TOTAL SYSTEM SERVICES INC (Form: 10-Q, Received: 05/05/2016 14:18:54)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2016

¨	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

LOGO

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) 644-6081

(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 x No ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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.

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

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: April 26, 2016
Common Stock, $0.10 par value		183,612,032 shares

LOGO

TOTAL SYSTEM SERVICES, INC.

Table of Contents


	Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) — March 31, 2016 and December 31, 2015		3
Consolidated Statements of Income (unaudited) — Three months ended March 31, 2016 and 2015		4
Consolidated Statements of Comprehensive Income (unaudited) — Three months ended March 31, 2016 and 2015		5
Consolidated Statements of Cash Flows (unaudited) — Three months ended March 31, 2016 and 2015		6
Notes to Unaudited Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3. Quantitative and Qualitative Disclosures About Market Risk		35
Item 4. Controls and Procedures		36
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		37
Item 1A. Risk Factors		37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		37
Item 6. Exhibits		38
SIGNATURES		39
EXHIBIT INDEX		40

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

TOTAL SYSTEM SERVICES, INC.

Consolidated Balance Sheets

(Unaudited)


(in thousands, except per share data)	March 31, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents (Note 3)	$	1,932,111			389,328
Accounts receivable, net of allowances for doubtful accounts, billing adjustments and merchant losses of $4.6 million and $4.0 million as of 2016 and 2015, respectively		349,271			314,705
Prepaid expenses and other current assets (Note 3)		145,052			154,199

Total current assets		2,426,434			858,232
Goodwill		1,545,631			1,545,424
Computer software, net of accumulated amortization of $699.8 million and $680.6 million as of 2016 and 2015, respectively		396,015			405,070
Other intangible assets, net of accumulated amortization of $276.2 million and $257.1 million as of 2016 and 2015, respectively		309,372			328,320
Property and equipment, net of accumulated depreciation and amortization of $466.8 million and $457.3 million as of 2016 and 2015, respectively (Note 7)		283,888			289,898
Contract acquisition costs, net of accumulated amortization of $295.7 million and $287.9 million as of 2016 and 2015, respectively (Note 3)		254,706			247,811
Equity investments, net		112,232			106,118
Deferred income tax assets		6,318			6,242
Other assets		89,337			90,780

Total assets	$	5,423,933			3,877,895

Liabilities
Current liabilities:
Accounts payable	$	44,526			52,213
Accrued salaries and employee benefits		25,007			66,594
Current portion of long-term borrowings (Note 4)		18,376			50,078
Current portion of obligations under capital leases		3,271			3,468
Other current liabilities (Note 3)		192,517			166,579

Total current liabilities		283,697			338,932
Long-term borrowings, excluding current portion (Note 4)		2,884,274			1,373,878
Deferred income tax liabilities		211,735			192,444
Obligations under capital leases, excluding current portion		2,973			3,663
Other long-term liabilities		94,627			96,886

Total liabilities		3,477,306			2,005,803

Redeemable noncontrolling interest in consolidated subsidiary		25,086			23,410

Commitments and contingencies (Note 9)
Equity
Shareholders’ equity:
Common stock — $0.10 par value. Authorized 600,000 shares; 202,765 and 202,769 issued as of 2016 and 2015, respectively; 183,436 and 182,781 outstanding as of 2016 and 2015, respectively		20,277			20,277
Additional paid-in capital		240,162			241,891
Accumulated other comprehensive loss, net (Note 3)		(36,410	)		(33,544	)
Treasury stock, at cost (19,329 and 19,988 shares as of 2016 and 2015, respectively)		(631,357	)		(641,664	)
Retained earnings		2,328,869			2,256,058

Total shareholders’ equity		1,921,541			1,843,018

Noncontrolling interest in consolidated subsidiary		—			5,664

Total equity		1,921,541			1,848,682

Total liabilities and equity	$	5,423,933			3,877,895

See accompanying Notes to Unaudited Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Income

(Unaudited)


	Three months ended March 31,
(in thousands, except per share data)	2016			2015
Total revenues (Note 7)	$	739,378			662,156


Cost of services		480,556			449,705
Selling, general and administrative expenses		107,135			89,955

Total operating expenses		587,691			539,660

Operating income		151,687			122,496
Nonoperating expenses, net		(22,440	)		(9,209	)

Income before income taxes and equity in income of equity investments		129,247			113,287
Income taxes		43,429			39,782

Income before equity in income of equity investments		85,818			73,505
Equity in income of equity investments, net of tax		6,590			5,394

Net income		92,408			78,899
Net income attributable to noncontrolling interests		(1,780	)		(1,144	)

Net income attributable to Total System Services, Inc. (TSYS) common shareholders	$	90,628			77,755

Basic earnings per share (EPS) attributable to TSYS common shareholders (Note 10):	$	0.49			0.42

Diluted EPS attributable to TSYS common shareholders (Note 10):	$	0.49			0.42

See accompanying Notes to Unaudited Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended March 31,
(in thousands)	2016			2015
Net income	$	92,408			78,899
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		(2,768	)		(13,361	)
Postretirement healthcare plan adjustments		(391	)		147
Unrealized gain (loss) on available-for-sale securities		(39	)		592

Other comprehensive loss		(3,198	)		(12,622	)

Comprehensive income		89,210			66,277
Comprehensive income attributable to noncontrolling interests		(1,448	)		(870	)

Comprehensive income attributable to TSYS common shareholders	$	87,762			65,407

See accompanying Notes to Unaudited Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Three months ended March 31,
(in thousands)	2016			2015
Cash flows from operating activities:
Net income	$	92,408			78,899
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		67,583			62,815
Deferred income tax expense		20,156			998
Provisions for fraud and other losses		12,109			8,684
Amortization of debt issuance costs		10,386			458
Share-based compensation		8,158			8,143
Provisions for bad debt expenses and billing adjustments		1,441			1,425
Charges for transaction processing provisions		1,109			1,588
Changes in value of private equity investments		210			(1,170	)
Amortization of bond discount		102			98
Loss on disposal of equipment, net		1			2
Net (gain) loss on foreign currency		(510	)		403
Excess tax benefit from share-based payment arrangements		(5,533	)		(3,793	)
Equity in income of equity investments		(6,590	)		(5,394	)
Changes in operating assets and liabilities:
Accrued salaries and employee benefits		(41,467	)		(11,549	)
Accounts receivable		(37,044	)		(36,598	)
Prepaid expenses, other current assets and other long-term assets		(7,677	)		1,302
Accounts payable		(4,167	)		2,030
Other current liabilities and other long-term liabilities		35,153			50,151

Net cash provided by operating activities		145,828			158,492


Cash flows from investing activities:
Additions to contract acquisition costs		(21,010	)		(12,364	)
Purchases of property and equipment		(9,940	)		(10,047	)
Additions to internally developed computer software		(8,544	)		(9,561	)
Additions to licensed computer software from vendors		(4,894	)		(11,581	)
Proceeds from sale of private equity investment		—			1,839

Net cash used in investing activities		(44,388	)		(41,714	)


Cash flows from financing activities:
Proceeds from borrowings of long-term debt		1,796,295			—
Excess tax benefit from share-based payment arrangements		5,533			3,793
Proceeds from exercise of stock options		626			10,712
Subsidiary dividends paid to noncontrolling shareholders		—			(500	)
Repurchase of common stock under plans and tax withholding		(5,034	)		(54,415	)
Purchase of noncontrolling interest		(5,879	)		—
Dividends paid on common stock		(18,283	)		(18,260	)
Debt issuance costs		(26,592	)		—
Principal payments on long-term borrowings and capital lease obligations		(304,654	)		(15,086	)

Net cash provided by (used in) financing activities		1,442,012			(73,756	)


Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents		(669	)		(4,093	)

Net increase in cash and cash equivalents		1,542,783			38,929
Cash and cash equivalents at beginning of period		389,328			289,183

Cash and cash equivalents at end of period	$	1,932,111			328,112


Supplemental cash flow information:
Interest paid	$	2,585			1,760
Income taxes (refunded) paid, net	$	(418	)		724

See accompanying Notes to Unaudited Consolidated Financial Statements

TOTAL SYSTEM SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Business

Total System Services, Inc.’s (TSYS’ or the Company’s) revenues are derived from providing payment processing, merchant services and related payment services to financial and nonfinancial institutions, generally under long-term processing contracts. The Company also derives revenues by providing general-purpose reloadable (GPR) prepaid debit cards and payroll cards and alternative financial services to underbanked consumers. The Company’s services are provided through four operating segments: North America Services, International Services, Merchant Services and NetSpend.

Through the Company’s North America Services and International Services segments, TSYS processes information through its cardholder systems for financial and nonfinancial institutions throughout the United States and internationally. The Company’s North America Services segment provides these services to clients in the United States, Canada, Mexico and the Caribbean. The Company’s International Services segment provides services to clients in Europe, India, Middle East, Africa, Asia Pacific and Brazil. The Company’s Merchant Services segment provides merchant services to merchant acquirers and merchants mainly in the United States. The Company’s NetSpend segment provides services to consumers in the United States.

Basis of Presentation

The accompanying unaudited consolidated financial statements of TSYS 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 generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes required by U.S. GAAP for complete financial statements. The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities as of 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.

Certain prior period amounts may have been reclassified to conform to the current period’s presentation.

The accompanying unaudited 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, 2015, as filed with the Securities and Exchange Commission (SEC). Results of interim periods are not necessarily indicative of results to be expected for the year.

Recently Adopted Accounting Pronouncements

The Company adopted the following Accounting Standards Updates (ASUs) on January 1, 2016:

ASU 2015-17 “Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes,” requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. The Company early adopted this ASU resulting in $24.7 million of current net deferred tax assets as of December 31, 2015 being moved to noncurrent. The guidance was applied retrospectively. The adoption of this ASU did not have a material impact on the Company’s results of operations or cash flows.

ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, ” eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” and ASU 2015-03 “ Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.” These ASUs require entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts, and allow entities to defer and present debt issuance costs associated with a line-of credit as an asset and subsequently amortize deferred debt issuance costs ratably over the term of a line-of-credit arrangement. The guidance was applied retrospectively. The adoption of this guidance resulted in $6.4 million of debt issuance costs as of December 31, 2015 being moved from noncurrent assets on the Company’s balance sheet to liabilities that offset both the current and noncurrent portions of the debt which these costs are associated as of March 31, 2016. The Company continues to include debt issuance costs associated with a line-of-credit in its noncurrent assets. The adoption of this guidance did not have a material impact on the Company’s results of operations or cash flows.

ASU 2015-05 “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this ASU provide guidance about whether a cloud computing arrangement includes a software license or a service agreement. The Company adopted this ASU on a prospective basis. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.

ASU 2015-01 “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items .” ASU 2015-01 eliminates from GAAP the concept of extraordinary items. The adoption of this ASU did not have a material impact on the financial position, results of operations or cash flows of the Company.

New Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-07 “ Simplifying the Transition to the Equity Method of Accounting, ” which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The ASU further requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The guidance in the ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is permitted for all entities. Entities are required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2016, the FASB issued ASU 2016-09 “ Improvements to Employee Share-Based Payment Accounting, ” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

In February 2016, the FASB issued ASU 2016-02 “ Leases (Topic 842). ” ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. The ASU also addresses other concerns related to the current leases model. The new guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption will be permitted for all entities. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

In January 2016, the FASB issued ASU 2016-01 “ Recognition and Measurement of Financial Assets and Financial Liabilities, ” which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. The ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU 2014-09 “ Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018, with early adoption permitted no sooner than January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect on its ongoing financial reporting.

Note 2 — Fair Value Measurement

Refer to Note 3 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding fair value measurement.

GAAP 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.

The Company had no transfers between Level 1, Level 2 or Level 3 assets during the three months ended March 31, 2016 and 2015.

Note 3 — 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)	March 31, 2016		December 31, 2015
Cash and cash equivalents in domestic accounts	$	1,865,702		307,578
Cash and cash equivalents in foreign accounts		66,409		81,750

Total	$	1,932,111		389,328

Prepaid Expenses and Other Current Assets

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


(in thousands)	March 31, 2016		December 31, 2015
Prepaid expenses	$	49,752		37,961
Supplies inventory		15,205		15,114
Income taxes receivable		34,066		51,322
Other		46,029		49,802

Total	$	145,052		154,199

Contract Acquisition Costs, net

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


(in thousands)	March 31, 2016		December 31, 2015
Conversion costs, net of accumulated amortization of $154.9 million and $149.9 million as of 2016 and 2015, respectively	$	156,070		159,000
Payments for processing rights, net of accumulated amortization of $140.8 million and $137.9 million as of 2016 and 2015, respectively		98,636		88,811

Total	$	254,706		247,811

Amortization expense related to conversion costs, which is recorded in cost of services, was $7.2 million and $5.5 million for the three months ended March 31, 2016 and 2015, respectively.

Amortization related to payments for processing rights, which is recorded as a reduction of revenues, was $4.9 million and $4.1 million for the three months ended March 31, 2016 and 2015, respectively.

Other Current Liabilities

Significant components of other current liabilities are summarized as follows:


(in thousands)	March 31, 2016		December 31, 2015
Deferred revenues	$	43,494		39,863
Accrued expenses		30,683		26,017
Dividends payable		18,902		19,367
Accrued interest		13,703		2,820
Accrued third-party commissions		12,395		9,810
Other		73,340		68,702

Total	$	192,517		166,579

Accumulated Other Comprehensive Income (AOCI)

The income tax effects allocated to and the cumulative balance of accumulated other comprehensive income (loss) attributable to TSYS shareholders are as follows:


	(a)			(b)			(c)			(d)			(a+d)

(in thousands)	Beginning Balance December 31, 2015			Pretax Amount			Tax Effect			Net-of-Tax Amount (b-c)			Ending Balance March 31, 2016
Foreign currency translation adjustments and transfers from noncontrolling interests	$	(35,013	)		(3,401	)		(965	)	$	(2,436	)	$	(37,449	)
Unrealized gain on available-for-sale securities		2,503			(66	)		(27	)		(39	)		2,464
Change in AOCI related to postretirement healthcare plans		(1,034	)		(612	)		(221	)		(391	)		(1,425	)

Total	$	(33,544	)		(4,079	)		(1,213	)	$	(2,866	)	$	(36,410	)

There were no reclassifications of AOCI to net income or to other accounts for the three months ended March 31, 2016.

Note 4 — Long-Term Borrowings

On January 26, 2016, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Vista Equity Partners Fund V, L.P., a Delaware limited partnership (“Fund V”), Vista Equity Partners Fund V-A, L.P., a Cayman Islands limited partnership (“Fund V-A”), Vista Equity Partners Fund V-B, L.P., a Cayman Islands limited partnership (“Fund V-B”), Vista Equity Partners Fund V Executive, L.P., a Delaware limited partnership (“Fund V Executive”), VEPF V FAF, L.P., a Delaware limited partnership (“VEPF V”), Vista Equity Associates, LLC, a Delaware limited liability company (“Associates LLC” and, together with Fund V, Fund V-A, Fund V-B, Fund V Executive and VEPF V, the “Sellers”), and TransFirst Holdings Corp., a Delaware corporation (“TransFirst”), pursuant to which, and upon the terms and subject to the conditions set forth in the Purchase Agreement, the Company acquired all of the outstanding capital stock of TransFirst from the Sellers on April 1, 2016 (the “Acquisition”).

On February 23, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer, Bank of America, N.A., as Syndication Agent and L/C Issuer, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents, and the other lenders party thereto, with J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners. The Credit Agreement provides the Company with a $700 million five-year term loan facility (the “Term Loan Facility”) consisting of (i) a $300 million term loan (the “Refinancing Term Loan”) funded upon entry into the Credit Agreement and (ii) a $400 million term loan (the “Delayed Draw Term Loan”). The Credit Agreement also provides the Company with a $800 million unsecured revolving credit facility (the “Revolving Loan Facility”), which includes a $50 million sub-facility for the issuance of standby letters of credit.

The Refinancing Term Loan was used to repay in full the Company’s outstanding loans and other obligations under that certain Credit Agreement, dated as of September 10, 2012, by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended, and that certain Credit Agreement, dated as of April 8, 2013, by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended. The Delayed Draw Term Loan was used to finance, in part, the Acquisition and related transactions, upon satisfaction of a limited set of conditions precedent. The Revolving Loan Facility is available for draws for purposes of working capital and other general corporate purposes, including to finance, in part, the Acquisition and related transactions upon satisfaction of a limited set of conditions precedent.

Concurrently with entering into the Purchase Agreement, the Company obtained commitments for a $2.0 billion 364-day bridge term loan facility from JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Bank of America N.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd, U.S. Bank National Association, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association (collectively, the “Commitment Parties”). Thereafter, the Commitment Parties assigned portions of their commitments to certain other bridge facility lenders. Based on the terms of the bridge term loan facility commitment letter, upon entering into the Credit Agreement, the total commitments under the bridge term loan facility were reduced from $2.0 billion to $1.15 billion by the amount of the Delayed Draw Term Loan commitment and the portion of the Revolving Loan Facility commitments in excess of $350 million. The bridge term loan facility was terminated in March 2016 after the issuance of the Notes described below.

Borrowings under the Credit Agreement will accrue interest at the base rate (as defined in the Credit Agreement) or, for certain euro-denominated borrowings, the London Interbank Offered Rate (“LIBOR”), in each case plus a margin that is set based on the Company’s corporate credit ratings. The applicable margin for loans bearing interest based on LIBOR ranges from 0.900% to 1.500% for revolving loans and 1.000% to 1.750% for term loans. The applicable margin for loans bearing interest based on the base rate ranges from 0.000% to 0.500% for revolving loans and 0.000% to 0.750% for term loans. In addition, the Company will pay the lenders a facility fee ranging from 0.100% to 0.250% per annum, depending on the Company’s corporate credit ratings, on the commitments under the Revolving Loan Facility (regardless of usages) and the undrawn commitment amount in respect of the Delayed Draw Term Loan. Based on the Company’s current corporate credit ratings, (i) the applicable margin for loans accruing interest at the base rate is 0.500% for term loans and 0.300% for revolving loans and (ii) the applicable margin for loans accruing interest at LIBOR is 1.500% for term loans and 1.300% for revolving loans. The Credit Agreement contains customary covenants regarding, among other matters, the maintenance of insurance, the preservation and maintenance of our corporate existence, material compliance with laws and the payment of taxes and other material obligations.

On March 17, 2016, the Company closed its sale (the “Transaction”) of $750 million aggregate principal amount of 3.800% Senior Notes due 2021 and $750 million aggregate principal amount of 4.800% Senior Notes due 2026 (collectively, the “Notes”) pursuant to an agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the underwriters, whereby the Company agreed to sell and the Underwriters agreed to purchase the Notes from the Company, subject to and upon the terms and conditions set forth in the Underwriting Agreement. The Company used the net proceeds of the Transaction to pay a portion of the approximately $2.35 billion purchase price of the Company’s Acquisition of TransFirst and related fees and expenses. The Notes were issued pursuant to a Senior Indenture, dated as of March 17, 2016, between the Company and Regions Bank, as trustee.

For more information regarding the indebtedness and the Acquisition, refer to Note 12. Refer to Note 13 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding long-term borrowings.

Note 5 — Share-Based Compensation

Refer to Notes 1 and 19 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding the Company’s share-based compensation plans and policy.

Share-Based Compensation

Share-based compensation costs are classified as selling, general and administrative expenses on the Company’s statements of income and corporate administration and other expenses typically for segment reporting purposes. TSYS’ share-based compensation costs are expensed, rather than capitalized, as these awards are typically granted to individuals not involved in capitalizable activities. For the three months ended March 31, 2016, share-based compensation was $8.2 million, compared to $8.1 million for the same period in 2015.

Nonvested Share Awards

The Company granted shares of TSYS common stock to certain key employees. The nonvested stock bonus awards are typically for services to be provided in the future and vest over a period of up to four years. The market value of the TSYS common stock as of the date of issuance is charged as compensation expense over the vesting periods of the awards.

Performance- and Market-Based Awards

The Company granted performance- and market-based shares to certain key executives. The Company has also granted performance-based shares to certain key employees. The performance- and market-based goals are established by the Compensation Committee of the Board of Directors and will vest, up to a maximum of 200%. During the first three months of 2016 and 2015, the Compensation Committee established performance goals based on adjusted EPS, revenue growth and revenues before reimbursable items and market goals based on Total Shareholder Return (TSR) as compared to the TSR of the companies in the S&P 500 over the performance period.

Compensation expense for performance shares is measured on the grant date based on the quoted market price of TSYS common stock. The Company estimates the probability of achieving the goals through the performance period and expenses the awards on a straight-line basis. The fair value of market-based awards is estimated on the grant date using a Monte Carlo simulation model. The Company expenses market-based awards on a straight-line basis. Compensation costs related to performance- and market-based shares are recognized through the longer of the performance period or the vesting period. As of March 31, 2016, there was approximately $19.9 million of unrecognized compensation cost related to TSYS performance-based awards that is expected to be recognized through December 2018. As of March 31, 2016, there was approximately $5.9 million of unrecognized compensation cost related to TSYS market-based awards that is expected to be recognized through December 2018.

The following table summarizes the performance- and market-based awards granted during the first three months of 2016 and 2015:

Year
Awarded

Type of

Award

Performance

Period Ending

Performance

Measure

Number of
Shares
Granted

Period Expensed
Through

2016

Performance

December 2018

Adjusted EPS

109,684

December 2018

2016

Market

December 2018

TSR

47,004

December 2018

2016

Performance

December 2016

Revenues before Reimbursable Items and Adjusted EPS

140,425

December 2018

2016

Performance

December 2018

Revenues before Reimbursable Items and Adjusted Operating Income

67,517

December 2018

2015

Performance

December 2017

Adjusted EPS

128,034

December 2017

2015

Market

December 2017

TSR

54,872

December 2017

2015

Performance

December 2015

Revenues before Reimbursable Items and Adjusted EPS

165,543

December 2018

Stock Option Awards

The Company granted stock options to certain key executives. The grants will vest over a period of up to three years.

The weighted average fair value of the option grants was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:


	Three months ended March 31,
	2016			2015
Number of options granted		464,408			487,735
Weighted average exercise price	$	44.48			38.20
Risk-free interest rate		1.24	%		1.70	%
Expected volatility		21.03	%		21.00	%
Expected term (years)		4.6			6.3
Dividend yield		0.90	%		1.05	%
Weighted average fair value	$	7.89			8.03

As of March 31, 2016, there was approximately $5.0 million of unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 1.7 years.

Note 6 — Income Taxes

Refer to Notes 1 and 15 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding 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 2011 and with few exceptions, the Company is no longer subject to income tax examinations from state and local or foreign tax authorities for years before 2005. There are currently federal income tax examinations in progress for the years 2009 through 2012 for a subsidiary which TSYS acquired in 2013. Also, TSYS is currently undergoing federal income tax examinations for the years 2011 through 2013. Additionally, a number of tax examinations are in progress by the relevant 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 income tax rate for the three months ended March 31, 2016 was 33.6%, compared to 35.1% for the same period in 2015. The primary differences in the 2016 rates compared to 2015 rates reflect changes in tax credits.

GAAP prescribes 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 were $13.6 million and $13.1 million as of March 31, 2016 and December 31, 2015, respectively, which resulted in an increase of $0.5 million during the period.

TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of income. Gross accrued interest and penalties on unrecognized tax benefits totaled $0.8 million and $0.7 million as of March 31, 2016 and December 31, 2015, respectively. The total amounts of unrecognized income tax benefits as of March 31, 2016 and December 31, 2015, that, if recognized, would affect the effective tax rates are $13.8 million and $13.2 million (net of the federal benefit on state tax issues), respectively, which include interest and penalties of $0.5 million for both periods. TSYS does not expect any material changes to its calculation of uncertain tax positions during the next twelve months.

Note 7 — Segment Reporting and Major Customers

Refer to Note 22 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding segment reporting and major customers.

The following table presents the Company’s operating results by segment:


Operating Segments	Three months ended March 31,
(in thousands)	2016			2015
Net revenue ¹
North America Services	$	303,641			266,219
International Services		75,354			73,730
Merchant Services		120,612			110,398
NetSpend		184,992			155,074
Intersegment revenues		(12,955	)		(9,637	)

Net revenue from external customers		671,644			595,784
Total reimbursable, interchange and assessment expenses		67,734			66,372

Total revenues	$	739,378			662,156


Depreciation and amortization
North America Services	$	27,483			23,064
International Services		8,136			8,778
Merchant Services		5,050			4,277
NetSpend		3,109			2,293

Segment depreciation and amortization		43,778			38,412
Acquisition intangible amortization		22,921			23,867
Corporate Administration and Other		884			536

Total depreciation and amortization	$	67,583			62,815


Adjusted segment operating income ¹
North America Services	$	124,788			102,570
International Services		10,289			6,983
Merchant Services		38,357			34,115
NetSpend		42,201			35,467

Total adjusted segment operating income		215,635			179,135
Acquisition intangible amortization		(22,921	)		(23,867	)
TransFirst M&A operating expenses		(3,401	)		—
Share-based compensation		(8,158	)		(8,143	)
Corporate Administration and Other		(29,468	)		(24,629	)

Operating income	$	151,687			122,496


	As of
	March 31, 2016			December 31, 2015
Total assets
North America Services	$	5,035,970			3,485,924
International Services		322,264			348,714
Merchant Services		700,141			689,781
NetSpend		1,518,887			1,504,740
Intersegment assets		(2,153,329	)		(2,151,264	)

Total assets	$	5,423,933			3,877,895

Net revenue and adjusted segment operating income are non-GAAP measures. Net revenue is total revenues less reimbursable items (such as postage), as well as, merchant acquiring interchange and assessment fees charged by the card associations or payment networks that are recorded by TSYS as expense. Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

Revenues by Geographic Area

The following tables reconcile geographic revenues to external revenues by operating segment based on the domicile of the Company’s customers:


	Three months ended March 31, 2016
(in thousands)	North America Services		International Services		Merchant Services		NetSpend		Total
United States	$	257,649		—		137,719		184,199	$	579,567
Canada*		69,850		—		65		—		69,915
Europe*		199		69,614		—		—		69,813
Mexico		6,086		—		—		—		6,086
Other*		4,164		9,639		194		—		13,997

Total	$	337,948		79,253		137,978		184,199	$	739,378


	Three months ended March 31, 2015
(in thousands)	North America Services		International Services		Merchant Services		NetSpend		Total
United States	$	213,423		—		128,801		155,074	$	497,298
Canada*		77,809		—		64		—		77,873
Europe*		196		67,623		—		—		67,819
Mexico		4,270		—		—		—		4,270
Other*		5,034		9,683		179		—		14,896

Total	$	300,732		77,306		129,044		155,074	$	662,156

*	Revenues are impacted by movements in foreign currency exchange rates.

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


	As of
(in thousands)	March 31, 2016		December 31, 2015
United States	$	238,073		241,814
Europe*		39,790		41,953
Other*		6,025		6,131

Total	$	283,888		289,898

*	Property and equipment are impacted by movements in foreign currency exchange rates.

Major Customers

For the three months ended March 31, 2016 and 2015, the Company did not have any major customers.

Note 8 — Supplementary Cash Flow Information

Nonvested Awards

The Company issued shares of common stock to certain key employees during the first three months of 2016 and 2015, respectively. The grants were issued under nonvested stock bonus awards for services to be provided in the future. Refer to Note 5 for more information.

Equipment and Software Acquired Under Capital Lease Obligations

There was no equipment or software acquired under capital lease obligations in the first three months of 2016. The Company acquired equipment and software under capital lease obligations in the amount of $0.7 million during the first three months of 2015, related to software and other peripheral hardware.

Equipment and Software Acquired Under Direct Financing

The Company did not acquire any equipment or software under direct financing during the first three months of 2016 or 2015.

Note 9 — Commitments and Contingencies

Income Taxes

The total liability for uncertain tax positions as of March 31, 2016 was $13.6 million. Refer to Note 6 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 change related to these obligations within the next twelve months.

Legal Proceedings

General

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. The Company establishes accruals for litigation and similar matters when those matters present loss contingencies that TSYS determines to be both probable and reasonably estimable in accordance with GAAP. In the opinion of management, based on current knowledge and in part upon the advice of legal counsel, all matters not specifically discussed below are believed to be adequately covered by insurance, or, if not covered, the possibility of losses from such matters are believed to be remote or such matters 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.

Telexfree Matter

ProPay, Inc. (“ProPay”), a subsidiary of the Company, has been named as one of a number of defendants (including other merchant processors) in several purported class action lawsuits relating to the activities of Telexfree, Inc. and its affiliates and principals. Telexfree is a former merchant customer of ProPay. With regard to Telexfree, each purported class action lawsuit generally alleges that Telexfree engaged in an improper multi-tier marketing scheme involving voice-over Internet protocol telephone services. The plaintiffs in each of the purported class action complaints generally allege that the various merchant processor defendants, including ProPay, aided and abetted the improper activities of Telexfree. Telexfree filed for bankruptcy protection in Nevada. The bankruptcy proceeding was subsequently transferred to the Massachusetts Bankruptcy Court.

Specifically, ProPay has been named as one of a number of defendants (including other merchant processors) in each of the following purported class action complaints relating to Telexfree: (i) Waldermara Martin, et al. v. TelexFree, Inc., et al. (Case No. BK-S-14-12524-ABL) filed on May 3, 2014 in the United States Bankruptcy Court District of Nevada, (ii) Anthony Cellucci, et al. v. TelexFree, Inc., et. al. (Case No. 4:14-BK-40987) filed on May 15, 2014 in the United States Bankruptcy Court District of Massachusetts, (iii) Maduako C. Ferguson Sr., et al. v. Telexelectric, LLLP, et. al (Case No. 5:14-CV-00316-D) filed on June 5, 2014 in the United States District Court of North Carolina, (iv) Todd Cook v. TelexElectric LLLP et al. (Case No. 2:14-CV-00134), filed on June 24, 2014 in the United States District Court for the Northern District of Georgia, (v) Felicia Guevara v. James M. Merrill et al., CA No. 1:14-cv-22405-DPG), filed on June 27, 2014 in the United State District Court for the Southern District of Florida, and (vi) Reverend Jeremiah Githere, et al. v. TelexElectric LLLP et al. (Case No. 1:14-CV-12825-GAO), filed on June 30, 2014 in the United States District Court for the District of Massachusetts (together, the “Actions”). On October 21, 2014, the Judicial Panel on Multidistrict Litigation transferred and consolidated the Actions before the United States District Court for the District of Massachusetts (the “Consolidated Action”).

Following the Judicial Panel on Multidistrict Litigation’s October 21, 2014 order, four additional cases arising from the alleged TelexFree scheme were transferred to the United States District Court for the District of Massachusetts for coordinated or consolidated proceedings, including (i) Paulo Eduardo Ferrari et al. v. Telexfree, Inc. et al. (Case No. 14-04080); (ii) Magalhaes v. TelexFree, Inc., et al., No. 14-cv-12437 (D. Mass.); (iii) Griffith v. Merrill et al., No. 14-CV-12058 (D. Mass.); Abelgadir v. Telexelectric, LLP, No. 14-09857 (S.D.N.Y.) In addition, on September 23, 2015, a putative class action relating to TelexFree was filed in the United States District Court for the District of Arizona, styled Rita Dos Santos, Putative Class Representatives and those Similarly Situated v. TelexElectric, LLLP et al., 2:15-cv-01906-NVW (the “Arizona Action”). The Arizona Action makes claims similar to those alleged in the consolidated action pending before the United States District Court for the District of Massachusetts. On September 29, 2015, a group of certain defendants to the Consolidated Action, including ProPay, filed a “tag along” notice with the Judicial Panel on Multidistrict Litigation,

asking that the Arizona Action be transferred to the District of Massachusetts where it can be consolidated or coordinated with the Consolidated Action. On October 20, 2015, the Judicial Panel on Multidistrict Litigation transferred the Arizona Action to the District of Massachusetts.

The United States District Court for the District of Massachusetts appointed lead plaintiffs’ counsel on behalf of the putative class of plaintiffs in the Consolidated Action. On March 31, 2015, the plaintiffs filed a First Consolidated Amended Complaint (the “Consolidated Complaint”). The Consolidated Complaint purports to bring claims on behalf of all persons who purchased certain TelexFree “memberships” and suffered a “net loss” between January 1, 2012 and April 16, 2014. The Consolidated Complaint supersedes the complaints filed prior to consolidation of the Actions, and alleges that ProPay aided and abetted tortious acts committed by TelexFree, and that ProPay was unjustly enriched in the course of providing payment processing services to TelexFree. On April 30, 2015, the plaintiffs filed a Second Consolidated Amended Complaint (the “Second Amended Complaint”), which amends and supersedes the Consolidated Complaint. Like the Consolidated Complaint, the Second Amended Complaint generally alleges that ProPay aided and abetted tortious acts committed by TelexFree, and that ProPay was unjustly enriched in the course of providing payment processing services to TelexFree.

Several defendants, including ProPay, moved to dismiss the Second Amended Complaint on June 2, 2015. Briefing on those motions closed on October 16, 2015. The court held a hearing on the motions to dismiss on November 2, 2015. At present, pursuant to a court order, all discovery in the action is stayed pending the resolution of parallel criminal proceedings against certain former principals of TelexFree, Inc.

ProPay has also received various subpoenas, a seizure warrant and other inquiries requesting information regarding Telexfree from (i) the Commonwealth of Massachusetts, Securities Division, (ii) United States Securities and Exchange Commission, (iii) US Immigration and Customs Enforcement, and (iv) the bankruptcy Trustee of the Chapter 11 entities of Telexfree, Inc., Telexfree, LLC and Telexfree Financial, Inc. Pursuant to the seizure warrant served by the United States Attorney’s Office for the District of Massachusetts, ProPay delivered all funds associated with Telexfree held for chargeback and other purposes by ProPay to US Immigration and Customs Enforcement. In addition, ProPay received a notice of potential claim from the bankruptcy Trustee as a result of the relationship of ProPay with Telexfree and its affiliates.

The above proceedings and actions are preliminary in nature. While the Company and ProPay intend to vigorously defend matters arising out of the relationship of ProPay with Telexfree and believe ProPay has substantial defenses related to these purported claims, the Company currently cannot reasonably estimate losses attributable to these matters.

Note 10 — Earnings Per Share

The following tables illustrate basic and diluted EPS for the three months ended March 31, 2016 and 2015:


	Three months ended March 31,
	2016					2015
(in thousands, except per share data)	Common Stock			Participating Securities		Common Stock			Participating Securities
Basic EPS:
Net income attributable to TSYS common shareholders	$	90,628					77,755
Less income allocated to nonvested awards		(526	)		526		(712	)		712

Net income allocated to common stock for EPS calculation (a)	$	90,102			526		77,043			712

Average common shares outstanding (b)		182,177			1,079		182,772			1,709

Basic EPS (a)/(b)	$	0.49			0.49		0.42			0.42


Diluted EPS:
Net income attributable to TSYS common shareholders	$	90,628					77,755
Less income allocated to nonvested awards		(525	)		525		(709	)		709

Net income allocated to common stock for EPS calculation (c)	$	90,103			525		77,046			709

Average common shares outstanding		182,177			1,079		182,772			1,709
Increase due to assumed issuance of shares related to common equivalent shares outstanding		630					1,082

Average common and common equivalent shares outstanding (d)		182,807			1,079		183,854			1,709

Diluted EPS (c)/(d)	$	0.49			0.49		0.42			0.42

The diluted EPS calculation excludes stock options and nonvested awards that are convertible into 0.8 million and 0.9 million common shares for the three months ended March 31, 2016 and 2015, because their inclusion would have been anti-dilutive.

Note 11 — Acquisitions

In March 2016, the Company completed the acquisition of the remaining 45% interest in TSYS Managed Services EMEA Limited (EMEA) from Merchants Limited. The Company acquired the outstanding stock from Merchants Limited for approximately £4.2 million, or $5.9 million, in cash. In connection with the purchase, the Company repaid the outstanding balance of the existing debt between EMEA and Merchants Limited of approximately £2.2 million, or $3.0 million.

Note 12 — Subsequent Events

On April 1, 2016, the Company completed its previously announced Acquisition of TransFirst from the Sellers for an aggregate purchase price of approximately $2.35 billion in cash less net indebtedness of TransFirst as of the closing and subject to certain working capital and other adjustments, as described in the Purchase Agreement.

The Company funded the cash consideration, the pay-off of certain TransFirst indebtedness and the payment of transaction-related expenses through a combination of cash-on-hand and proceeds from debt financings, including proceeds drawn under the Company’s Credit Agreement and the proceeds from the issuance of Notes, which together included proceeds of approximately $2.36 billion. For more information regarding the Credit Agreement and the Notes, refer to Note 4.

Management performed an evaluation of the Company’s activity as of the date of these financial statements were issued, and has concluded that, other than as set forth above, there are no significant subsequent events requiring disclosure.

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 global payment processing services to financial and nonfinancial institutions, generally under long-term processing contracts. In addition, the Company derives revenues from providing processing services, acquiring solutions, related systems and integrated support services to merchant acquirers and merchants. The Company also derives revenues by providing general-purpose reloadable (GPR) prepaid debit cards and payroll cards and alternative financial services to underbanked and other consumers. The Company’s services are provided through the Company’s four operating segments: North America Services, International Services, Merchant Services and NetSpend.

For a detailed discussion regarding the Company’s operations, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (SEC).

Management’s discussion and analysis contains items prepared in conformity with GAAP, as well as non-GAAP measures. For detailed information and reconciliations to GAAP, refer to the discussion under the caption Non-GAAP Measures.

A summary of the financial highlights for 2016, as compared to 2015, is provided below:


	Three months ended March 31,
(in thousands, except per share data)	2016		2015		Percent Change
Total revenues	$	739,378		662,156		11.7	%
Net revenue ¹	$	671,644		595,784		12.7
Operating income	$	151,687		122,496		23.8
Net income attributable to TSYS common shareholders	$	90,628		77,755		16.6
Basic earnings per share (EPS) attributable to TSYS common shareholders	$	0.49		0.42		17.3
Diluted EPS attributable to TSYS common shareholders	$	0.49		0.42		17.6
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) ²	$	230,829		193,454		19.3
Adjusted EPS ³	$	0.66		0.54		22.8
Cash flows from operating activities	$	145,828		158,492		(8.0	)
Free cash flow ⁴	$	101,440		114,938		(11.7	)

Refer to the reconciliation of GAAP to non-GAAP measures later in Item 2.

¹	Net revenue is total revenues less reimbursable items (such as postage), as well as, merchant acquiring, interchange and assessment fees charged by the card associations or payment networks that are recorded by TSYS as expense.

²	Adjusted EBITDA is net income excluding equity in income of equity investments, nonoperating income/(expense), income taxes, depreciation, amortization and share-based compensation expenses and other items.

³	Adjusted EPS is adjusted earnings divided by weighted average shares outstanding used for basic EPS calculations. Adjusted earnings is net income excluding noncontrolling interests, the after-tax impact of share-based compensation expenses, amortization of acquisition intangibles and other items

⁴	Free cash flow is net cash provided by operating activities less capital expenditures.

Below is a summary of accounts on file (AOF) for the Company’s North America Services and International Services segments:

(in millions)

As of March 31,

AOF

2016

2015

Percent
Change

Consumer

414.8

392.8

5.6

Commercial

46.3

42.3

9.3

Other

27.7

22.7

22.5

Traditional AOF ¹

488.8

457.8

6.8

Prepaid/Stored Value ²

103.1

126.6

(18.6

)

Government Services ³

82.7

74.5

11.1

Commercial Card Single-Use ⁴

75.9

64.8

17.1

Total AOF

750.5

723.7

3.7

¹	Traditional accounts include consumer, retail, commercial, debit and other accounts. These accounts are grouped together due to the tendency to have more transactional activity than prepaid, government services and single-use accounts.

Prepaid does not include NetSpend accounts. These accounts tend to have less transactional activity than the traditional accounts. Prepaid and stored value cards are issued by firms through retail establishments to be purchased by consumers to be used at a later date. These accounts tend to be the least active of all accounts on file.

³	Government services accounts are disbursements of student loan accounts issued by the Department of Education, which have minimal activity.

⁴	Commercial card single-use accounts are one-time use accounts issued by firms to book lodging and other travel related expenses.

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. For a detailed discussion regarding these topics, refer to our Notes to Consolidated Financial Statements and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

Critical Accounting Policies and Estimates

Refer to Note 1 in the Notes to Unaudited Consolidated Financial Statements for more information on changes to the Company’s critical accounting policies, estimates and assumptions or the judgments affecting the application of those estimates and assumptions in 2016.

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.

In March 2016, the Company purchased the remaining 45% interest in TSYS Managed Services EMEA Limited (EMEA). Refer to Note 11 in the Notes to Unaudited Consolidated Financial Statements for more information on acquisitions.

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 for uncertain tax positions under GAAP as of March 31, 2016 is $13.6 million. Refer to Note 6 in the Notes to Unaudited 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, as of this time, the Company does not expect a significant change related to these obligations within the next twelve months.

Additionally, the Company has long-term obligations which consist of required minimum future payments under contracts with our distributors and other service providers for the NetSpend segment.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 1 in the Notes to Unaudited Consolidated Financial Statements and see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

Results of Operations

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 processed 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 its clients 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 11.7% for the three months ended March 31, 2016, compared to the same period in 2015. The increase in revenues for the three months ended March 31, 2016 includes a decrease of $5.6 million 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 items for which TSYS is reimbursed by clients are postage and network association fees. The Company’s reimbursable items are impacted with changes in postal rates and changes in the volumes of mailing activities by its clients. Reimbursable items for the three months ended March 31, 2016, were $67.7 million, an increase of 2.1% compared to the same period last year.

Net revenue increased $75.9 million, or 12.7%, during the three months ended March 31, 2016, compared to 2015. The increase in net revenue for the three months ended March 31, 2016, as compared to the same period in 2015, is the result of organic growth, partially offset by a $5.2 million decrease associated with currency translation.

Major Customers

For discussion regarding the Company’s major customers, refer to Note 7 in the Notes to Unaudited Consolidated Financial Statements and see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

The Company works to maintain a large and diverse customer base across various industries. For the three months ended March 31, 2016, the Company does not have a major customer on a consolidated basis. However, a significant amount of the Company’s revenues are derived from long-term contracts with large clients. 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 one of the Company’s large clients could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Operating Segments

TSYS’ services are provided through four operating segments: North America Services, International Services, Merchant Services and NetSpend. Refer to Note 7 in the Notes to Unaudited Consolidated Financial Statements for more information on the Company’s operating segments.

Issuing Services – North America Services and International Services

The Company’s North America and International segments have many long-term customer contracts with card issuers providing account processing and output services for printing and embossing items. These contracts generally require advance notice prior to the end of the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a change in control. The termination fees paid upon the occurrence of such events are designed primarily to cover balance sheet exposure related to items such as capitalized conversion costs or client incentives associated with the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of the contracts are honored through the contracted expiration date.

These services are provided throughout the period of each account’s use, starting from a card-issuing client processing an application for a card. Services may include processing the card application, initiating service for the cardholder, processing each card transaction for the issuing retailer or financial institution and accumulating the account’s transactions. Fraud management services monitor the unauthorized use of accounts which have been reported to be lost, stolen, or which exceed credit limits. Fraud detection systems help identify fraudulent transactions by monitoring each accountholder’s purchasing patterns and flagging unusual purchases. Other services provided include customized communications to cardholders, information verification associated with granting credit, debt collection and customer service.

TSYS’ revenues in its North America Services and International Services segments are derived from electronic payment processing. There are certain basic core services directly tied to accounts on file and transactions. These are provided to all of TSYS’ processing clients. The core services begin with an AOF.

The core services include housing an account on TSYS’ system (AOF), authorizing transactions (authorizations), accumulating monthly transactional activity (transactions) and providing a monthly statement (statement generation). From these core services, TSYS’ clients also have the option to use fraud and portfolio management services. Collectively, these services are considered volume-based revenues.

Non-volume related revenues include processing fees which are not directly associated with AOF and transactional activity, such as value added products and services, custom programming and certain other services, which are only offered to TSYS’ processing clients.

Additionally, certain clients license the Company’s processing systems and process in-house. Since the accounts are processed outside of TSYS for licensing arrangements, the AOF and other volumes are not available to TSYS. Thus, volumes reported by TSYS do not include volumes associated with licensing.

Output and managed services include offerings such as card production, statement production, correspondence and call center support 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. Growth in revenues and operating profit in this segment is derived from retaining and growing the core business and improving the overall cost structure. Growing the core business comes primarily from an increase in account usage, growth from existing clients and sales to new clients and the related account conversions. This segment has two major customers for the three-month period ended March 31, 2016.

Below is a summary of the North America Services segment:

Three months ended March 31,

(in thousands)

2016

2015

Percent
Change

Volume-based revenues

152,482

136,490

11.7

Non-volume related revenues:

Processing fees

59,556

57,831

3.0

Value-added, custom programming, licensing and other

45,660

34,723

31.5

Output and managed services

45,943

37,175

23.6

Total non-volume related revenues

151,159

129,729

16.5

Net revenue

303,641

266,219

14.1

Total revenues

349,626

309,233

13.1

Adjusted segment operating income ¹

124,788

102,570

21.7

Adjusted segment operating margin ²

41.1

38.5

Key indicators (in millions) :

AOF

669.7

653.2

2.5

Traditional AOF

423.3

396.3

6.8

Transactions

3,969.5

3,310.7

19.9

¹	Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

²	Adjusted segment operating margin equals adjusted segment operating income divided by net revenue.

For the three months ended March 31, 2016, approximately 50.2% of net revenue was driven by the volume of AOF and transactions processed and approximately 49.8% was derived from non-volume based revenues, such as processing fees, value-added products and services, custom programming and licensing arrangements.

The increases in net revenue and total segment revenues for the three months ended March 31, 2016, as compared to the same period in 2015, are driven by organic growth.

During the first quarter of 2015, two of the Company’s largest prepaid processing clients in the North America Services segment informed TSYS that they did not intend to renew their prepaid processing agreements. The revenues associated with these clients, in the aggregate, accounted for approximately 2% of the Company’s total consolidated revenues in the first three months of 2015. One of the deconversions was completed in early October 2015. The other is expected to be completed by the end of 2016.

The increase in adjusted segment operating income for the three months ended March 31, 2016, as compared to 2015, is driven by an increase in revenues, partially offset by increases in technology and facilities expenses and other expenses.

International Services

The International Services segment provides issuer and acquirer solutions to financial institutions and other organizations primarily based outside the North America region. Changes in revenues in this segment are derived from retaining and growing the core business. Growing the core business comes primarily from an increase in account usage, growth from existing clients and sales to new clients and the related account conversions. This segment has two major customers for the three-month period ended March 31, 2016.

Below is a summary of the International Services segment:

Three months ended March 31,

(in thousands)

2016

2015

Percent
Change

Volume-based revenues

29,200

28,952

0.9

Non-volume related revenues:

Processing fees

14,304

14,759

(3.1

)

Value-added, custom programming, licensing and other

17,170

18,503

(7.2

)

Output and managed services

14,680

11,516

27.5

Total non-volume related revenues

46,154

44,778

3.1

Net revenue

75,354

73,730

2.2

Total revenues

81,073

79,802

1.6

Adjusted segment operating income ¹

10,289

6,983

47.3

Adjusted segment operating margin ²

13.7

9.5

Key indicators (in millions) :

AOF

80.8

70.5

14.7

Traditional AOF

65.5

61.5

6.5

Transactions

618.3

572.0

8.1

¹	Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

²	Adjusted segment operating margin equals adjusted segment operating income divided by net revenue.

For the three months ended March 31, 2016, approximately 38.8% of net revenue was driven by the volume of AOF and transactions processed and approximately 61.2% was derived from non-volume based revenues, such as processing fees, value-added products and services, custom programming and licensing arrangements.

Net revenue increased for the three months ended March 31, 2016, as compared to the same period in 2015, primarily as a result of increases in non-volume based revenues, partially offset by a $5.1 million decrease associated with currency translation.

Total segment revenues for the three months ended March 31, 2016, as compared to the same period in 2015, include a decrease of $5.5 million associated with currency translation.

The increase in adjusted segment operating income for the three months ended March 31, 2016, as compared to 2015, is driven primarily by an increase in revenues, partially offset by increases in employment expenses.

Movements in foreign currency exchange rates as compared to the U.S. Dollar can result in foreign denominated financial statements being translated into more or fewer U.S. Dollars, which impacts the comparison to prior periods when the U.S. Dollar was stronger or weaker.

Merchant Services

The Merchant Services segment provides merchant processing and related services to clients based primarily in the United States. Merchant Services processing and related services revenues are derived from providing processing services, acquiring solutions, related systems and integrated support services to merchant acquirers and merchants. Revenues from merchant services include processing all payment forms including credit, debit, prepaid, electronic benefit transfer and electronic check for merchants of all sizes across a wide array of market verticals. Merchant services include authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; merchant billing services; and point-of-sale (POS) equipment sales and service. This segment has no major customers for the three-month period ended March 31, 2016.

Below is a summary of the Merchant Services segment:

Three months ended March 31,

(in thousands)

2016

2015

Percent
Change

Net revenue

120,612

110,398

9.3

Total revenues

138,029

129,104

6.9

Adjusted segment operating income ¹

38,357

34,115

12.4

Adjusted segment operating margin ²

31.8

30.9

Key indicators (in millions) :

POS transactions

1,091.0

984.6

10.8

Dollar sales volume

11,783.4

11,301.6

4.3

¹	Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

²	Adjusted segment operating margin equals adjusted segment operating income divided by net revenue.

Merchant Services segment revenues are reported net of merchant acquiring interchange and assessment fees charged by the card associations or payment networks. The segment also includes revenue classified as reimbursable items as the costs are passed through to and paid by TSYS clients. With the acquisition of TransFirst Holdings, Inc. (TransFirst) on April 1, 2016, TSYS will include TransFirst’s results as part of the Merchant Services segment. TransFirst’s revenues are reported gross of amounts paid for interchange and assessments as TransFirst is the principal in the contractual relationship with its customers. Included in TransFirst’s cost of services are the expenses covering interchange and assessment fees directly attributable to processing fee revenues and are recognized in cost of services in the same period as the related revenue.

The Merchant Services segment’s results are driven by dollar sales volume and the authorization and capture transactions processed at the POS. This segment’s authorization and capture transactions are primarily through Internet connectivity or dial-up.

For the three months ended March 31, 2016, approximately 91.5% of the revenues of the Merchant Services segment, are influenced by several factors, including volumes related to transactions and dollar sales volume. The remaining 8.5% of this segment’s revenues are derived from value added services, chargebacks, managed services, investigation, risk and collection services performed.

The increases in net revenue and total segment revenues for the three months ended March 31, 2016, as compared to the same period in 2015, are driven by higher processing volumes, product fees and processing fees.

The increase in adjusted segment operating income for the three months ended March 31, 2016, is a result of higher revenues compared to the same period in 2015.

NetSpend

The NetSpend segment is a program manager for FDIC-insured depository institutions that issue GPR cards and payroll cards and provide alternative financial services to underbanked and other consumers in the United States. The products within this segment provide underbanked consumers with access to FDIC-insured depository accounts with a menu of pricing and features specifically tailored to their needs. This segment has an extensive distribution and reload network comprised of financial service centers, employers and retail locations throughout the United States. The NetSpend segment markets prepaid cards through multiple distribution channels, including direct-to-consumer and online marketing programs, alternative financial service providers, traditional retailers and contractual relationships with corporate employers. This segment has no major customers, but it has two major third-party distributors for the three-month period ended March 31, 2016.

The NetSpend segment’s revenues primarily consist of a portion of the service fees and interchange revenues received by NetSpend’s prepaid card Issuing Banks in connection with the programs managed by this segment. Cardholders are charged fees for transactions including fees for PIN and signature-based purchase transactions made using their prepaid cards, for Automated Teller Machine (ATM) withdrawals or other transactions conducted at ATMs, for balance inquiries, and monthly maintenance fees among others. Cardholders are also charged fees associated with additional products and services offered in connection with certain cards including the use of overdraft features, bill payment options, custom card

designs and card-to-card transfers of funds initiated through call centers. The NetSpend segment also earns revenues from a portion of the interchange fees remitted by merchants when cardholders make purchase transactions using their cards. Subject to applicable law, interchange fees are fixed by card associations and network organizations.

Below is a summary of the NetSpend segment:


	Three months ended March 31,
(in thousands)	2016			2015			Percent Change
Total revenues (and net revenue)	$	184,992			155,074			19.3	%

Adjusted segment operating income ¹	$	42,201			35,467			19.0

Adjusted segment operating margin ²		22.8	%		22.9	%

Key indicators (in millions) :
Number of active cards ³		4.9			4.2			16.4
Number of active cards with direct deposit ⁴		2.8			2.4			16.0
Percentage of active cards with direct deposit		57.1	%		57.3	%
Gross dollar volume ⁵	$	9,161.5			7,660.7			19.6

¹	Adjusted segment operating income excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

²	Adjusted segment operating margin equals adjusted segment operating income divided by net revenue.

³	Number of active cards represents the total number of prepaid cards that have had a PIN or signature-based purchase transaction, a point-of-sale load transaction or an ATM withdrawal within three months of the date of determination.

⁴	Number of active cards with direct deposit represents the number of active cards that have had a direct deposit load within three months of the date of determination.

⁵	Gross dollar volume represents the total dollar volume of debit transactions and cash withdrawals made using prepaid cards.

For the three months ended March 31, 2016, 67.9% of revenues were derived from service fees charged to cardholders and 32.1% of revenues were derived from interchange and other revenues. Service fee revenues are driven by the number of active cards, and in particular by the number of cards with direct deposit. Cardholders with direct deposit generally initiate more transactions and generate more revenues than those that do not take advantage of this feature. Interchange revenues are driven by gross dollar volume, which totaled approximately $9.2 billion for the three months ended March 31, 2016. Substantially all of the NetSpend segment’s revenues are volume driven as they are driven by the active card and gross dollar volume indicators.

Total segment revenues for the three months ended March 31, 2016, as compared to the same period in 2015, increased $29.9 million. Service fee revenue increased $21.2 million, or 20.3%. Revenues from interchange and other services increased $8.7 million or 17.3%. These increases were substantially driven by the increase in the number of active cards and gross dollar volume.

Cardholder funds and deposits related to NetSpend’s prepaid products are held at FDIC-insured Issuing Banks for the benefit of the cardholders. NetSpend currently has active agreements with six Issuing Banks.

NetSpend’s prepaid card business derived approximately one-third of its revenues from cardholders acquired through two of its third-party distributors.

Operating Expenses

The Company’s operating expenses were $587.7 million and $539.7 million for the three months ended March 31, 2016 and 2015, respectively. 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 the Company’s customers, including the cost of reimbursable items and 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, sales, investor relations and mergers and acquisitions.

The Company’s cost of services was $480.6 million, which was an increase of 6.9% for the three months ended March 31, 2016, compared to the same period last year. The increase in cost of services is due to increases in employment, technology and facilities and other costs to support revenue growth. The Company’s selling, general and administrative expenses were $107.1 million, which was an increase of 19.1% for the three months ended March 31, 2016, compared to the same period last year. The increase in selling, general and administrative expenses for the three months ended March 31, 2016, is due primarily to one-time merger and acquisition (M&A) expenses and increases in professional service fees and employment expenses.

Operating Income

Operating income increased 23.8% for the three months ended March 31, 2016, compared to the same period in 2015. The Company’s operating profit margin for the three months ended March 31, 2016 was 20.5%, compared to 18.5% for the same period last year. TSYS’ operating margins increased for the three months ended March 31, 2016, as compared to the same period in 2015, due primarily to an increase in revenues from payment processing and general purpose reloadable cards, partially offset by increases in employment expenses and technology and facilities expenses.

Nonoperating Income (Expense)

Nonoperating income (expense) consists of interest income, interest expense, gains and losses on currency transactions and gains and losses on investments in private equity. Net nonoperating expense increased for the three months ended March 31, 2016, as compared to the same period in 2015.

The following table provides a summary of nonoperating expenses, net:


	Three months ended March 31,
(in thousands)	2016			2015			Percent Change
Interest income	$	490			248			97.4	%
Interest expense ¹		(22,786	)		(10,214	)		nm
Currency transaction gains (losses), net		510			(403	)		nm
Net (losses) gains on investments in private equity		(342	)		1,051			nm
Other		(312	)		109			nm

Total	$	(22,440	)		(9,209	)		nm

nm = not meaningful

¹	Interest expense includes interest on bonds of $11.2 million and $8.8 million, respectively, for the three months ended March 31, 2016 and 2015.

Interest expense for the three months ended March 31, 2016 increased $12.6 million compared the same period in 2015. The increase in interest expense in 2016 compared to 2015 is due primarily to $12.4 million in interest expense related to the bridge term loan facility and notes issued in connection with the financing of the Company’s acquisition of TransFirst on April 1, 2016. Refer to Notes 4 and 12 for more information.

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 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 U.S. Dollars and Japanese Yen. 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.

The balance of the Company’s foreign-denominated cash accounts subject to risk of translation gains or losses as of March 31, 2016, was approximately $9.0 million, the majority of which is denominated in U.S. Dollars and Japanese Yen. The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. Dollar as of March 31, 2016 was $26.4 million.

Income Taxes

For a detailed discussion regarding income taxes, refer to Notes 1 and 6 in the Notes to Consolidated Financial Statements and “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

Below is a summary of income tax expense:


	Three months ended March 31,
(in thousands)	2016			2015			Percent Change
Income tax expense	$	43,429			39,782			9.2	%
Effective income tax rate		33.6	%		35.1	%

The primary differences in the 2016 rates compared to 2015 rates reflect changes in federal tax credits realized during the three months ended March 31, 2016.

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.

No provision for U.S. federal and state income taxes has been made in the Company’s consolidated financial statements for those non-U.S. subsidiaries whose earnings are considered to be permanently reinvested. The amount of undistributed earnings considered to be “reinvested” which may be subject to tax upon distribution was approximately $87.5 million as of March 31, 2016. A distribution of these non-U.S. earnings in the form of dividends, or otherwise, would subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and withholding taxes payable to the various non-U.S. countries. Determination of the amount of any unrecognized deferred income tax liability on these undistributed earnings is not practicable.

Equity in Income of Equity Investments

Below is a summary of TSYS’ share of income from its interest in equity investments:

Three months ended March 31,

(in thousands)

2016

2015

Percent
Change

Equity in income of equity investments

6,590

5,394

22.2

The increase in equity income for the three months ended March 31, 2016, compared to the same period in 2015, is the result of organic growth in CUP Data.

Net Income

The following table provides a summary of net income and EPS:


	Three months ended March 31,
(in thousands, except per share data)	2016			2015			Percent Change
Net income	$	92,408			78,899			17.1	%
Net income attributable to noncontrolling interests		(1,780	)		(1,144	)		(55.6	)

Net income attributable to TSYS common shareholders	$	90,628			77,755			16.6

Basic EPS attributable to TSYS common shareholders ¹	$	0.49			0.42			17.3

Diluted EPS attributable to TSYS common shareholders ¹	$	0.49			0.42			17.6

¹	Basic and diluted EPS is computed based on the two-class method in accordance with the guidance under GAAP. Refer to Note 10 for more information.

Non-GAAP Measures

Management evaluates the Company’s operating performance based upon operating margin on a net revenue basis, adjusted EBITDA, adjusted EPS and free cash flow which are all non-generally accepted accounting principles (non-GAAP) measures. TSYS also uses these non-GAAP financial measures to evaluate and assess TSYS’ financial performance against budget.

Although not a substitute for GAAP, TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS’ current and ongoing business operations.

Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.

The following tables provide a reconciliation of GAAP to the Company’s non-GAAP financial measures:

Net Revenue and Operating Margin on a Net Revenue Basis


	Three months ended March 31,
(in thousands)	2016			2015
Operating income (a)	$	151,687			122,496

Total revenues (b)	$	739,378			662,156
Less reimbursable items, interchange and assessment expenses		67,734			66,372

Net revenue (c)	$	671,644			595,784

Operating margin (as reported) (a)/(b)		20.52	%		18.50	%

Operating margin on a net revenue basis (a)/(c)		22.58	%		20.56	%

Adjusted EBITDA


	Three months ended March 31,
(in thousands)	2016			2015
Net income	$	92,408			78,899
Adjust for:
Equity in income of equity investments, net of tax		(6,590	)		(5,394	)
Income taxes		43,429			39,782
Nonoperating expenses, net		22,440			9,209
Depreciation and amortization		67,583			62,815

EBITDA		219,270			185,311
Adjust for:
Share-based compensation		8,158			8,143
TransFirst M&A operating expenses		3,401			—

Adjusted EBITDA	$	230,829			193,454

Segment Operating Margin and Consolidated Adjusted Operating Margin


	Three months ended March 31, 2016
(in thousands)	Adjusted Segment Operating Income			Net Revenue			Adjusted Operating Margin
North America Services	$	124,788			303,641			41.10	%
International Services		10,289			75,354			13.65
Merchant Services		38,357			120,612			31.80
NetSpend		42,201			184,992			22.81
Intersegment		—			(12,955	)
Corporate admin and other		(29,468	)

Adjusted operating margin		186,167			671,644			27.72	%
Acquisition intangible amortization		(22,921	)
TransFirst M&A operating expenses		(3,401	)
Share-based compensation		(8,158	)

Operating income and margin ¹		151,687			671,644			22.58	%
Reimbursable items, interchange and assessment expenses					67,734

Operating income and margin	$	151,687			739,378			20.52	%


	Three months ended March 31, 2015
	Adjusted Segment Operating Income			Net Revenue			Adjusted Operating Margin
North America Services	$	102,570			266,219			38.53	%
International Services		6,983			73,730			9.47
Merchant Services		34,115			110,398			30.90
NetSpend		35,467			155,074			22.87
Intersegment		—			(9,637	)
Corporate admin and other		(24,629	)

Adjusted operating margin		154,506			595,784			25.93	%
Acquisition intangible amortization		(23,867	)
TransFirst M&A operating expenses		—
Share-based compensation		(8,143	)

Operating income and margin ¹		122,496			595,784			20.56	%
Reimbursable items, interchange and assessment expenses					66,372

Operating income and margin	$	122,496			662,156			18.50	%

¹	Operating margin on net revenue

Adjusted Earnings Per Share


	Three months ended March 31,
(in thousands, except per share data)	2016		2015

Income from continuing operations attributable to TSYS common shareholders, as reported (GAAP)	$	90,628		77,755


Adjust for amounts attributable to TSYS common shareholders (net of tax):
Acquisition intangible amortization		15,021		15,761
Share-based compensation		5,406		5,441
TransFirst M&A expenses, net of taxes ¹		9,655		—

Adjusted earnings	$	120,710		98,957


Basic EPS - Income from continuing operations attributable to TSYS common shareholders, as reported (GAAP)	$	0.49		0.42


Adjust for amounts attributable to TSYS common shareholders (net of tax):
Acquisition intangible amortization, net of tax		0.08		0.09
Share-based compensation, net of tax		0.03		0.03
		0.05		—

Adjusted EPS ²	$	0.66		0.54


Average common shares and participating securities		183,256		184,481

¹	Certain merger and acquisition costs are nondeductible for income tax purposes.

²	Adjusted EPS amounts may not total due to rounding.

Free Cash Flow


	Three months ended March 31,
(in thousands)	2016			2015
Net cash provided by operating activities	$	145,828			158,492
Capital expenditures		(44,388	)		(43,554	)

Free cash flow	$	101,440			114,938

Projected Outlook for 2016

As compared to 2015, TSYS expects its 2016 total revenues to increase by 50%-53%, its net revenue to increase by 22%-24%, and its adjusted EPS from continuing operations attributable to TSYS common shareholders to increase by 13%-16%. This guidance includes TransFirst’s operating results for nine months of 2016 and excludes one-time expenses incurred in connection with the TransFirst acquisition. The guidance is based on the following assumptions with respect to 2016: (1) there will be no significant movements in the London Interbank Offered Rate (LIBOR) and TSYS will not make any significant draws on the remaining balance of its revolving credit facility; (2) there will be no significant movement in foreign currency exchange rates related to TSYS’ business; (3) TSYS will not incur significant expenses associated with the conversion of new large clients, additional acquisitions, or any significant impairment of goodwill or other intangibles; (4) there will be no deconversions of large clients during the year other than as previously disclosed; and (5) the economy will not worsen. In addition, TSYS’ earnings guidance for 2016 does not include the impact of any future share repurchases.

Financial Position, Liquidity and Capital Resources

Cash Flows

The 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. TSYS has occasionally used borrowed funds to supplement financing of capital expenditures and acquisitions. For more information regarding borrowings, refer to Note 4 in the Notes to Unaudited Consolidated Financial Statements.

Cash Flows From Operating Activities


	Three months ended March 31,
(in thousands)	2016			2015
Net income	$	92,408			78,899
Depreciation and amortization		67,583			62,815
Deferred income tax expense		20,156			998
Provisions for fraud and other losses		12,109			8,684
Amortization of debt issuance costs		10,386			458
Other noncash items and charges, net		3,921			5,095
Excess tax benefit from share-based payment arrangements		(5,533	)		(3,793	)
Net change in current and other assets and current and other liabilities		(55,202	)		5,336

Net cash provided by operating activities	$	145,828			158,492

TSYS’ main source of funds is derived from operating activities, specifically net income. 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 as of March 31, 2016, as compared to March 31, 2015, is the result of timing of collections compared to billings as well as increased billings. The change in accounts payable and other liabilities for the same period is the result of the timing of payments. The change in accrued salaries and employee benefits is due primarily to an increase in incentive bonuses and benefits paid in the first three months of 2016 compared to the same period in 2015.

Cash Flows From Investing Activities


	Three months ended March 31,
(in thousands)	2016			2015
Additions to contract acquisition costs	$	(21,010	)		(12,364	)
Purchases of property and equipment, net		(9,940	)		(10,047	)
Additions to internally developed computer software		(8,544	)		(9,561	)
Additions to licensed computer software from vendors		(4,894	)		(11,581	)
Proceeds from sale of private equity investment		—			1,839

Net cash used in investing activities	$	(44,388	)		(41,714	)

The primary use of cash for investing activities in 2016 was for investments in contract acquisition costs associated with obtaining and servicing new or existing clients. Other major uses of cash for investing activities in 2016 were for the addition of property and equipment, internal development of computer software and the purchase of licensed computer software. The major uses of cash for investing activities in 2015 were investments in contract acquisition costs associated with obtaining and servicing new or existing clients, the addition of property and equipment, internal development of computer software and the purchase of licensed computer software conversions.

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 clients to the Company’s processing systems. The Company’s investments in contract acquisition costs were $21.0 million, including $15.7 million of client incentives, for the three months ended March 31, 2016, compared to $12.4 million for the three months ended March 31, 2015.

Private Equity Investments

The Company has entered into limited partnership agreements in connection with investing in two Atlanta-based venture capital funds focused exclusively on investing in technology-enabled financial services companies. Pursuant to each limited partnership agreement, the Company has committed to invest up to $20.0 million in each fund so long as its ownership interest in each fund does not exceed 50%. During the first three months 2016 and 2015, the Company did not make any additional investments in the funds.

Cash Flows From Financing Activities


	Three months ended March 31,
(in thousands)	2016			2015
Proceeds from borrowings of long-term debt	$	1,796,295			—
Excess tax benefit from share-based payment arrangements		5,533			3,793
Proceeds from exercise of stock options		626			10,712
Subsidiary dividends paid to noncontrolling shareholders		—			(500	)
Repurchase of common stock under plans and tax withholding		(5,034	)		(54,415	)
Purchase of noncontrolling interest		(5,879	)		—
Dividends paid on common stock		(18,283	)		(18,260	)
Debt issuance costs		(26,592	)		—
Principal payments on long-term borrowings and capital lease obligations		(304,654	)		(15,086	)

Net cash provided by (used in) financing activities	$	1,442,012			(73,756	)

The main source of cash provided by financing activities in 2016 were proceeds from borrowings of long term debt. The main uses of cash for financing activities in 2016 were principal payments on long-term borrowings and capital lease obligations, debt issuance costs and the payment of dividends. The main uses of cash for financing activities in 2015 were the repurchase of outstanding shares of common stock, the payment of dividends and the principal payments on long-term borrowings and capital lease obligations. The main source of cash provided by financing activities in 2015 were the proceeds from exercise of stock options.

Borrowings

Refer to Note 4 in the Notes to Unaudited Consolidated Financial Statements for more information on borrowings.

Stock Repurchase

For a detailed discussion regarding the Company’s stock repurchase plan, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

In January 2015, TSYS announced that its Board had approved a new stock repurchase plan to repurchase up to 20 million shares of TSYS stock. The shares may be purchased from time to time at prices considered appropriate. There is no expiration date of the plan.

The Company did not purchase any shares during the three months ended March 31, 2016. In the first three months of 2015, the Company purchased 1.5 million shares for approximately $54.4 million, at an average price of $37.53.

Dividends

Dividends on common stock of $18.3 million were paid during both the three months ended March 31, 2016 and March 31, 2015.

Foreign Operations

TSYS operates internationally and is subject to adverse movements in foreign currency exchange rates. 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.

TSYS maintains operating cash accounts outside the United States. Refer to Note 3 in the Notes to Unaudited Consolidated Financial Statements for more information on cash and cash equivalents. TSYS has adopted the permanent reinvestment exception under GAAP with respect to future earnings of certain foreign subsidiaries. While some of the foreign cash is available to repay intercompany financing arrangements, remaining amounts are not presently available to fund domestic operations and obligations without paying a significant amount of taxes upon its repatriation. Demand on the Company’s cash has increased as a result of its strategic initiatives. TSYS funds these initiatives through a balance of internally generated cash, external sources of capital, and, when advantageous, access to foreign cash in a tax efficient manner. Where local regulations limit an efficient intercompany transfer of amounts held outside of the U.S., TSYS will

continue to utilize these funds for local liquidity needs. Under current law, balances available to be repatriated to the U.S. would be subject to U.S. federal income taxes, less applicable foreign tax credits. TSYS has provided for the U.S. federal tax liability on these amounts for financial statement purposes, except for foreign earnings that are considered permanently reinvested outside of the U.S. TSYS utilizes a variety of tax planning and financing strategies with the objective of having its worldwide cash available in the locations where it is needed.

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 2.8:1. As of March 31, 2016, TSYS had working capital of $655.8 million compared to $543.7 million as of December 31, 2015. The current ratio and working capital as of March 31, 2016 exclude $1.5 billion in cash which was obtained in anticipation of the acquisition of TransFirst, which took place on April 1, 2016.

Legal Proceedings

Refer to Note 16 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding commitments and contingencies including legal proceedings. Also, for more information regarding the Company’s legal proceedings, refer to Note 9 in the Notes to Unaudited Consolidated Financial Statements.

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 with respect to the effect of recent accounting pronouncements; (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 2016 total revenues, net revenue, and adjusted EPS attributable to TSYS’ common shareholders from continuing operations; (iv) TSYS’ belief with respect to lawsuits, claims and other complaints; (v) TSYS’ expectation with respect to certain tax matters; (vi) TSYS’ expectation with respect to the timing of deconversions and the assumptions underlying such statements. 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 the Company’s forward-looking statements. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to:

•

the material breach of security of any of TSYS’ systems;

•

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

•

organic 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 or attrition rates of existing clients are higher than anticipated;

•

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

•

risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates;

•

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

•

consolidation in the financial services and other industries, 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 financial institutions which are TSYS clients otherwise ceasing to exist;

•

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on TSYS and its clients;

•

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

•

the impact of potential and completed acquisitions, particularly the recently completed TransFirst acquisition, including the costs associated therewith, the acquisitions being more difficult to integrate than anticipated, and the inability to achieve the anticipated growth opportunities and other benefits of the acquisitions;

•

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’ reliance on financial institution sponsors;

•

changes occur in laws, rules, regulations, credit card association rules, prepaid industry rules, or other industry standards affecting TSYS and its clients that may result in costly new compliance burdens on TSYS and its clients and lead to a decrease in the volume and/or number of transactions processed or limit the types and amounts of fees that can be charged to customers;

•

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

•

one or more of the assumptions upon which TSYS’ earnings guidance for 2016 is based is inaccurate;

•

the effect of current domestic and worldwide economic and geopolitical conditions;

•

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, 2015 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.

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 loss, net.”

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 as of March 31, 2016:


(in thousands)	March 31, 2016
Europe	$	190,334
China		104,678
Mexico		7,658
Other		39,153

The Company provides financing to its international operations through intercompany loans that require the operation to repay the financing in amounts denominated in currencies other than the local currency. 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 obligation (receivable) on its financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation.

TSYS records foreign currency translation adjustments associated with other balance sheet accounts. The Company maintains several cash accounts denominated in foreign currencies, primarily in U.S. Dollars and Japanese Yen. 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.

TSYS recorded a net translation gain of approximately $510,000 for the three months ended March 31, 2016 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 as of March 31, 2016, was approximately $9.0 million, the majority of which was denominated in U.S. Dollars and Japanese Yen.

The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. Dollar as of March 31, 2016, was $26.4 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 $26.4 million as of March 31, 2016.


	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	$	264		1,320		2,640		(264	)		(1,320	)		(2,640	)

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 subject to changes in interest rates.

The Company’s Annual Report on Form 10-K for the year ended December 31, 2015, 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. Also, refer to Note 4 in the Notes to Unaudited Consolidated Financial Statements for more information on the Company’s long-term debt.

Item 4. Controls and Procedures.

We have evaluated the effectiveness of the design and operation of the Company’s 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 the Company’s management, including its chief executive officer and chief financial officer. Based on this evaluation, the chief executive officer and chief financial officer concluded that as of March 31, 2016, TSYS’ disclosure controls and procedures were designed and operating effectively 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 operating effectively 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.

Other than as set forth below, 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.

During the first quarter of 2016, TSYS implemented a new corporate-wide share-based compensation accounting system. The new system is expected to materially impact internal controls over financial reporting by providing enhanced share-based compensation reporting and reducing manual processes.

Part II — OTHER INFORMATION

Item 1. Legal Proceedings.

For information regarding TSYS’ legal proceedings, refer to Note 9 of the Notes to Unaudited Consolidated Financial Statements which is incorporated by reference into this item.

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, 2015, 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.

There have been no material changes in the Company’s risk factors from those disclosed in the Company’s 2015 Annual Report on Form 10-K.

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


(in thousands, except per share data)	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans of Programs
January 2016		125		$	40.20		5,150		14,850
February 2016		—			—		5,150		14,850
March 2016		—			—		5,150		14,850

Total		125	*	$	40.20

*	Consists of delivery of shares to TSYS on vesting of shares to pay taxes.

Item 6. Exhibits.

a) Exhibits


Exhibit Number		Description

10.1		Form of Stock Option Agreement for stock option awards under the Total System Services, Inc. 2012 Omnibus Plan

10.2		Form of Performance Share Agreement for 2016 performance share awards under the Total System Services, Inc. 2012 Omnibus 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.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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: May 5, 2016	by:	/s/ M. Troy Woods
		M. Troy Woods
		Chairman and Chief Executive Officer

Date: May 5, 2016	by:	/s/ Paul M. Todd
		Paul M. Todd
		Senior Executive Vice President and Chief Financial Officer

TOTAL SYSTEM SERVICES, INC.

Exhibit Index


Exhibit Number		Description

10.1		Form of Stock Option Agreement for stock option awards under the Total System Services, Inc. 2012 Omnibus Plan

10.2		Form of Performance Share Agreement for 2016 performance share awards under the Total System Services, Inc. 2012 Omnibus 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.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBIT 10.1

TOTAL SYSTEM SERVICES, INC.

STOCK OPTION AGREEMENT

THIS AGREEMENT (“Agreement”) is made effective as of , by and between TOTAL SYSTEM SERVICES, INC., a Georgia corporation (the “Company”), with its principal office at One TSYS Way, Columbus, Georgia, and you (“Option Holder”), an employee of the Company, its Affiliate or its Subsidiary.

W I T N E S S E T H :

WHEREAS, the Board of Directors of the Company has adopted the Total System Services, Inc. 2012 Omnibus Plan (the “Plan”); and

WHEREAS, the Company recognizes the value to it of the services of the Option Holder and intends to provide the Option Holder with added incentive and inducement to contribute to the success of the Company; and

WHEREAS, the Company recognizes the potential benefits of providing employees the opportunity to acquire an equity interest in the Company and to more closely align the personal interests of employees with those of other shareholders; and

WHEREAS, on , the Compensation Committee of the Board of Directors of the Company approved the grant to the Option Holder effective (the “Grant Date”), pursuant to Article 6 of the Plan, of an Option in respect of the number of Shares with an initial economic value equal to the product of (a) the Option Holder’s base salary as of the Grant Date multiplied by (b) % of his LTIP multiplier as determined by the Compensation Committee prior to the Grant Date. The Compensation Committee also designated the Option a Nonqualified Stock Option and fixed and determined the Option price and exercise and termination dates as set forth below.

NOW, THEREFORE, in consideration of grant of certain equity interests to you in connection with your employment, and your continued employment, by the Company, its Affiliate or its Subsidiary, the mutual promises and representations herein contained and other good and valuable consideration, it is agreed by and between the parties hereto as follows

1. The terms, provisions and definitions of the Plan are incorporated by reference and made a part hereof. All capitalized terms in this Agreement shall have the same meanings given to such terms in the Plan except where otherwise noted.

2. Subject to and in accordance with the provisions of the Plan, the Company hereby grants to the Option Holder a Nonqualified Stock Option to purchase, on the terms and subject to the conditions hereinafter set forth, all or any part of the aggregate

shares of the common stock (par value $0.10 per share) so granted of the Company at the purchase price of $ per Share, exercisable in the amounts and at the times set forth in Section 3 below, unless the Compensation Committee, in its sole and exclusive discretion, shall authorize the Option Holder to exercise all or part of the Option at an earlier date.

3. The Option will vest over the period – (the “Vesting Period”) in accordance with the following schedule:


If employment	Percentage of
continues through	Option Vested
(one year from grant)		33	%
(two years from grant)		67	%
(three years from grant)		100	%

(a) In the event of Option Holder’s death or total and permanent disability, the Option shall become 100% vested and Option Holder (or the legal representative of Option Holder’s estate or legatee under Option Holder’s will) shall be able to exercise the Option in full for the remainder of the Option’s term.

(b) If Option Holder retires from the Company, its Affiliate or its Subsidiary on or after the date Option Holder attains age 65, or age 62 with 15 or more years of service, Option Holder shall be able to exercise the Option, as follows:

(i) If Option Holder retires on or before (one year from the date of grant), the Option will vest and become exercisable for a percentage of the Option, with such percentage to be expressed as the ratio of the number of months since the Grant Date that Option Holder has been employed to 36. Partial months of employment will be counted as full months for purposes of this proration calculation. To the extent the Option is exercisable pursuant to this subparagraph; it will be exercisable for the remainder of the Option’s term.

(ii) If Option Holder retires after (one year from the date of grant), the Option Holder shall be deemed to have continued employment through the end of the Vesting Period and the Option shall become 67% vested on (two years from the date of grant) and 100% vested on (three years from the date of grant), and Option Holder shall be able to exercise the Option in full for the remainder of the Option’s term.

If Option Holder is involuntarily terminated by the Company or its Affiliate or Subsidiary, Option Holder will not be considered to have “retired” for purposes of this Section 3(b), regardless of whether Option Holder’s separation of employment occurs on or after the date Option Holder attains age 65, or age 62 with 15 or more years of service, unless the Committee determines otherwise, in its sole discretion. Furthermore, if Option Holder violates any of the covenants referenced in Section 9, his unvested Options shall be immediately forfeited.

(c) In the event of Option Holder’s separation of employment for any reason other than the reasons listed in Section 3(a) or 3(b), Option Holder shall be able to exercise the vested portion of the Option, determined as of the date of separation of employment, for 90 days following the date of such separation of employment. In the event of a Change of Control (as defined in Section 2.8 of the Plan), any applicable terms of Section 8 will supersede the terms of this Section 3.

Unless sooner terminated as provided in the Plan or in this Agreement, the Option shall terminate, and all rights of the Option Holder hereunder shall expire, on (ten years from the date of grant). In no event may the Option be exercised after (ten years from the date of grant).

4. The Option or any part thereof, may, to the extent that it is vested and exercisable, be exercised in the manner provided in the Plan. Payment of the aggregate Option price for the number of Shares purchased and any withholding taxes shall be made in the manner provided in the Plan.

5. The Option or any part thereof may be exercised during the lifetime of the Option Holder only by the Option Holder and only while the Option Holder is in the employ of the Company, except as otherwise provided in the Plan.

6. Unless otherwise designated by the Compensation Committee, the Option shall not be transferred, assigned, pledged or hypothecated in any way. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of a nontransferable Option or any right or privilege confirmed hereby contrary to the provisions hereof, the Option and the rights and privileges confirmed hereby shall immediately become null and void.

7. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Company’s Shares, any necessary adjustment shall be made in accordance with the provisions of Section 4.4 of the Plan.

8. In the event of a Change of Control (as defined in Section 2.8 of the Plan), the following provisions shall apply to the Option:

(a) If the Company is the surviving entity and any adjustments necessary to preserve the intrinsic value of the Option Holder’s outstanding Option have been made, or the Company’s successor at the time of the Change of Control irrevocably assumes the Company’s obligations under the Plan and this Agreement or replaces the Option Holder’s outstanding Option with stock options having substantially the same intrinsic value and having terms and conditions no less favorable to the Option Holder than those applicable to the Option immediately prior to the Change of Control (collectively,

an “Equitable Assumption or Replacement”), and if the Option Holder’s employment is terminated within two years following the date of such Change of Control either (i) by the Company for any reason other than Cause or (ii) by the Option Holder for Good Reason (as the terms “Cause” and “Good Reason” are defined in the Company’s applicable Change of Control Agreement, the provisions of which are incorporated herein by reference), then the Option may be exercised to the extent exercisable upon such termination pursuant to the schedule in Section 3 above. In addition, the Option will also vest and become exercisable for an additional percentage of the Option determined by multiplying (i) the incremental percentage of the Option that has not yet vested and that would have become exercisable under such schedule on the next anniversary date if Option Holder’s employment had not terminated, with such percentage to be expressed as a number of Shares, by (ii) the ratio of the number of months since the immediately preceding anniversary date (or since the Grant Date, if the termination occurs prior to (one year from the date of grant)) that Option Holder has been employed to 12. Partial months of employment will be counted as full months for purposes of this proration calculation. To the extent the Option is exercisable pursuant to this Section 8(a), it will be exercisable for the remainder of the Option’s term.

(b) If there is no Equitable Assumption or Replacement, then the Option may be exercised to the extent exercisable upon such Change of Control pursuant to the schedule in Section 3 above. In addition, the Option will also vest and become exercisable for an additional percentage of the Option determined by multiplying (i) the incremental percentage of the Option that has not yet vested and that would have become exercisable under such schedule on the next anniversary date if the Change of Control had not occurred, with such percentage to be expressed as a number of Shares, by (ii) the ratio of the number of months since the immediately preceding anniversary date (or since the Grant Date, if the Change of Control occurs prior to (one year from the date of grant) through the date of the Change of Control to 12. Partial months of employment will be counted as full months for purposes of this proration calculation.

9. By acceptance of this Option via electronic execution of this Agreement, you agree to the terms and conditions of the Restrictive Covenant Agreement that is attached hereto as Exhibit “A”, the provisions of which are incorporated herein and made a part of this Agreement by this reference.

Any notice to be given to the Company shall be addressed to the General Counsel of the Company at One TSYS Way, Post Office Box 2567, Columbus, Georgia 31902-2567.

10. Nothing herein contained shall affect the right of the Option Holder to participate in and receive benefits under and in accordance with the provisions of any pension, insurance or other benefit plan or program of the Company as in effect from time to time and for which the Option Holder is eligible.

11. Nothing herein contained shall affect the right of the Company, subject to the terms of any written contractual arrangement to the contrary, to terminate the Option Holder’s employment at any time for any reason whatsoever.

12. This Agreement shall be binding upon and inure to the benefit of the Option Holder, his personal representatives, heirs, legatees. However, neither this Agreement nor any rights hereunder shall be assignable or otherwise transferable by the Option Holder except as expressly set forth in this Agreement or in the Plan.

13. If this Award and the Shares acquired upon exercise of this Option are subject to recovery under any law, government regulation or stock exchange listing requirement, this Award and the Shares shall be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement) and the Committee shall require that Option Holder reimburse the Company all or part of any payment or transfer related to this Award and the Shares.

14. The Company has issued the Option subject to the foregoing terms and conditions and the provisions of the Plan. Option Holder’s acceptance of the Option shall be made by electronic acknowledgement of this Agreement, and Option Holder agrees that his electronic acknowledgment of this Agreement shall be considered the equivalent of his written signature.


TOTAL SYSTEM SERVICES, INC.

By:		/s/ Ryland Harrelson
		Ryland Harrelson
		Executive Vice-President and Chief HR Officer

EXHIBIT A

RESTRICTIVE COVENANT AGREEMENT

This RESTRICTIVE COVENANT AGREEMENT (this “ Agreement ”) is made and entered into by and between, an executive of Total System Services, Inc. or one of its Affiliates or Subsidiaries (‘‘Executive”), and TOTAL SYSTEM SERVICES, INC., a Georgia corporation or one of its Affiliates or Subsidiaries (collectively the “Company’‘). In consideration of the Company’s grant of certain equity interests to you in connection with your employment, and your continued employment, by the Company or one of its Affiliates or Subsidiaries, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties, the parties agree as follows:

Acknowledgments .

(a) Executive acknowledges that during the course of Executive’s employment with the Company, Executive has had or will have access to Confidential Information (as defined below). Executive understands and agrees that such Confidential Information is of great competitive importance and commercial value to the Company and its affiliates (collectively, the “ Company Group ”), and that the improper use or disclosure of such Confidential Information by Executive would cause irreparable harm to the Company Group. Accordingly, Executive agrees that the restrictive covenants contained in this Agreement are reasonable, fair, and necessary to protect the Company Group’s legitimate business interests in safeguarding its Confidential Information and that any claim or cause of action of Executive against the Company Group will not constitute a defense to the enforcement of such restrictive covenants.

(b) Executive acknowledges that an important part of Executive’s duties is, has been, or will be to advance the business of the Company Group by directly or through the supervision of others, developing and maintaining substantial relationships with prospective or existing clients of the Company Group and/or developing and maintaining the goodwill of the Company Group associated with (i) an ongoing business, commercial or professional practice, or (ii) a specific geographic location, or (iii) a specific marketing or trade area and/or providing corporate support services for the Company Group including, but not limited to, legal, financial, human resources, technical, communication, and investor relations

(c) Executive acknowledges that in the course of Executive’s employment with the Company, Executive has, does or will customarily and regularly solicit clients or prospective clients and/or customarily and regularly engage in making sales or obtaining contracts for products or services to be performed by others, and/or perform each of the following duties: (i) have the primary duty of managing the enterprise in which the Executive is employed; (ii) customarily and regularly direct the

work of two or more employees; and (iii) have the authority to hire or fire other employees or have particular weight given to Executive’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees, and/or by reason of the Company Group’s investment of time, training, money, trust, exposure to the public, or exposure to clients, vendors, or other business relationships has (a) gained a high level of notoriety, fame, reputation, or public persona as the Company Group’s representative or spokesperson or a high level of influence or credibility with the Company Group’s clients, vendors, or other business relationships and/or (b) become intimately involved in the planning for or direction of the business of the Company Group or a defined unit of the business of the Company Group and/or (c) obtained selective or specialized skills, knowledge, abilities, or client contacts or information.

Protection of Confidential Information .

(a) Non-disclosure of Confidential Information . From and after , Executive shall hold in confidence all Confidential Information and shall not, either directly or indirectly, use, transmit, copy, publish, reveal, divulge or otherwise disclose or make accessible any Confidential Information to any person or entity without the prior written consent of the General Counsel of the Company. Executive’s obligation of non-disclosure as set forth herein shall continue for so long as the information in question continues to constitute Confidential Information. The restrictions in this section 2 are in addition to and not in lieu of any other obligations of Executive to protect Confidential Information, including, but not limited to, obligations arising under the Company Group’s policies, ethical rules, applicable law, or any other contract or agreement. Nothing in this Agreement is intended to or should be interpreted as diminishing any rights and remedies the Company Group has under applicable law related to the protection of confidential information or trade secrets.

(b) Definition of Confidential Information . For purposes of this Agreement, “ Confidential Information ” means data or information relating to the business of the Company Group that has been or will be disclosed to Executive or of which Executive becomes aware as a consequence of or through Executive’s relationship with the Company Group and which has value to the Company Group or, if owned by someone else, has value to that third party, and is not generally known to the Company Group’s competitors. Confidential Information includes, but is not limited to, trade secrets, information regarding clients, contractors and the industry not generally known to the public, strategies, methods, books, records and documents, technical information concerning products, equipment, services and processes, procurement procedures, pricing and pricing techniques, information concerning past, current and prospective clients, investors and business affiliates, pricing strategies and price curves, plans or strategies for expansion or acquisitions, budgets, research, financial and sales data, communications information, evaluations, opinions and interpretations of information and data, marketing and merchandising techniques, electronic databases, models, specifications, computer programs, contracts, bids or proposals, technologies and methods, training methods and processes, organizational structure, personnel information, payments or rates paid to consultants or other service providers, and other

such confidential or proprietary information, whether such information is developed in whole or in part by Executive, by others in the Company Group or obtained by the Company Group from third parties, and irrespective of whether such information has been identified by the Company Group as secret or confidential. Confidential Information does not include any data or information that has been voluntarily disclosed to the public by the Company Group (except where such public disclosure has been made by Executive without authorization) or that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means.

(c) Notice to Company Group . In the event Executive is requested or required pursuant to any legal, governmental, or investigatory proceeding or process or otherwise to disclose any Confidential Information, Executive shall promptly notify the General Counsel of the Company in writing (in no event later than five business days prior to the disclosure unless disclosure is required in less than five days, in which event Executive shall notify the Company Group as soon as possible), so that the Company Group may seek a protective order or other appropriate remedy, or, if it chooses, waive compliance with the applicable provision of this Agreement. Executive shall cooperate with the Company Group to preserve the confidentiality of such Confidential Information consistent with applicable law or court order, and shall use Executive’s best efforts to limit any such disclosure to the minimum disclosure necessary to comply with such law or court order.

3. Protection Against Unfair Competition . Executive agrees and covenants that for a period of two (2) years from and after his termination of employment with the Company, Executive shall not, directly or indirectly, whether through Executive or through another person or entity, perform any of the Prohibited Activities (as defined below) in the Territory (as defined below) or any part thereof for or on behalf of Executive or any other person or entity that competes with the Business of the Company Group (as defined below) or any part thereof.

(a) For purposes of this Agreement, Executive’s “ Prohibited Activities ” means activities of the type conducted, provided, or offered by Executive within two (2) years prior to his termination of employment with the Company, including supervisory, management, operational, business development, maintenance of client relationships, corporate strategy, community relations, public policy, regulatory strategy, sales, marketing, investor relations, financial, accounting, legal, human resource, technical and other similar or related activities and including service as a director or in any similar capacity without the consent of the Chief Executive Officer of the Company.

(b) For purposes of this Agreement, the “ Territory ” means the United States of America, Mexico, Canada, Europe, and Brazil plus any other geographic area(s) in which Executive is performing services for or on behalf of the Company Group as of the date of Executive’s termination of employment.

(c) For purposes of this Agreement, the “ Business of the Company Group ” means the business of (i) providing payment processing services to financial and non-financial institutions, (ii) performing services, acquiring solutions and related systems and integrated support services to merchant acquiring and merchants, and related payment services to financial and nonfinancial institutions, and (iii) providing general-purpose reloadable prepaid debit cards and payroll cards and alternative financial services to underbanked consumers and others, or similar or related businesses or activities conducted, authorized, offered or provided by the Company Group within two (2) years prior to the date of Executive’s termination of employment.

4. Non-solicitation of Clients . Executive agrees and covenants that for a period of two (2) years from and after the date of Executive’s termination of employment, Executive shall not solicit or attempt to solicit, directly or by assisting others, any business from any of the Company Group’s clients, including actively sought prospective clients, with whom Executive had Material Contact during Executive’s employment by the Company Group for purposes of providing products or services that are competitive with those provided by the Company Group.

(a) For purposes of this Agreement, products or services shall be considered competitive with those provided by the Company Group if such products or services are of the type conducted, authorized, offered or provided by the Company Group within two (2) years prior to the date of Executive’s termination of employment.

(b) For purposes of this Agreement, the term “ Material Contact ” means contact between Executive and each client or potential client (i) with whom Executive dealt on behalf of the Company Group, (ii) whose dealings with the Company Group were coordinated or supervised by Executive, (iii) about whom the Executive obtained Confidential Information in the ordinary course of business as a result of Executive’s association with the Company Group, or (iv) who receives products or services authorized by the Company Group, the sale or possession of which results or resulted in possible compensation, commissions, or earnings for Executive within two (2) years prior to the Executive’s termination of employment.

5. Non-solicitation of Employees . Executive agrees and covenants that for a period of two (2) years from and after the date he terminates employment, Executive shall not solicit or attempt to solicit, directly or by assisting others, any person who was an employee of the Company Group on, or within six (6) months before, the date of such solicitation or attempted solicitation and with whom Executive had contact while employed by, or serving as a director of, the Company, for purposes of inducing such person to leave the employment of the Company Group.

6. Non-disparagement . Executive agrees not to make, publish or communicate to any person or entity or in any public forum (including social media) at any time any defamatory or disparaging remarks, comments or statements concerning any of the Company Group, any of its affiliates, or any of their respective directors, officers and employees. Notwithstanding the foregoing, this section 6 does not in any way, restrict or impede Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency.

7. Enforcement . Executive acknowledges and agrees that a breach of any of the restrictive covenants set forth in this Agreement would cause irreparable damage to the Company Group, the exact amount of which would be difficult to determine, and that the remedies at law for any such breach would be inadequate. Accordingly, Executive agrees that, in addition to any other remedy that may be available at law, in equity, or hereunder, the Company Group shall be entitled to specific performance and injunctive relief, without posting bond or other security, to enforce or prevent any breach of any of the restrictive covenants set forth in this Agreement. In any action for injunctive relief, the prevailing party will be entitled to collect reasonable attorneys’ fees and other reasonable costs from the non-prevailing party.

8. Tolling . In the event the enforceability of any of the restrictive covenants in this Agreement are challenged in a claim or counterclaim in court during the time periods set forth in this Agreement for such restrictive covenants, and Executive is not immediately enjoined from breaching any of the restrictive covenants herein, then if a court of competent jurisdiction later finds that the challenged restrictive covenant is enforceable, the time periods set forth in the challenged restrictive covenant(s) shall be deemed tolled upon the filing of the claim or counterclaim in court seeking or challenging the enforceability of this Agreement until the dispute is finally resolved and all periods of appeal have expired; provided, however , that to the extent Executive complies with such restrictive covenant(s) during such challenge, the time periods set forth in the challenged restrictive covenant(s) shall not be deemed tolled.

9. Notification to Subsequent Employer . Executive agrees to notify any subsequent employer of the existence and terms of this Agreement. In addition, Executive authorizes the Company Group to provide a copy of this Agreement to third parties, including but not limited to Executive’s subsequent, anticipated, or possible future employers.

10. Notices .

(a) All notices provided for or required by this Agreement shall be in writing and shall be deemed to have been properly given when sent to the other party by facsimile (confirmation of receipt required) or when received by the other party if mailed by certified or registered mail, return receipt requested, as follows:


If to the Company:		Total System Services, Inc.
		Attn: General Counsel
		One TSYS Way
		Post Office Box 2567
		Columbus, Georgia 31902-2567
If to Executive:		Most recent address on file with the Company

(b) Either party hereto may change the address to which notice is to be sent by written notice to the other party in accordance with the provisions of this section 10.

11. Governing Law; Venue . This Agreement shall be deemed to be made in, and in all respects shall be interpreted, construed, and governed by and in accordance with the laws of the State of Georgia, irrespective of its choice-of-law rules. Any action arising under or related to this Agreement, shall be filed exclusively in the state or federal courts with jurisdiction over Muscogee County, Georgia or Gwinnett County, Georgia and each of the parties hereby consents to the jurisdiction and venue of such courts.

12. Assignability . This Agreement is personal to Executive and may not be assigned by Executive. Any purported assignment by Employee shall be null and void from the initial date of the purported assignment. This Agreement shall be assignable by the Company and shall inure to the benefit of the Company and its successors and assigns.

13. Severability . Should any provision of this Agreement be declared or determined by any court of competent jurisdiction to be unenforceable or invalid for any reason, the validity of the remaining parts, terms or provisions of this Agreement shall not be affected thereby and the invalid or unenforceable part, term or provision shall be deemed not to be a part of this Agreement.

14. Third Party Beneficiaries . The parties agree that the Company Group and each member thereof are intended third party beneficiaries of this Agreement, with full rights to enforce this Agreement. Except as stated in the preceding sentence, this Agreement does not confer any rights or remedies upon any person or entity other than the parties to this Agreement and their respective successors and permitted assigns.

15. Modification . No provision of this Agreement may be modified or waived except in writing signed by Executive and a duly authorized representative of the Company. The writing shall specifically reference this Agreement and the provision that the Company and Executive intend to waive or modify. Notwithstanding the foregoing, if it is determined by a court of competent jurisdiction that any restrictive covenant set forth in this Agreement is excessive in duration or scope or is unreasonable or unenforceable, it is the intention of the parties that such restriction may be modified by the court to render it enforceable to the maximum extent permitted by law.

16. Survival . Executive’s obligations under this Agreement shall survive the termination of Executive’s employment for any reason, and shall thereafter be enforceable whether or not such termination is claimed or found to be wrongful or to constitute or result in a breach of any contract or of any other duty owed or claimed to be owed to Executive by the Company.

17. Electronic Signature. Executive’s acceptance and execution of this Agreement shall be made by electronic acknowledgment, and Executive agrees that his or her electronic acknowledgment of this Agreement shall be considered the equivalent of his or her written signature.


TOTAL SYSTEM SERVICES, INC.

By:		/s/ Ryland Harrelson
		Ryland Harrelson
		Executive Vice-President and Chief HR Officer

EXHIBIT 10.2

TOTAL SYSTEM SERVICES, INC.

PERFORMANCE SHARE AGREEMENT (2016-2018)

Total System Services, Inc. (“Company”) confirms that on February 26, 2016, the Compensation Committee of the Board of Directors of the Company approved, effective February 26, 2016 (the “Grant Date”), an award of performance shares (“Performance Shares”) with an initial economic value equal to the product of (a) your base salary on the Grant Date multiplied by (b) 60% of your LTIP multiplier as determined by the Committee prior to the Grant Date (such initial economic value being the “2016-2018 Performance Opportunity”). The number of Performance Shares initially granted pursuant to this Agreement will be determined by dividing the 2016-2018 Performance Opportunity by the closing price of the Company’s Shares on the New York Stock Exchange on the Grant Date (your “Initial Performance Shares”). Your Initial Performance Shares will be adjusted upward or downward based on specified performance measures for the period 2016-2018 pursuant to the provisions of Section 1 below, with thirty percent (30%) of your Initial Performance Shares adjusted pursuant to Section 1(b) and seventy percent (70%) adjusted pursuant to Section 1(c). Following adjustment of your Initial Performance Shares pursuant to Section 1, the number of Performance Shares that you become entitled to receive will vest in accordance with the provisions of Section 2 (or Section 3 in the event of a Change in Control), and will be payable in accordance with the provisions of Section 9.

In consideration of this 2016-2018 Performance Opportunity and your continued employment, by TSYS or one of its Affiliates or Subsidiaries, you agree that the Performance Shares that you receive in connection with this 2016-2018 Performance Opportunity, if any, are subject to the terms and conditions of this Performance Share Agreement (this “Agreement”) and the Total System Services, Inc. 2012 Omnibus Plan (the “Plan”) and that you are bound by the terms and conditions set forth in this Agreement, including the covenants set forth in Section 4 of this Agreement. Any other capitalized word used in this Agreement and not defined in this Agreement, including each form of that word, is defined in the Plan.

Standard Performance Terms .

(a) Performance Period . The number of Performance Shares you will be entitled to receive in connection with the 2016-2018 Performance Opportunity will be determined on the basis of the Company’s performance during the performance period beginning on January 1, 2016 and ending on December 31, 2018 (the “Performance Period”).

(b) Performance Goals Based on Relative TSR . The Committee will set the performance goals for thirty percent (30%) of your Initial Performance Shares based on the Company’s total shareholder return performance (“TSR”) relative to the S&P 500, determined as of January 1, 2016, subject to adjustment (“Relative TSR”) for the Performance Period. Within 90 days after the beginning of the Performance Period, the Committee will establish a target Relative TSR, as well as minimum and maximum threshold levels of Relative TSR.

After the end of the Performance Period, the Committee will certify the Relative TSR and the number of Performance Shares payable pursuant to this Section 1(b) in accordance with the table below:


Relative TSR Ranking Level		Percentage of Performance Shares Payable ¹
90 ^th percentile or above		200%
70 ^th percentile		150%
50 ^th percentile		100%
25 ^th percentile		50%
Below 25 ^th percentile		0%

“S&P 500” generally means the companies constituting the Standard & Poor’s 500 Index as of the beginning of the Performance Period (including the Company) and which continue to be actively traded under the same ticker symbol on an established securities market though the end of the Performance Period. A component company of the S&P 500 that is acquired at any time during the Performance Period (i.e., company and ticker symbol disappear) will be eliminated from the S&P 500 for the entire Performance Period. A component company of the S&P 500 filing for bankruptcy protection (and thus no longer publicly traded) at any time during the Performance Period will be deemed to remain in the S&P 500 (at an assumed TSR of minus 100%).

“TSR” means, with respect to the Company or other S&P 500 component company, the change in the closing market price of its common stock (as quoted in the principal market on which it is traded), plus dividends and other distributions paid on such common stock during the Performance Period, divided by the closing market price of its common stock on the last business day immediately preceding the Performance Period. The TSR for the common stock of an S&P 500 component company shall be adjusted to take into account stock splits, reverse stock splits, and special dividends that occur during the Performance Period, and assumes that all cash dividends and cash distributions are immediately reinvested in common stock of the entity using the closing market price on the dividend payment date.

(c) Performance Goals Based on Adjusted EPS Growth . The Committee will set the performance goals for seventy percent (70%) of your Initial Performance Shares based on the compounded annual growth rate of the Company’s adjusted earnings per share (as reflected on the Company’s financial statements) for the Performance Period (the “Adjusted EPS Growth”), subject to adjustment as provided in Section 1(d). Within 90 days after the beginning of the Performance Period, the Committee will establish a target Adjusted EPS Growth, as well as minimum and maximum threshold levels of Adjusted EPS Growth.

¹	Payouts between Relative TSR Ranking Levels will be determined based on straight line interpolation.

After the end of the Performance Period, the Committee will certify the Adjusted EPS Growth and the number of Performance Shares payable based on the Company’s performance against the pre-established target, minimum and maximum threshold levels of Adjusted EPS Growth as follows:

•

If the Adjusted EPS Growth equals the target for the Performance Period, then the number of Performance Shares payable will equal 100% of your Initial Performance Shares that are subject to this Section 1(c);

•

If the Adjusted EPS Growth equals the minimum threshold for the Performance Period, then the number of Performance Shares payable will equal 50% of your Initial Performance Shares that are subject to this Section 1(c);

•

If the Adjusted EPS Growth equals or exceeds the maximum threshold for the Performance Period, then the number of Performance Shares payable will equal 200% of your Initial Performance Shares that are subject to this Section 1(c);

•

If the Adjusted EPS Growth falls between the minimum threshold and the target for the Performance Period, or between the target and the maximum threshold for the Performance Period, then the percentage of your Initial Performance Shares that are subject to this Section 1(c) and the number of Performance Shares that are payable will be mathematically interpolated; and

•

If the Adjusted EPS Growth is less than the minimum threshold for the Performance Period, then none of your Initial Performance Shares that are subject to this Section 1(c) will be payable.

(d) Adjustments . In determining the Adjusted EPS Growth, the Committee will (i) exclude the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results; (ii) exclude the effect of differences in currency rates compared to management’s operating plan (constant currency); (iii) exclude foreign currency exchange gains or losses included in non-operating income; and (iv) exclude the effect of events that are unusual in nature or infrequent in their occurrence and which are disclosed in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to shareholders.

Change of Employment Status .

(a) Vesting . Except as otherwise provided in this Section 2 or Section 3, you must remain employed with the Company, its Affiliate or its Subsidiary through the Performance Period in order to vest in your Performance Shares. For purposes of

this Section 2, your transfer between the Company and its Affiliate or Subsidiary, or among Affiliates and Subsidiaries, will not be a termination of employment. In the event of a Change of Control, any applicable terms of Section 3 (Change of Control) will supersede the terms of this Section 2.

(b) Long-Term Disability or Death . If your employment with the Company, its Affiliate or its Subsidiary terminates during the Performance Period due to (i) your long-term disability (determined on the basis of your qualification for long-term disability benefits under a plan or arrangement offered by the Company, its Affiliate or its Subsidiary) or (ii) your death, the number of Performance Shares that become vested and that you, or your beneficiary, will be entitled to receive will equal the product of the number of your Initial Performance Shares multiplied by the ratio of the number of months you were employed during the Performance Period to the total number of months in the Performance Period (partial months of employment will be counted as full number of months).

(c) Retirement . If you retire from the Company, its Affiliate or its Subsidiary on or after the date you attain (i) age 65 or (ii) age 62 with 15 or more years of service, the performance conditions set forth in Sections 1(b) and 1(c) will continue to apply through the end of the Performance Period, and the number of Performance Shares, if any, that become vested and that you will be entitled to receive at the end of the Performance Period will be determined as follows:

(1) If you retire before February 26, 2017, you will receive at the end of the Performance Period the number of Performance Shares determined pursuant to Sections 1(b) and 1(c), prorated based on the ratio of the number of months you were employed during the Performance Period to the total number of months in the Performance Period (partial months of employment will be counted as full number of months); and

(2) If you retire on or after February 26, 2017, you will be treated as if you had remained employed through the end of the Performance Period and will receive at the end of the Performance Period the number of Performance Shares determined pursuant to Sections 1(b) and 1(c).

If you are involuntarily terminated by the Company, its Affiliate or its Subsidiary, you will not be considered to have “retired” for purposes of this Section 2(c), regardless of whether your termination occurs on or after the date you attained (i) age 65 or (ii) age 62 with 15 or more years of service, unless the Committee determines otherwise, in its sole discretion.

(d) Other Termination of Employment . Except as set forth in Section 2(b) or (c), if you voluntarily terminate employment or if you are involuntarily terminated by the Company, its Affiliate or its Subsidiary before the end of the Performance Period, your Initial Performance Shares will be forfeited immediately.

(e) Violation of Covenants . In the event that you violate any of the covenants set forth in Section 4 (whether or not your employment with the Company is terminated), your Initial Performance Shares will be forfeited immediately.

Change of Control .

(a) In the event of a Change of Control in which the Company is the surviving entity or in which the Company’s successor assumes the Company’s obligations under this Agreement, or if the Performance Shares are otherwise equitably converted or substituted, and if your employment is subsequently terminated within two (2) years following the date of such Change of Control (and before the end of the Performance Period) either (i) by the Company for any reason other than Cause or (ii) by you for Good Reason (as the terms “Cause” and “Good Reason” are defined in the Company’s applicable Change of Control Plan Document, the provisions of which are incorporated herein by reference), then your Initial Performance Shares will be deemed to have been earned and vested as of the date of termination and paid out on a pro rata basis as follows:

The number of Performance Shares you receive will equal the product of the number of your Initial Performance Shares multiplied by the ratio of the number of months you were employed during the Performance Period to the total number of months in the Performance Period (partial months of employment will be counted as full number of months).

(b) In the event of a Change of Control in which the Company’s successor does not assume the Company’s obligations under this Agreement, or the Performance Shares are not otherwise equitably converted or substituted, your Initial Performance Shares will be deemed to have been earned and vested as of the effective date of the Change of Control and paid out on a pro rata basis as follows:

4. Restrictive Covenants . By electronic execution of this Agreement, you agree to the terms and conditions of the Restrictive Covenant Agreement that is attached hereto as Exhibit “A”, the provisions of which are incorporated herein and made a part of this Agreement by this reference.

5. Nontransferability of Awards . Except as provided in Section 6 or as otherwise permitted by the Committee, you may not sell, transfer, pledge, assign or otherwise alienate or hypothecate any of your Performance Shares.

6 . Beneficiary Designation . You may name any beneficiary or beneficiaries who may be entitled to any right in the Performance Shares you receive pursuant to this Agreement by filing a beneficiary designation for your Fidelity Account ^® with Fidelity Investments.

7. Tax Withholding . The Company will withhold from any payment made under this Agreement or any other amounts payable to you by the Company an amount sufficient to satisfy the minimum statutory Federal, state and local income and employment tax withholding requirements.

8 . Adjustments . In accordance with Section 4.4 of the Plan, the Committee will make appropriate adjustments in the terms and conditions of your Performance Shares in recognition of a corporate event or transaction affecting the Company (such as a common stock dividend, common stock split, recapitalization, payment of an extraordinary dividend, merger, consolidation, combination, spin-off, distribution of assets to stockholders other than ordinary cash dividends, exchange of shares, or other similar corporate change), to prevent unintended dilution or enlargement of the potential benefits of your Performance Shares. The Committee’s determinations pursuant to this Section 8 will be conclusive.

9 . Timing and Form of Payment .

(a) Performance Shares, if any, that vest pursuant to Section 2(b) will be paid in Shares not later than sixty (60) days following the date of your termination of employment on account of long-term disability or death, as applicable.

(b) Performance Shares, if any, that vest pursuant to Section 2(a) or (c), will be paid in Shares as soon as administratively practicable following the date the Committee certifies the Relative TSR and Adjusted EPS Growth, and the number of Performance Shares payable based on the applicable pre-established target, minimum threshold and maximum threshold annual growth rate percentages, but in no event later than March 15, 2019.

(c) Performance Shares, if any, that vest pursuant to Section 3(a) will be paid in Shares not later than sixty (60) days following the date of your termination of employment. Performance Shares, if any, that vest pursuant to Section 3(b) will be paid in Shares not later than sixty (60) days following the effective date of the Change in Control.

(d) If Performance Shares are to be paid to you, you will receive evidence of ownership of those Shares.

10 . Dividend Equivalents . The Initial Performance Shares will be credited with dividend equivalents equal to the amount of cash dividend payments that would have otherwise been paid if the shares of the Company’s common stock represented by the Initial Performance Shares (including deemed reinvested additional shares

attributable to the Initial Performance Shares pursuant to this paragraph) were actually outstanding (the “Dividend Equivalents”). These Dividend Equivalents will be deemed to be reinvested in additional shares of the Company’s common stock determined by dividing the deemed cash dividend amount by the Fair Market Value of a share of the Company’s common stock on the applicable dividend payment date. Such credited amounts will be added to the Initial Performance Shares and will vest or be forfeited in accordance with Section 2 or 3, as applicable, based on the vesting or forfeiture of the Initial Performance Shares to which they are attributable. In addition, the Initial Performance Shares will be credited with any dividends or distributions that are paid in shares of the Company’s common stock represented by the Initial Performance Shares and will otherwise be adjusted by the Committee for other capital or corporate events as provided for in the Plan.

11. No Guarantee of Employment . This Agreement is not a contract of employment and it is not a guarantee of employment for life or any period of time. Nothing in this Agreement interferes with or limits in any way the right of the Company, its Affiliate or its Subsidiary to terminate your employment at any time. This Agreement does not give you any right to continue in the employ of the Company, its Affiliate or its Subsidiary.

12. Governing Law; Choice of Forum . This Agreement will be construed in accordance with and governed by the laws of the State of Georgia, the state in which the Company is incorporated, without giving effect to the principles of conflicts of law of that state. Any action to enforce this Agreement or any action otherwise regarding this Agreement must be brought in a court in the State of Georgia, to which jurisdiction the Company and you consent.

13. Miscellaneous . For purposes of this Agreement, “Committee” includes any direct or indirect delegate of the Committee (to the extent permitted by Code Section 162(m)), and, unless otherwise specified herein, the word “Section” refers to a Section in this Agreement. The Committee has absolute discretion to interpret and make determinations under this Agreement. Any determination or interpretation by the Committee pursuant to this Agreement will be final and conclusive. In the event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan control. This Agreement and the Plan represent the entire agreement between you and the Company, and you and all Affiliates or Subsidiaries, regarding your Performance Shares. No promises, terms, or agreements of any kind regarding your Performance Shares that are not set forth, or referred to, in this Agreement or in the Plan are part of this Agreement. In the event any provision of this Agreement is held illegal or invalid, the rest of this Agreement will remain enforceable. If you are an Employee of an Affiliate or Subsidiary, your Performance Shares are being provided to you by the Company on behalf of that Affiliate or Subsidiary, and the value of your Performance Shares will be considered a compensation obligation of that Affiliate or Subsidiary. Your Performance Shares are not Shares and do not give you the rights of a holder of Shares. The issuance of Shares pursuant to your Performance Shares is subject to all applicable laws, rules and regulations, and to any approvals by any

governmental agencies or national securities exchanges as may be required. No Shares will be issued if that issuance would result in a violation of applicable law, including the federal securities laws and any applicable state or foreign securities laws.

14. Equity Recovery . If this Award and the Performance Shares or Shares you receive pursuant to this Agreement are subject to recovery under any law, government regulation or stock exchange listing requirement, the Award, the Performance Shares, and the Shares shall be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement and the Committee shall require that you reimburse the Company all or part of any payment or transfer related to this Award, the Performance Shares and the Shares.

15. Amendments . The Committee has the exclusive right to amend this Agreement as long as the amendment does not adversely affect your 2016-2018 Performance Opportunity in any material way (without your written consent) and is otherwise consistent with the Plan. The Company will give written notice to you (or, in the event of your death, to your beneficiary or estate) of any amendment as promptly as practicable after its adoption.

16. Electronic Signature. Your acceptance and execution of this Agreement shall be made by electronic acknowledgement, and you agree that your electronic acknowledgment of this Agreement shall be considered the equivalent of your written signature.

17. Code Section 409A . The intent of the parties is that payments under this Agreement comply with or be exempt from Section 409A of the Code and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and the Company shall have complete discretion to interpret and construe this Agreement in any manner that establishes an exemption from (or compliance with) the requirements of Code Section 409A. If for any reason, such as imprecision in drafting, any provision of this Agreement does not accurately reflect its intended establishment of an exemption from (or compliance with) Code Section 409A, as demonstrated by consistent interpretations or other evidence of intent, such provision shall be considered ambiguous as to its exemption from (or compliance with) Code Section 409A and shall be interpreted by the Company in a manner consistent with such intent, as determined in the discretion of the Company. A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement unless such termination is also a “separation from service” within the meaning of Code Section 409A, and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “such a separation from service.” Any provision of this Agreement to the contrary notwithstanding, if the Company determines that you are a “specified employee,” within the meaning of Code Section 409A, then to the extent any payment that you are entitled to under this Agreement on account of your separation from service would be considered nonqualified deferred compensation under Code Section 409A, such payment shall be paid or provided at the

date which is the earlier of (i) six (6) months and one day after such separation from service and (ii) the date of your death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 17 shall be paid in a lump-sum, without interest, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.


TOTAL SYSTEM SERVICES, INC.

By:		/s/ Ryland Harrelson
		Ryland Harrelson
		Executive Vice-President and Chief HR Officer

EXHIBIT A

RESTRICTIVE COVENANT AGREEMENT

Acknowledgments .

work of two or more employees; and (iii) have the authority to hire or fire other employees or have particular weight given to Executive’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees and/or by reason of the Company Group’s investment of time, training, money, trust, exposure to the public, or exposure to clients, vendors, or other business relationships, has (a) gained a high level of notoriety, fame, reputation, or public persona as the Company Group’s representative or spokesperson or a high level of influence or credibility with the Company Group’s clients, vendors, or other business relationships and/or (b) become intimately involved in the planning for or direction of the business of the Company Group or a defined unit of the business of the Company Group and/or (c) obtained selective or specialized skills, knowledge, abilities, or client contacts or information.

Protection of Confidential Information .

(a) Non-disclosure of Confidential Information . From and after February 26, 2016, Executive shall hold in confidence all Confidential Information and shall not, either directly or indirectly, use, transmit, copy, publish, reveal, divulge or otherwise disclose or make accessible any Confidential Information to any person or entity without the prior written consent of the General Counsel of the Company. Executive’s obligation of non-disclosure as set forth herein shall continue for so long as the information in question continues to constitute Confidential Information. The restrictions in this section 2 are in addition to and not in lieu of any other obligations of Executive to protect Confidential Information, including, but not limited to, obligations arising under the Company Group’s policies, ethical rules, applicable law, or any other contract or agreement. Nothing in this Agreement is intended to or should be interpreted as diminishing any rights and remedies the Company Group has under applicable law related to the protection of confidential information or trade secrets.

10. Notices .


		If to the Company:		Total System Services, Inc.
				Attn: General Counsel
				One TSYS Way
				Post Office Box 2567
				Columbus, Georgia 31902-2567

		If to Executive:		Most recent address on file with the Company

(b) Either party hereto may change the address to which notice is to be sent by written notice to the other party in accordance with the provisions of this section 10.


TOTAL SYSTEM SERVICES, INC.

By:		/s/ Ryland Harrelson
		Ryland Harrelson
		Executive Vice-President and Chief HR Officer

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, M. Troy Woods, certify that:

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

2.	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;

3.	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

5.	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.

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Paul M. Todd, certify that:

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

2.	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;

3.	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)

(b)

(c)

(d)

5.	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)

(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.

EXHIBIT 32

CERTIFICATION OF PERIODIC REPORT

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, M. Troy Woods, the Chairman and Chief Executive Officer of Total System Services, Inc. (the “Company”), and Paul M. Todd, 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 March 31, 2016 (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.


May 5, 2016						/s/ M. Troy Woods
						M. Troy Woods
						Chairman and Chief Executive Officer

May 5, 2016						/s/ Paul M. Todd
						Paul M. Todd
						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).