial revenue bonds. However, there can be no assurance that funds will be available on terms acceptable to TSYS. Management expects that TSYS will continue to be able to fund a significant portion of its capital expenditure needs through internally generated cash in the future, as evidenced by TSYS’ current ratio of 3.7:1. At June 30, 2010, TSYS had working capital of $566.7 million compared to $590.1 million at December 31, 2009.

Legal Proceedings

Recent Accounting Pronouncements

Accounting Standards Update No. 2010-17, “ Revenue Recognition – Milestone Method (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force)”

In April 2010, the Task Force issued Accounting Standards Update No. 2010-17 (ASU 2010-17), “ Revenue Recognition (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. ASU 2010-17 will be effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2010-17 on its financial position, results of operations and cash flows, but has yet to complete its assessment.

In April 2010, the Task Force issued Accounting Standards Update No. 2010-13 (ASU 2010-13), “ Compensation—Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus that an employee share-based payment with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade should be considered an equity classified award assuming all other criteria for equity classification are met. ASU 2010-13 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2010-13 on its financial position, results of operations and cash flows, but has yet to complete its assessment.

Forward-Looking Statements

Certain statements contained in this filing which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). These forward-looking statements include, among others: (i) TSYS’ expectation that the loss of Bank of America as a merchant services client will not have a material adverse affect on TSYS; (ii) TSYS’ expectation that it will be able to fund a significant portion of its capital expenditure needs through internally generated cash in the future; (iii) TSYS’ earnings guidance for 2010 total revenues, revenues before reimbursable items, income from continuing

operations and EPS from continuing operations; (iv)TSYS’ belief with respect to lawsuits, claims and other complaints; (v) the expected financial impact of recent accounting pronouncements; (vi) TSYS’ expectation with respect to certain tax matters; and (vii) the synergies and economies of scale expected to be realized from combining the operations of TSYS and FNMS; and the assumptions underlying such statements, including, with respect to TSYS’ earnings guidance for 2010: (a) the economy will not worsen during 2010; (b) there will be no deconversions of large clients during the year other than as previously announced; (c) there will be no significant movement in foreign currency exchange rates related to TSYS’ business during 2010; (d) the anticipated levels in employment, technology and other expenses, which are included in 2010 estimates, will be accomplished; (e) TSYS will not incur significant expenses associated with the conversion of new large clients or acquisitions, or any significant impairment of goodwill or other intangibles; and (f) there will be no significant movements in LIBOR, and no significant draws on the remaining balance of TSYS’ revolving credit facility. In addition, certain statements in future filings by TSYS with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of TSYS which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of TSYS or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “estimates,” “projects,” “plans,” “may,” “could,” “should,” “would,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying these statements.

These statements are based upon 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. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to:

	•		movements in LIBOR are greater than expected and draws on the revolving credit facility are greater than expected;

	•		TSYS incurs expenses associated with the signing of a significant client;

	•		internal growth rates for TSYS’ existing clients are lower than anticipated whether as a result of unemployment rates, card delinquencies and charge off rates or otherwise;

	•		TSYS does not convert and deconvert clients’ portfolios as scheduled;

	•		adverse developments with respect to foreign currency exchange rates;

	•		adverse developments with respect to entering into contracts with new clients and retaining current clients;

	•		continued consolidation and turmoil in the financial services and other industries during 2010, including the merger of TSYS clients with entities that are not TSYS processing clients, the sale of portfolios by TSYS clients to entities that are not TSYS processing clients and the nationalization or seizure by banking regulators of TSYS clients;

	•		TSYS is unable to control expenses and increase market share, both domestically and internationally;

	•		adverse developments with respect to the credit card industry in general, including a decline in the use of cards as a payment mechanism;

	•		TSYS is unable to successfully manage any impact from slowing economic conditions or consumer spending;

	•		the impact of potential and completed acquisitions, including the costs associated therewith and 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 the application of and/or changes in accounting principles;

	•		TSYS’ inability to timely, successfully and cost-effectively improve and implement processing systems to provide new products, increased functionality and increased efficiencies;

	•		TSYS’ inability to anticipate and respond to technological changes, particularly with respect to e-commerce;

	•		changes occur in laws, regulations, credit card associations rules or other industry standards affecting TSYS’ business which require significant product redevelopment efforts or reduce the market for or value of our products;

	•		successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive patent protection;

	•		the material breach of security of any of our systems;

	•		overall market conditions;

	•		the loss of a major supplier;

	•		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;

	•		other risk factors described in the “Risk Factors” and other sections of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and other filings with the Securities and Exchange Commission; and

	•		TSYS’ ability to manage the foregoing and other risks.

These forward-looking statements speak only as of the date on which they are made and TSYS does not intend to update any forward-looking statement as a result of new information, future developments or otherwise.

TOTAL SYSTEM SERVICES, INC.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

The Company is exposed to foreign exchange risk because it has assets, liabilities, revenues and expenses denominated in foreign currencies other than the U.S. dollar. These currencies are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses and net income, which are translated at the average exchange rate for each reporting period. Net exchange gains or losses resulting from the translation of assets and liabilities of foreign operations, net of tax, are accumulated in a separate section of shareholders’ equity entitled “accumulated other comprehensive income, net.” The following represents the amount of other comprehensive loss:


	Three months ended June 30,					Six months ended June 30,
(in millions)	2010			2009		2010			2009
Other comprehensive gain (loss)	$	(3.5	)		18.4	$	(16.4	)		14.6

Currently, the Company does not use financial instruments to hedge exposure to exchange rate changes.

The following table presents the carrying value of the net assets of TSYS’ foreign operations in U.S. dollars at June 30, 2010:


(in millions)	June 30, 2010
Europe	$	173.1
China		70.4
Mexico		5.7
Japan		9.4
Canada		1.3
Other		31.1

TSYS records foreign currency translation adjustments associated with other balance sheet accounts. The Company maintains several cash accounts denominated in foreign currencies, primarily in Euros and British Pounds Sterling. As TSYS translates the foreign-denominated cash balances into U.S. dollars, the translated cash balance is adjusted upward or downward depending upon the foreign currency exchange movements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in the statements of income. As those cash accounts have increased, the upward or downward adjustments have increased. TSYS recorded a net translation loss of approximately $0.4 million and $3.1 million for the three and six months ended June 30, 2010, respectively, relating to the translation of cash and other balance sheet accounts. The balance of the Company’s foreign-denominated cash accounts subject to risk of translation gains or losses at June 30, 2010 was approximately $6.2 million, the majority of which was denominated in Euros.

The Company provides financing to its international operation in Europe through an intercompany loan that requires the operation to repay the financing in U.S. dollars. The functional currency of the operation is the respective local currency. As it translates the foreign currency denominated financial statements into U.S. dollars, the translated balance of the financing (liability) is adjusted upward or downward to match the U.S. dollar obligation (receivable) on its financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation.

The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. dollar at June 30, 2010 was $6.2 million.

The following table presents the potential effect on income before income taxes of hypothetical shifts in the foreign currency exchange rate between the local currencies and the U.S. dollar of plus-or-minus 100 basis points, 500 basis points and 1,000 basis points based on the net asset account balance of $6.2 million at June 30, 2010.


	Effect of Basis Point Change
	Increase in basis point of						Decrease in basis point of
(in thousands)	100		500		1,000		100			500			1,000
Effect on income before income taxes	$	62		308		616		(62	)		(308	)		(616	)

TOTAL SYSTEM SERVICES, INC.
Item 3 — Quantitative and Qualitative Disclosures About Market Risk (continued)

Interest Rate Risk

TSYS is also exposed to interest rate risk associated with the investing of available cash and the use of debt. TSYS invests available cash in conservative short-term instruments and is primarily subject to changes in the short-term interest rates.

The Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the SEC, contains a discussion of interest rate risk and the Company’s debt obligations that are sensitive to changes in interest rates.

On December 21, 2007, the Company entered into a Credit Agreement with Bank of America N.A., as Administrative Agent, The Royal Bank of Scotland plc, as Syndication Agent, and other lenders. The Credit Agreement provides for a $168 million unsecured five-year term loan to the Company and a $252 million five-year unsecured revolving credit facility. The principal balance of loans outstanding under the credit facility bears interest at a rate of London Interbank Offered Rate (LIBOR) plus an applicable margin of 0.60%. Interest is paid on the last date of each interest period; however, if the period exceeds three months, interest is paid every three months after the beginning of such interest period.

On October 31, 2008, the Company’s International Services segment obtained a credit agreement from a third party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated three year loan to finance activities in Japan. The rate is LIBOR plus 80 basis points. The Company initially made a draw down of ¥1.5 billion, or approximately $15.1 million. In January 2009, the Company made an additional draw down of ¥250 million, or approximately $2.8 million. In April 2009, the Company made an additional draw down of ¥250 million, or approximately $2.5 million.

TOTAL SYSTEM SERVICES, INC.

Item 4 — Controls and Procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report as required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on this evaluation, the chief executive officer and chief financial officer concluded that as of June 30, 2010, TSYS’ disclosure controls and procedures were designed and effective to ensure that the information required to be disclosed by TSYS in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were also designed and effective to ensure that the information required to be disclosed in the reports that TSYS files or submits under the Exchange Act is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

No change in TSYS’ internal control over financial reporting occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

TOTAL SYSTEM SERVICES, INC.

Part II — Other Information

Item 1A — Risk Factors

In addition to the other information set forth in this report, one should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect the Company’s financial position, results of operations or cash flows. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s financial position, results of operations or cash flows.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information regarding the Company’s purchases of its common stock on a monthly basis during the three months ended June 30, 2010:


					Total Number of		Maximum Number of
					Shares Purchased as		Shares That May Yet
					Part of Publicly		Be Purchased
(in thousands, except per share data)	Total Number of		Average Price		Announced Plans		Under the Plans
Period	Shares Purchased		Paid per Share		or Programs		or Programs
April 2010		—		—		—		10,000
May 2010		—		—		—		10,000
June 2010		—		—		—		10,000

Total		—	$	—

Item 6 — Exhibits

a) Exhibits


Exhibit
Number		Description
10.1		Amended and Restated Total System Services, Inc. Deferred Compensation Plan

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income (Unaudited), (ii) the Condensed Consolidated Balance Sheets (Unaudited), (iii) the Condensed Consolidated Statements of Cash Flows (Unaudited), and (iv) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.

TOTAL SYSTEM SERVICES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TOTAL SYSTEM SERVICES, INC.
Date: August 9, 2010	by:	/s/ Philip W. Tomlinson
		Philip W. Tomlinson
		Chairman of the Board and Chief Executive Officer

Date: August 9, 2010	by:	/s/ James B. Lipham
		James B. Lipham
		Senior Executive Vice President and Chief Financial Officer

TOTAL SYSTEM SERVICES, INC.

Exhibit Index


Exhibit
Number		Description
10.1		Amended and Restated Total System Services, Inc. Deferred Compensation Plan

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income (Unaudited), (ii) the Condensed Consolidated Balance Sheets (Unaudited), (iii) the Condensed Consolidated Statements of Cash Flows (Unaudited), and (iv) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.

Exhibit 10.1

AMENDED AND RESTATED
TOTAL SYSTEM SERVICES, INC.
DEFERRED COMPENSATION PLAN

AMENDED AND RESTATED AS OF JANUARY 1, 2010

PLAN DOCUMENT

INTRODUCTION

	A.		Purpose of Plan . The Employer has adopted the Plan set forth herein for two primary purposes: (a) to provide Eligible Employees with contributions that are precluded under the Employer’s qualified retirement plans as a result of limitations imposed under Code Section 401(a)(17) and 415, and (b) to provide Eligible Employees with an opportunity to defer a portion of their Compensation. In addition, the Employer may, in its discretion, credit additional amounts to a Participant’s deferral Account in the form of Matching Credits.

	B.		Status of Plan . To the extent the Plan provides benefits in excess of the limitations of Code Section 415, the Plan is intended to be an “excess benefit plan” within the meaning of Sections 3(36) and 4(6) of ERISA. The Plan also is intended to be “a plan which is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” and to satisfy the requirements of a “top hat” plan under Sections 201(2), 301(a)(3), 401(a)(1), and 4021(b)(6) of ERISA. The Plan shall be interpreted and administered to the extent possible in a manner consistent with such intent. This Plan is intended to constitute a nonqualified deferred compensation plan and to meet the requirements of Code Section 409A.

	C.		Establishment of Plan . The Plan was established as of January 1, 2008, upon the transfer of certain assets and liabilities of the Synovus Financial Corp./Total System Services, Inc. Deferred Compensation Plan (“Prior Plan”) in connection with the spin-off of the Company from Synovus Financial Corp. All elections under the provisions of the Prior Plan (including deferral, investment and distribution elections and beneficiary designations) shall be recognized as valid elections under this Plan with respect to Accounts transferred from the Prior Plan to this Plan. In addition, any Participant employed by the Employer on December 31, 2007, and any Eligible Employee who transferred from Synovus Financial Corp. or any Affiliate of Synovus Financial Corp. to the Company or any Affiliate of the Company from January 1, 2008 to December 31, 2008, received credit for service under this Plan to the same extent such service was recognized under the provisions of the Prior Plan. The Plan has been amended from time to time and was most recently amended and restated effective as of January 1, 2009. Effective January 1, 2010 (except for certain specific effective dates contained herein), the Plan is amended and restated as set forth in this document.

II.

DEFINITIONS

Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

- 2 -

	A.		“Account” means, for each Participant, the bookkeeping account established for his or her benefit under the Plan.

	B.		“Code” means the Internal Revenue Code of 1986, as amended from time to time. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection.

	C.		“Compensation” shall include:

	(i)		Salary (and for this purpose salary includes base salary, vacation pay, sick pay, short-term disability pay, lump sum merit payments, signing bonuses, retention bonuses and military differential pay (payment by Employer to a Participant while on military service representing all or a portion of the wages the Participant would have received from Employer if the Participant were in active employment instead of military service));

	(ii)		Commissions;

	(ii)		Overtime;

	(iii)		Performance bonuses (but no other bonuses unless specifically identified in this subsection (C)); and,

	(iv)		Cash incentives.

Compensation does not include any other type of compensation not described in clauses (i)-(iv) above. For example, Compensation does not include the following:

	(i)		Expense allowances (e.g., auto allowances, expatriate allowances, tuition financial planning and reimbursement of country club dues);

	(ii)		Awards, dues and retirement gifts;

	(iii)		Fringe benefits (cash and non-cash fringe benefits including imputed life insurance and disability insurance, airplane usage, automobile usage, childcare expenses, adoption assistance, tuition reimbursement, cell phone and other imputed fringe benefits);

	(iv)		Moving expenses;

	(v)		Deferred compensation — including both contributions (other than contributions under this Plan) and distributions (and for this purpose benefits under an equity compensation arrangement such as stock options,

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employee stock purchase plans, performance shares, restricted stock awards, dividends on stock awards and restricted stock units are “deferred compensation”); and

(vi)

Welfare benefits. (Long-term disability is considered a welfare benefit and therefore is not included; but see subsection (i) above specifying that sick pay and short-term disability are included. Worker’s compensation payments of any type and severance pay of any type are considered welfare benefits and are not included).

			In addition, Compensation shall include Employee Contributions under the TSYS Retirement Savings Plan, salary reduction pre-tax contributions made pursuant to Code Section 132(f) (qualified transportation fringe benefits), salary reduction pre-tax contributions to a Code Section 125 Plan maintained by the Employer and deemed Section 125 compensation (as defined in Revenue Ruling 2002-27). Compensation shall be determined by ignoring any income exclusions under Code Section 3401(a) based on the nature or location of employment.

	D.		“Matching Credit” means an amount credited to a Participant’s Account by the Employer in accordance with Section IV.C.

	E.		“Effective Date” means January 1, 2010.

	F.		“Elective Deferral” means the portion of Compensation which is deferred by a Participant under Section IV.A.

	G.		“Eligible Employee” means each individual selected by the Plan Administrator for eligibility from among a select group of management or highly compensated employees of the Employer. Unless otherwise determined by the Plan Administrator, an Eligible Employee must have a position with the Employer equivalent to a group executive or higher.

	H.		“Employer” means Total System Services, Inc. and any of its affiliates.

	I.		“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time. Reference to any section or subsection of ERISA includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection.

	J.		“Excess Benefits Credit” means an amount credited to a Participant’s Account by the Employer in accordance with Section IV.B.

	K.		“Participant” means any individual who participates in the Plan in accordance with Article III.

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	L.		“ Performance-Based .” An incentive bonus or other payment of Compensation is Performance-Based if the amount of the payment
	or the entitlement thereto is contingent on the satisfaction of organizational or individual performance criteria relating to a performance period of at least 12 consecutive months. The organizational or individual performance criteria shall be established in writing no later than 90 days after the beginning of the period of service to which the criteria relate, and the outcome must be substantially uncertain at the time the criteria are established. Notwithstanding the above, Performance-Based Compensation may be based on subjective performance criteria, provided that:

	(i)		The subjective performance criteria are bona fide and relate to the performance of the Participant, a group of service providers that includes the Participant, or a business unit for which the Participant provides services (which may include the entire organization); and

	(ii)		the determination that any subjective performance criteria have been met is not be made by the Participant or a family member of the Participant (as defined in Code Section 267(c)(4) applied as if the family of an individual includes the spouse of any member of the family), or a person under the effective control of the Participant or such a family member, and no amount of the Compensation of the person making such determination is effectively controlled in whole or in part by the Participant or such a family member.

	M.		“Plan” means the Amended and Restated Total System Services, Inc. Deferred Compensation Plan as set forth herein and all subsequent amendments hereto. Any election forms approved or prescribed by the Plan Administrator and distributed to Participants shall constitute part of the Plan as it relates to such Participants.

	N.		“Plan Administrator” means the Employer, or the person, persons or entity otherwise designated by the Employer to administer the Plan.

	O.		“Plan Year” means the calendar year.

	P.		“Valuation Date” means each business day in the Plan year and any such other date designated by the Plan Administrator.

	Q.		“Vested” means the nonforfeitable right to a portion of the Participant’s Account, determined in accordance with the vesting schedule set forth in Section V.D.

III.

PARTICIPATION

Commencement of Participation . Any individual who is an Eligible Employee and who has elected to defer part of his or her Compensation in accordance with Section IV.A or who has been selected to receive Excess Benefits Credits under Section IV.B shall become a Participant on the date such Elective Deferral election or Excess Benefit Credit is made, as the case may be.

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	B.		Continued Participation . Subject to Section III.C, an individual who has become a Participant in the Plan shall continue to be a Participant so long as any amount remains credited to his or her Account.

	C.		Termination of Participation . The Plan Administrator may terminate an employee’s participation in the Plan prospectively for any reason, effective as of the first day of the Plan Year following such termination of participation, including but not limited to the Plan Administrator’s determination that such termination is necessary in order to maintain the Plan as an “excess plan” or a “top hat” plan within the meaning of ERISA. Vested Amounts credited to a Participant’s Account shall be paid out to such Participant in accordance with the Participant’s election under Article VI.

IV.

DEFERRALS AND CREDITS

Elective Deferrals .

	1.		In general. An individual who is an Eligible Employee may elect to defer a designated portion of Compensation to be earned during a Plan Year, by filing an irrevocable written election with the Plan Administrator prior to the first day of the Plan Year in which such Compensation is to be earned, or such earlier day determined by the Plan Administrator. An individual who first becomes an Eligible Employee on or after the first day of any Plan Year may elect to defer a designated portion of his or her Compensation by filing an irrevocable written election with the Plan Administrator on or before the date that is 30 days after the date on which the employee first becomes an Eligible Employee. In the case of the deferral of any Performance-Based Compensation, such election must be made no later than six months before the end of the performance period, provided that in no event may an election to defer Performance-Based Compensation be made after such Compensation has become readily ascertainable within the meaning of Code Section 409A. Notwithstanding the foregoing, in the case of the deferral of Performance-Based Compensation under a Performance-Based Compensation plan or program with a performance period exceeding one year in length, the deferral election must be made no later than halfway through such performance period, provided that the Performance-Based Compensation has not become readily ascertainable within the meaning of Code Section 409A prior to such time.

	2.		Nature of Election. Each election under this Section IV for a Plan Year (or, with respect to a new Participant, the balance of a Plan Year) shall be made on a form approved or prescribed by the Plan Administrator and shall apply only to Compensation earned for such Plan Year after the date the election form is completed and filed with the Plan Administrator. The election form shall apply to all Compensation (although the Plan Administrator may, in its discretion, allow for different deferral elections to be made with respect to different types of Compensation) and shall specify the whole percentage or

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flat dollar amount that is to be deferred. Notwithstanding the foregoing, the Plan Administrator may allow separate election forms to be submitted with respect to Performance-Based Compensation pursuant to Section III.A.1. A Participant may not revoke his or her deferral election but may change his or her deferral election for future years by timely filing a new deferral election for such years..

	B.		Excess Benefit Credits . The Employer shall credit the Account of each Participant with the excess of any employer contributions that would have been allocated to the Participant’s account under the TSYS Retirement Savings Plan but for the limitation of Code Sections 401(a)(17) and 415 over the amount actually credited to such account; such credits to be made as of the date or dates that the amounts would have been allocated to the Participant’s account under the Retirement Savings Plan.

	C.		Matching Credits . The Employer may, in its discretion, credit to a Participant’s account each Plan Year during which the Participant is selected to participate in the Plan an amount equal to a percentage of all or a portion of the Participant’s Elective Deferral for such Plan Year as a matching contribution. The amount of any such contributions may vary from year to year or among Participants in the discretion of the Employer. In general, unless otherwise determined by the Plan Administrator, such matching contributions shall be made at the same rate as matching contributions under the Retirement Savings Plan, but shall apply only if the sum of the Participant’s base salary and target annual bonus, if any, for the Plan Year is greater than the dollar limitation on benefits and contributions under qualified retirement plans under 401(a)(17) of the Code for the of the relevant Plan Year, and such matching contribution shall apply only with respect to Compensation deferred under the Plan in excess of such limitation. For example, if the 401(a)(17) limit for a given Plan Year is equal to $245,000, the applicable matching rate is 4%, and the sum of the Participant’s base salary and target annual bonus for the Plan Year is equal to $275,000, then, unless otherwise determined by the Plan Administrator, the Employer will match the Participant’s deferral under the Plan, dollar for dollar, for up to $1,200 (which is 4% of the $30,000 overage).

ACCOUNTS

	A.		Accounts . The Plan Administrator shall establish an Account for each Participant reflecting Elective Deferrals, Excess Benefit Credits, or Matching Credits made for the Participant’s benefit together with any adjustments hereunder, subject to Sections V.E and IX.A. As of each Valuation Date, the Plan Administrator shall provide the Participant with a statement of his or her Account reflecting the income, gains and losses (realized and unrealized), amounts of deferrals and credits, and distributions of such Account since the prior Valuation Date.

	B.		Investments . Each Participant’s Account shall be deemed invested in shares of any open-end registered investment company for which Fidelity Investments or

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one of its subsidiaries or affiliates (collectively “Fidelity”) serves as investment advisor or for which Fidelity is the principal underwriter, or any other investment option selected by the Plan Administrator. If any Participant or beneficiary makes an investment selection, the Employer (or in the event of the establishment of a trust hereunder, the trustee of such trust as directed by the Employer) may follow such investment selection but shall not be legally bound to do so.

	C.		Payments . Each Participant’s Account shall be reduced by the amount of any payment made to or on behalf of the Participant under Article VI as of the date such payment is made.

	D.		Vesting . A Participant will at all times be 100% Vested in the portion of his or her Account attributable to Elective Deferrals. A Participant will be Vested in the portion of his or her Account attributable to Excess Benefit Credits and Matching Credits according to the following schedule, based on his or her years of service with the Employer. A Participant’s years of service for this purpose will be determined by the Administrator pursuant to uniform rules based on the time elapsed since the Participant’s commencement of employment with the Employer or its affiliates.


Years of Service		% Vested

less than 2		0
2		100

			Prior to the amendment and restatement of the Plan as of the Effective Date, Excess Benefit Credits were subject to a five-year service vesting requirement (with 25% of the potion of the Account attributable to Excess Benefit Credits becoming vested on an annual basis over a period of five years of service with the Employer). Any portion of a Participant’s Account which was unvested as of the Effective Date shall remain subject to such original vesting condition, unless the Participant was employed by the Employer as of the Effective Date, in which case the vesting schedule set forth in this Section V.D. shall apply.

	E.		Forfeiture of non-Vested Amounts . To the extent that any amounts credited to a Participant’s Account are not Vested at the time the Account becomes distributable under the Plan, such non-Vested amounts shall be forfeited.

	F.		Plan Mergers . From time to time, other non-qualified deferred compensation plans may be merged into the Plan. All Accounts resulting from such merged plans will be 100% Vested as of the date of merger. A list of merged plans, together with any special terms and conditions adopted in connection with the merger, may be attached to the Plan as an Exhibit.

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VI.

PAYMENTS

	A.		Unforeseeable Financial Emergency . A Participant who believes he or she is suffering an “Unforeseeable Financial Emergency” may apply to the Plan Administrator for a distribution under the Plan in order to alleviate such emergency. An “Unforeseeable Financial Emergency” shall mean a severe financial hardship resulting from an illness or accident of the Participant or a dependent (as defined in Section 152 of the Code without regard to Section 152(b)(1), (b)(2), and (d)(1)(B)), loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance), or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Except as otherwise provided herein, the purchase of a home and the payment of college tuition are not unforeseeable emergencies. Whether a Participant or dependent is faced with an unforeseeable emergency for purposes of this Section VI.A is to be determined by the Plan Administrator based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of an unforeseeable emergency may not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan. If the Plan Administrator determines, in its sole discretion, that a participant qualified for a distribution due to an Unforeseeable Financial Emergency, the Employer shall be directed to pay to the Participant an amount which it determines is reasonably necessary to satisfy the emergency need, not to exceed the Vested portion of the Participant’s Account balance, and the Employer shall pay such amount to the Participant in a single lump sum cash payment.

	B.		Timing of Distribution . Each Participant shall specify as part of his or her deferral election under Section IV.A, the date on which the Elective Deferrals and/or Vested Excess Benefit Credits and/or Matching Credits made on his or her behalf, if any, shall be distributed. The Plan Administrator may, in its discretion, allow for different distribution elections to be made with respect to different types of Compensation. The Participant may elect the timing of the payment of all Vested amounts credited to his or her Account to begin on one of the following options:

	1.		the January 1 following a specified date, which must be at least two years after the Plan Year for which the Elective Deferrals, Excess Benefit Credits, or Matching Credits are made, or

	2.		within 90 days following the Participant’s “separation from service” due to death, or

	3.		on the first day of the seventh month following the Participant’s “separation from service” from the Employer for any reason, except on account of death. In the case of installment payments under Section VI.D that would have

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otherwise been paid during the first six months following the Participant’s separation from service, the first payment will include a lump sum payment equal to any annual installment that would have been made during such 6 month delay.

			For purposes of this Plan, the term “separation from service” shall have the meaning as set forth in Code Section 409A and the final regulations thereunder (without giving effect to any elective provisions that may be available under such definition).

			The foregoing election shall be made on a form approved or prescribed by the Plan Administrator. A Participant may irrevocably elect to subsequently postpone such distribution provided that: (i) the subsequent election shall not take effect for at least 12 months after the date on which it is made; (ii) the subsequent election must be made at least 12 months prior to the original payment date; and (iii) the subsequent election shall result in a new payment date that is delayed by at least five (5) years, as measured from the original payment date. Any subsequent election must be in writing, filed in a manner acceptable to the Plan Administrator and comply with such other restrictions, consistent with Code Section 409A, that are imposed generally by the Plan Administrator on such postponements.

			If no election is in effect with respect to a portion of a Participant’s Account with respect to the start date of the distribution, then distribution will begin on the first day of the seventh month following the Participant’s termination of employment from the Employer for any reason, except on account of death, or, if earlier, within 90 days following termination of employment due to death.

	C.		Beneficiary Designation . A Participant shall designate a beneficiary who shall be entitled to receive any Vested amounts remaining in the Participant’s Account after his or death. Such designation shall be made in writing on a form approved or prescribed by the Plan Administrator or submitted electronically in such form as may be approved or prescribed by the Plan Administrator, and may be changed by the Participant at any time. If there is no such designation or no designated beneficiary survives the Participant, payment shall be made to the Participant’s estate.

	D.		Form of Payment .

Each Participant shall specify as part of his or her deferral election under Section IV.B a form of payment of the Elective Deferrals, Excess Benefit Credits, and/or Matching Credits, made on his or her behalf, if any. The Participant may elect the form of payment of all Vested amounts credited to his or her Account from one of the following options:

a single lump sum payment; or

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annual installments over a period elected by the Participant up to 10 years, the amount of each installment to equal the balance of his or her Account immediately prior to the installment divided by the number of installments remaining to be paid.

			The foregoing election shall be made on a form approved or prescribed by the Plan Administrator. A Participant may irrevocably elect to subsequently change such form of payment provided that: (i) the subsequent election shall not take effect for at least 12 months after the date on which it is made; (ii) the subsequent election must be made at least 12 months prior to the original payment date; and (iii) the subsequent election shall result in a new payment date that is delayed by at least five (5) years, as measured from the original payment date. Any subsequent election must be in writing, filed in a manner acceptable to the Plan Administrator and comply with such other restrictions, consistent with Code Section 409A, that are imposed generally by the Plan Administrator on such postponements.

			If no election is in effect with respect to a portion of a Participant’s Account with respect to form of payment, payment will be made in the form of annual installments for a period of 10 years. Payments under this Plan shall be made in cash. Regardless of the Participant’s election, if the Participant’s Vested Account balance is less than or equal to $10,000, the distribution will be made in a single lump sum payment.

VII.

ADMINISTRATION

Plan Administrator; Interpretation. The Plan Administrator shall oversee the administration of the Plan. The Plan Administrator shall have complete discretionary control and authority to administer all aspects of the Plan, including without limitation the power to appoint agents and counsel, and to determine the rights and benefits and all claims, demands and actions arising out of the provisions of the Plan of any Participant, beneficiary, deceased Participant, or other person having or claiming to have any interest under the Plan, in a manner consistent with Section VII.B. The Plan Administrator shall have the exclusive discretionary power to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. Any individual serving as Plan Administrator, or on a committee acting as Plan Administrator, who is a Participant will not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Plan Administrator shall be entitled to rely on information furnished by a Participant, a beneficiary, or any other person or entity. The Plan Administrator shall be deemed to be the plan administrator with responsibility for complying with any reporting and disclosure requirements of ERISA.

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Claims Procedure .

	1.		In General. If any person believes he or she is being denied any rights or benefits under the Plan, such person may file a claim in writing with the Plan Administrator. If any such claim is wholly or partially denied, the Plan Administrator will notify such person of its decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim and an explanation of why such material or information is necessary and (iv) information as to the steps to be taken if the person wishes to submit a request for review. Such notification will be given within 90 days after the claim is received by the Plan Administrator (or within 180 days, if special circumstances require an extension of time for processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90 day period).

	2.		Appeals. Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days after the date on which such denial is considered to have occurred) such person (or his or her duly authorized representative) may (i) file a written request with the Plan Administrator for a review of his or her denied claim and of pertinent documents and (ii) submit written issues and comments to the Plan Administrator. The Plan Administrator will notify such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person and will contain specific reasons for the decision as well as specific references to pertinent plan provisions. The decision on review will be made within 60 days after the request for review is received by the Plan Administrator (or within 120 days, if special circumstances require an extension of time for processing the request, such as an election by the Plan Administrator to hold a hearing, and if written notice of such extension and circumstances is given to such person within the initial 60 day period).

Indemnification of Plan Administrator . The Employer agrees to indemnify and to defend to the fullest extent permitted by law any director, officer or employee of the Employer or any affiliated company who serves as the Plan Administrator or as a member of a committee appointed to serve as Plan Administrator, or who assists the Plan Administrator in carrying out its duties as part of his or her employment (including any such individual who formerly served in any such capacity) against all liabilities, damages, costs and expenses (including attorneys’ fees and amounts paid in settlement of any claims approved by the Employer) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith.

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VIII.

AMENDMENT AND TERMINATION

	A.		Amendments . The Employer shall have the right to amend the Plan from time to time, subject to Section VIII.C, by an instrument in writing which has been executed on the Employer’s behalf by an officer thereof or by vote of its Board of Directors.

	B.		Termination of Plan . This Plan is strictly a voluntary undertaking on the part of the Employer and shall not be deemed to constitute a contract between the Employer and any Eligible Employee (or any other employee) or a consideration for, or an inducement or condition of employment for, the performance of the services by any Eligible Employee (or other employee). The Employer reserves the right to terminate the Plan at any time, subject to Section VIII.C, by an instrument in writing which has been executed on said Employer’s behalf by an officer thereof or by vote of its Board of Directors; provided, the Plan may not be terminated before the date on which all amounts credited to all Participant Accounts have been distributed in accordance with Article VI, except as permitted under Code Section 409A and Treas. Reg. Section 1.409A-3(j)(ix).

	C.		Existing Rights . No amendment or termination of the Plan shall adversely affect the rights of any Participant with respect to amounts credited to his or her Account that are attributable to Elective Deferrals, Excess Benefit Credits, or Matching Credits credited prior to the date of such amendment or termination. Any termination of the Plan will cause each Participant to be 100% Vested in his or her Account, notwithstanding Section V.D. The limitations described in this Section VIII.C shall not apply to any amendment of the Plan which is reasonably necessary, in the opinion of Employer’s counsel, (i) to preserve the intended income tax consequences of the Plan or (ii) to guard against other material adverse impacts on Participants and beneficiaries, and which, in the opinion of Employer’s counsel, is drafted primarily to preserve such intended consequences, or status, or to guard against such adverse impacts.

	D.		Assignment . The rights and obligations of the Employer shall enure to the benefit of and shall be binding upon its successors and assigns.

IX.

MISCELLANEOUS

No Funding . The Plan constitutes a mere promise by the Employer to make benefit payments to such Participants and beneficiaries in the future and Participants and beneficiaries shall have the status of general unsecured creditors of the Employer. Any Accounts established pursuant to the Plan shall remain the property of the Employer until distributed, and nothing in the Plan will otherwise be construed to create a trust or to obligate the Employer or any other person to segregate a fund, purchase an insurance contract, or in any other way currently to fund the future payment of any benefits hereunder, nor will anything herein be construed to give any employee or any other person rights to any specific assets of the Employer or of any other person. The Employer may, in its sole discretion,

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create a grantor trust to pay its obligations hereunder, but shall have no obligation to do so. In all events, it is the intent of the Employer that the Plan be treated as unfunded for tax purposes and for purposes of Title I of ERISA.

	B.		Nonassignability . None of the benefits, payments, proceeds or claims of any Participant or beneficiary shall be subject to any claim of any creditor of any Participant or beneficiary and, in particular, the same shall not be subject to attachment or garnishment or other legal process by any creditor of such Participant or beneficiary, nor shall any Participant or beneficiary have any right to alienate, anticipate, commute, pledge, encumber, sell, transfer or assign any of the benefits or payments or proceeds which he may expect to receive, contingently or otherwise, under the Plan.

	C.		Limitation of Participants’ Rights . Participation in the Plan shall not give any Eligible Employee the right to be retained in the employ of the Employer or any right or interest in the Plan other than as herein provided. The Employer reserves the right to dismiss any Eligible Employee without any liability for any claim against the Employer, except to the extent provided herein.

	D.		Government Regulations . It is intended that this Plan will comply with all applicable laws and government regulations, and the Employer shall not be obligated to perform an obligation hereunder in any case where, in the opinion of the Employer’s counsel, such performance would result in the violation of any law or regulation.

	E.		Governing Law . The Plan shall be construed, administered, and governed in all respects under and by the laws of the State of Georgia. If any provision shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall continue to be fully effective.

	F.		Headings and Subheadings . Headings and subheadings in this Plan are inserted for convenience only and are not to be considered in the construction of the provisions hereof.

By:/s/Ryland Harrelson
Title: Executive Vice President
Date: June 30, 2010

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Exhibit “A”

Merged Plans

[update for subsequent plan mergers]


Plan’s Name	Date of Merger	Terms and Conditions
Vital Processing Services, LLC Deferred Retention Compensation Plan	July 8, 2005	New distribution elections permitted until 7/31/05 for participants who have not separated from service (separated participants Stephen Swope will be paid in a lump sum in August of 2005 and Glen Hunter will be paid in May of 2006). New distribution elections may be made for 1-15 years and on annual or monthly basis; other distribution provisions governed by TSYS Plan. Contribution elections grandfathered (including elections for percentages and specific dollar amounts) so long as compliant with Internal Revenue Code Section 409A.

Vital Processing Services, LLC Long-Term Incentive Plan	July 8, 2005	New distribution elections permitted until 7/31/05 for participants who have not separated from service. New distribution elections may be made for 1-15 years and on annual or monthly basis; other distribution provisions governed by TSYS Plan. Contribution elections grandfathered (including elections for percentages and specific dollar amounts) so long as compliant with Internal Revenue Code Section 409A.

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EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Philip W. Tomlinson, certify that:

I have reviewed this quarterly report on Form 10-Q of Total System Services, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 9, 2010	/s/ Philip W. Tomlinson
	Philip W. Tomlinson
	Chairman of the Board and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, James B. Lipham, certify that:

I have reviewed this quarterly report on Form 10-Q of Total System Services, Inc.;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 9, 2010	/s/ James B. Lipham
	James B. Lipham
	Senior Executive Vice President and Chief Financial Officer

EXHIBIT 32

CERTIFICATION OF PERIODIC REPORT

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Philip W. Tomlinson, the Chairman of the Board and Chief Executive Officer of Total System Services, Inc. (the “Company”), and James B. Lipham, the Senior Executive Vice President and Chief Financial Officer of the Company, hereby certify that, to the best of his knowledge:

(1)

The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 (the “Report”) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



August 9, 2010	/s/ Philip W. Tomlinson
	Philip W. Tomlinson
	Chairman of the Board and Chief Executive Officer


August 9, 2010	/s/ James B. Lipham
	James B. Lipham
	Senior Executive Vice President and Chief Financial Officer

This certification “accompanies” the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q, irrespective of any general incorporation language contained in such filing).

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