TOTAL SYSTEM SERVICES INC (Form: 10-Q, Received: 05/01/2019 15:39:33)

Three months ended

(in thousands)

Share-based compensation

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended March 31, 2019

OR

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

	For the transition period from To

Commission file number: 1-10254

Total System Services, Inc.

www.tsys.com

(Exact name of registrant as specified in its charter)

Georgia	58-1493818
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

One TSYS Way, Post Office Box 1755, Columbus, Georgia 31902

(Address of principal executive offices) (Zip Code)

(706) 644-4388

(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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ☑ No ☐

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


Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐
Smaller reporting company ☐	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☑

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: March 31, 2019
Common Stock, $0.10 par value	176,943,121 shares

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TOTAL SYSTEM SERVICES, INC.

Table of Contents

	Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) — March 31, 2019 and December 31, 2018	3
Consolidated Statements of Income (unaudited) — Three months ended March 31, 2019 and 2018	4
Consolidated Statements of Comprehensive Income (unaudited) — Three months ended March 31, 2019 and 2018	5
Consolidated Statements of Cash Flows (unaudited) — Three months ended March 31, 2019 and 2018	6
Consolidated Statement of Changes in Equity (unaudited) — Three months ended March 31, 2019 and 2018	7
Notes to Unaudited Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3. Quantitative and Qualitative Disclosures About Market Risk	42
Item 4. Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	43
Item 1A. Risk Factors	43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 6. Exhibits	44
SIGNATURES	45

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statement s.

TOTAL SYSTEM SERVICES, INC.

Consolidated Balance Sheet s

(Unaudited)


(in thousands, except per share data)	March 31, 2019		December 31, 2018
Assets
Current assets:
Cash and cash equivalents (Note 2)	$	494,646	471,156
Accounts receivable, net of allowances for doubtful accounts and billing adjustments of $6.0 million as of 2019 and 2018		490,045	450,322
Contract assets (Note 3)		44,473	30,950
Prepaid expenses and other current assets (Note 2)		200,229	188,355
Total current assets		1,229,393	1,140,783
Contract assets (Note 3)		53,865	47,839
Goodwill		4,115,380	4,114,838
Other intangible assets, net of accumulated amortization of $846.2 million and $802.0 million as of 2019 and 2018, respectively		748,490	796,702
Intangible assets - computer software, net of accumulated amortization of $930.3 million and $893.4 million as of 2019 and 2018, respectively		539,964	534,536
Property and equipment, net of accumulated depreciation and amortization of $523.0 million and $522.7 million as of 2019 and 2018, respectively (Note 4)		385,400	383,074
Operating lease right-of-use assets, net (Note 4)		206,239	-
Contract cost assets, net of accumulated amortization		147,342	145,598
Equity investments, net		197,831	180,661
Deferred income tax assets		7,750	7,773
Other assets		142,478	116,905
Total assets	$	7,774,132	7,468,709
Liabilities
Current liabilities:
Accounts payable	$	73,061	97,956
Contract liabilities (Note 3)		54,581	47,227
Current portion of operating lease liabilities (Note 4)		49,469	-
Accrued salaries and employee benefits		33,778	73,143
Current portion of long-term borrowings (Note 5)		21,000	20,807
Current portion of obligations under finance leases and license agreements (Note 4)		17,710	8,318
Other current liabilities (Note 2)		315,778	268,150
Total current liabilities		565,377	515,601
Long-term borrowings, excluding current portion (Note 5)		4,139,148	3,843,394
Deferred income tax liabilities		409,706	380,278
Operating lease liabilities, excluding current portion (Note 4)		168,505	-
Obligations under finance leases and license agreements, excluding current portion (Note 4)		41,585	46,147
Contract liabilities (Note 3)		23,805	21,489
Other long-term liabilities		73,246	75,894
Total liabilities		5,421,372	4,882,803
Commitments and contingencies (Note 6)
Shareholders' Equity
Shareholders’ equity:
Common stock- $0.10 par value. Authorized 600,000 shares; 202,765 issued as of 2019 and 2018; 176,943 and 180,586 outstanding as of 2019 and 2018, respectively		20,277	20,277
Additional paid-in capital		191,935	189,889
Accumulated other comprehensive loss, net (Notes 1 and 2)		(55,028)	(60,223)
Treasury stock, at cost (25,822 and 22,179 shares as of 2019 and 2018, respectively)		(1,426,984)	(1,042,687)
Retained earnings		3,622,560	3,478,650
Total shareholders’ equity		2,352,760	2,585,906
Total liabilities and shareholders' equity	$	7,774,132	7,468,709

See accompanying Notes to Unaudited Consolidated Financial Statements

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TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Incom e

(Unaudited)


	Three months ended
	March 31,
(in thousands, except per share data)	2019		2018
Total revenues (Notes 3 and 11)	$	1,034,531	987,170
Cost of services (Note 3)		632,212	613,365
Selling, general and administrative expenses		179,049	185,534
Total operating expenses		811,261	798,899
Operating income		223,270	188,271
Nonoperating expenses, net		(42,991)	(37,642)
Income before income taxes and equity in income of equity investments		180,279	150,629
Income taxes (Note 8)		29,899	18,135
Income before equity in income of equity investments		150,380	132,494
Equity in income of equity investments, net of tax		11,227	10,608
Net income		161,607	143,102
Net income attributable to noncontrolling interests		-	(1,261)
Net income attributable to Total System Services, Inc. (TSYS) common shareholders	$	161,607	141,841
Basic earnings per share (EPS) attributable to TSYS common shareholders (Note 9)	$	0.91	0.78
Diluted EPS attributable to TSYS common shareholders (Note 9)	$	0.90	0.77

See accompanying Notes to Unaudited Consolidated Financial Statements

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TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Comprehensive Incom e

(Unaudited)


	Three months ended
	March 31,
(in thousands)	2019		2018
Net income	$	161,607	143,102
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		10,426	12,495
Postretirement healthcare plan adjustments		(179)	(147)
Unrealized gain on available-for-sale securities (Note 1)		-	2,581
Other comprehensive income		10,247	14,929
Comprehensive income		171,854	158,031
Comprehensive income attributable to noncontrolling interests		-	(1,261)
Comprehensive income attributable to TSYS common shareholders	$	171,854	156,770

See accompanying Notes to Unaudited Consolidated Financial Statements

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TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Cash Flow s

(Unaudited)


	Three months ended
	March 31,
(in thousands)	2019		2018
Cash flows from operating activities:
Net income	$	161,607	143,102
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		103,710	104,389
Amortization of operating lease right-of-use assets		12,654	-
Provisions for cardholder losses		13,269	15,545
Share-based compensation		10,714	6,295
Provisions for bad debt expenses and billing adjustments		2,948	2,839
Charges for transaction processing provisions		7	729
Amortization of debt issuance costs		1,322	1,035
Loss on foreign currency		1,138	427
Amortization of bond discount		277	233
(Gain) loss on disposal of equipment, net		(307)	2
Deferred income tax expense		27,745	15,180
Changes in value of equity investments		(174)	-
Equity in income of equity investments, net of tax		(11,227)	(10,608)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(40,813)	9,006
Contract assets and contract liabilities		(11,357)	498
Contract cost assets		116	2,168
Prepaid expenses, other current assets and other long-term assets		(38,936)	(7,701)
Accounts payable		918	2,289
Accrued salaries and employee benefits		(39,718)	(50,835)
Other current liabilities and other long-term liabilities		33,696	(22,700)
Net cash provided by operating activities		227,589	211,893

Cash flows from investing activities:
Additions to licensed computer software from vendors		(48,628)	(13,827)
Purchases of property and equipment		(19,396)	(22,069)
Additions to internally developed computer software		(12,405)	(10,340)
Cash used in acquisitions, net of cash acquired		-	(1,036,853)
Other investing activities		(2,350)	(1,550)
Net cash used in investing activities		(82,779)	(1,084,639)

Cash flows from financing activities:
Principal payments on long-term borrowings, finance lease obligations and license agreements		(157,324)	(129,010)
Dividends paid on common stock		(23,456)	(23,496)
Subsidiary dividends paid to noncontrolling shareholders		-	(1)
Repurchase of common stock under plans and tax withholding		(400,013)	(24)
Proceeds from borrowings of long-term debt		450,000	1,040,000
Proceeds from exercise of stock options		6,466	26,461
Net cash (used in) provided by financing activities		(124,327)	913,930

Cash, cash equivalents and restricted cash:
Effect of exchange rate changes on cash, cash equivalents and restricted cash		2,049	1,684
Net increase in cash, cash equivalents and restricted cash		22,532	42,868
Cash, cash equivalents and restricted cash at beginning of period		474,279	451,370
Cash, cash equivalents and restricted cash at end of period	$	496,811	494,238

Supplemental cash flow information :
Interest paid	$	10,629	42,040
Income taxes (refunded) paid, net	$	(1,949)	2,936

See accompanying Notes to Unaudited Consolidated Financial Statements

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TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Changes in Equity

(Unaudited)


			TSYS Shareholders
							Accumulated
							Other
	Redeemable					Additional	Comprehensive
	Noncontrolling		Common Stock			Paid-In	Income (Loss),	Treasury	Retained
(in thousands, except per share data)	Interests		Shares	Dollars		Capital	Net of Tax	Stock	Earnings	Total Equity

Balance as of December 31, 2018	$	-	202,765	$	20,277	189,889	(60,223)	(1,042,687)	3,478,650	$	2,585,906
Cumulative effect adjustment from adoption of ASU No. 2016-01 (Note 1)		-	-		-	-	(5,052)	-	5,052		-
Cumulative effect adjustment from adoption of ASU No. 2016-02 (Note 1)		-	-		-	-	-	-	(203)		(203)
Net income		-	-		-	-	-	-	161,607		161,607
Other comprehensive loss		-	-		-	-	10,247	-	-		10,247
Common stock issued from treasury shares for exercise of stock options		-	-		-	3,485	-	2,981	-		6,466
Common stock unissued due to forfeiture of nonvested awards		-	-		-	77	-	(77)	-		-
Common stock issued from treasury shares for nonvested awards		-	-		-	(12,812)	-	12,812	-		-
Share-based compensation (Note 7)		-	-		-	11,296	-	-	-		11,296
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(22,546)		(22,546)
Purchase of treasury shares		-	-		-	-	-	(400,013)	-		(400,013)
Balance as of March 31, 2019	$	-	202,765	$	20,277	191,935	(55,028)	(1,426,984)	3,622,560	$	2,352,760


			TSYS Shareholders
							Accumulated
							Other
	Redeemable					Additional	Comprehensive
	Noncontrolling		Common Stock			Paid-In	Income (Loss),	Treasury	Retained
(in thousands, except per share data)	Interests		Shares	Dollars		Capital	Net of Tax	Stock	Earnings	Total Equity

Balance as of December 31, 2017	$	115,689	202,765	$	20,277	162,806	(36,148)	(909,960)	3,004,018	$	2,240,993
Cumulative effect adjustment from adoption of ASU No. 2014-09 (Note 3)		-	-		-	-	-	-	(4,445)		(4,445)
Net income		1,261							141,841		141,841
Other comprehensive loss		-	-		-	-	14,929	-	-		14,929
Common stock issued from treasury shares for exercise of stock options		-	-		-	5,199	-	21,258	-		26,457
Common stock unissued due to forfeiture of nonvested awards		-	-		-	551	-	(551)	-		-
Common stock issued from treasury shares for nonvested awards		-	-		-	(12,368)	-	12,368	-		-
Common stock issued from treasury shares for dividend equivalents		-	-		-	925	-	9	-		934
Share-based compensation (Note 7)		-	-		-	6,835	-	-	-		6,835
Cash dividends declared ($0.13 per share)		-	-		-	-	-	-	(23,895)		(23,895)
Purchase of treasury shares		-	-		-	-	-	(24)	-		(24)
Adjustments to redemption value of redeemable noncontrolling interest		9,051	-		-	(9,051)	-	-	-		(9,051)
Subsidiary dividends paid to noncontrolling interests		(1)	-		-	-	-	-	-		-
Balance as of March 31, 2018	$	126,000	202,765	$	20,277	154,897	(21,219)	(876,900)	3,117,519	$	2,394,574

See accompanying Notes to Unaudited Consolidated Financial Statements

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TOTAL SYSTEM SERVICES, INC.

Notes to Unaudited Consolidate d 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 and payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses. The Company’s services are provided through three operating segments: Issuer Solutions, Merchant Solutions and Consumer Solutions.

Through the Company's Issuer Solutions segment, TSYS processes information through its cardholder systems for financial and nonfinancial institutions throughout the United States and internationally. The Company's Merchant Solutions segment provides merchant services to merchant acquirers and merchants mainly in the United States. The Company’s Consumer Solutions segment provides financial service solutions to consumers and businesses 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 U.S. 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.

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, 2018, 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.

Out-of-period adjustment

As of January 1, 2019, the Company recorded an adjustment to reclassify the cumulative unrealized gain of $5.1 million related to an investment in common stock with a readily determinable fair value from other comprehensive income to opening retained earnings. This adjustment was recorded to comply with the guidance in Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities .

Fair Value Measurement

Refer to Note 3 of the Company’s audited financial statements for the year ended December 31, 2018, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, for a discussion regarding fair value measurement.

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The Company had no transfers between Level 1, Level 2 or Level 3 assets during the three months ended March 31, 2019 and 2018.

As of March 31, 2019, the Company had recorded goodwill in the amount of $4.1 billion. The Company performs its annual impairment testing of its goodwill balance as of May 31 st of each year. The fair value of the reporting units substantially exceeds their carrying value.

Recently Adopted Accounting Pronouncements

The Company adopted the following ASUs on January 1, 2019:

In September 2017, the FASB issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenues from Customers (Topic 606), Leases (Topic 840) and Leases (Topic 842), which made amendments to SEC paragraphs pursuant to the Staff Announcement at the July 20, 2017 Emerging Issues Task Force (“EITF”) Meeting and rescission of prior SEC Staff Announcements and Observer comments. This guidance, which is effective immediately, generally relates to the adoption of ASC 606 and 842. The adoption of the amendments in this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which introduced a lessee model that brings most operating 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 FASB has issued several additional ASUs since this time that provide additional clarification to certain issues existing after the original ASU was released. All of the new standards were effective for the Company on January 1, 2019. TSYS adopted the new leases standard as of January 1, 2019 using the cumulative effect method. See Note 4 for further discussion of the Company’s adoption of this new standard.

New Accounting Pronouncements

Refer to Note 1 of the Company’s audited financial statements for the year ended December 31, 2018, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, for a discussion regarding new accounting pronouncements.

Note 2 — Supplementary Balance Sheet Information

Cash, Cash Equivalents and Restricted Cash

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. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.

Cash, cash equivalents and restricted cash balances are summarized as follows:



(in thousands)	March 31, 2019		December 31, 2018
Cash and cash equivalents in domestic accounts	$	434,130	405,535
Cash and cash equivalents in foreign accounts		60,516	65,621
Total cash and cash equivalents		494,646	471,156
Restricted cash included in other long-term assets		2,165	3,123
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	496,811	474,279

Restricted cash included in other assets in the Consolidated Balance Sheets represents immaterial amounts required across the Company’s segments for operational purposes.

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Prepaid Expenses and Other Current Assets

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



(in thousands)	March 31, 2019		December 31, 2018
Prepaid expenses	$	63,088	48,058
Income taxes receivable		26,782	19,362
R&D state tax credit		21,593	26,541
Supplies inventory		20,074	18,089
Other		68,692	76,305
Total	$	200,229	188,355

Other Current Liabilities

Significant components of other current liabilities are summarized as follows:



(in thousands)	March 31, 2019		December 31, 2018
Accrued card brand fees	$	62,637	55,991
Accrued interest		53,960	22,191
Accrued third-party commissions		52,187	46,977
Accrued expenses		29,705	25,178
Dividends payable		23,736	24,645
Other		93,553	93,168
Total	$	315,778	268,150

Accumulated Other Comprehensive Loss (AOCL)

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


(in thousands)	Foreign Currency Translation Adjustments		Gain on Available-For-Sale Securities		Change in Postretirement Healthcare Plans		Total Accumulated Other Comprehensive Loss, Net of Tax
Balance as of December 31, 2018	$	(63,186)		5,052		(2,089)	$	(60,223)
Reclassification from adoption of ASU No. 2016-01 (Note 1)		-		(5,052)		-		(5,052)
Balance after reclassification (a)		(63,186)		-		(2,089)		(65,275)
Pretax amount		11,418		-		(231)		11,187
Tax effect		992		-		(52)		940
Net-of-tax amount (b)		10,426		-		(179)		10,247
Balance as of March 31, 2019 (a)+(b)	$	(52,760)		-		(2,268)	$	(55,028)

Note 3 — Revenue from Contracts with Customers

Description of service offerings

Issuer Solutions

The Company's Issuer Solutions revenues are derived from long-term processing contracts with financial and nonfinancial institutions. Payment processing services revenues are generated primarily from charges based on:

The number of accounts on file;

Transactions and authorizations processed;

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Statements generated and/or mailed;

Managed services; and

Cards embossed and mailed and other processing services for cardholder accounts on file.

Most of these contracts have prescribed annual revenue minimums, penalties for early termination, and service level agreements which may impact contractual fees if certain service levels are not achieved.

Issuer Solutions revenues also include loyalty redemption services and professional services.

Merchant Solutions

The Company’s Merchant Solutions revenues are partially derived from relationships with thousands of individual merchants whose contracts range from thirty days to five years. Additionally, part of the revenues are derived from long-term processing contracts with large financial institutions, other merchant acquirers and merchant organizations which generally range from three to eight years. Merchant services revenue is generated primarily from processing all payment forms including credit, debit and electronic benefits transfer for merchants of all sizes across a wide array of retail market segments.

The products and services offered include:

Authorizations and capture of electronic transactions;

Clearing and settlement of electronic transactions;

Information reporting services related to electronic transactions;

Merchant billing services; and

Point-of-sale equipment and services.

Most of these contracts have prescribed revenue minimums, penalties for early termination, and service level agreements which may impact contractual fees if certain service levels are not achieved.

Consumer Solutions

The Company’s Consumer Solutions revenues principally consist of a portion of the service fees collected from cardholders and interchange revenues received by the issuing banks in connection with the programs that the Consumer Solutions segment manages.

Customers are charged fees in connection with the Consumer Solutions segment’s products and services as follows:

Transactions - Customers are typically charged a fee for each Personal Identification Number (“PIN”) and signature-based purchase transaction made using their cards, unless the customer is on a monthly or annual service plan, in which case the customer is instead charged a monthly or annual subscription fee, as applicable. Customers are also charged fees for Automated Teller Machine (“ATM”) withdrawals and other transactions conducted at ATMs.

Customer Service and Maintenance - Customers are typically charged fees for balance inquiries made through call centers. Customers are also charged a monthly maintenance fee after a specified period of inactivity.

Additional Products and Services - Customers are charged fees associated with additional products and services offered in connection with certain cards, including the use of overdraft features, a variety of bill payment options, card replacement, foreign exchange and card-to-card transfers of funds initiated through the call centers.

Other - Customers are charged fees in connection with the acquisition and reloading of the cards at retailers and the Company receives a portion of these amounts in some cases.

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Disaggregation of revenue

The following table summarizes volume-based and non-volume related revenue from contracts with external customers for the three months ended March 31, 2019 and 2018:


	Three months ended March 31, 2019
(in thousands)	Issuer Solutions		Merchant Solutions		Consumer Solutions		Total
Volume-based revenues	$	230,211		322,812		218,696	$	771,719
Non-volume related revenues		239,948		22,369		495		262,812
Total revenues	$	470,159		345,181		219,191	$	1,034,531


	Three months ended March 31, 2018
(in thousands)	Issuer Solutions		Merchant Solutions		Consumer Solutions		Total
Volume-based revenues	$	219,271		298,948		209,721	$	727,940
Non-volume related revenues		238,088		20,475		667		259,230
Total revenues	$	457,359		319,423		210,388	$	987,170

Issuer Solutions

Volume-based revenues are generated from charges based on the number of Accounts on File (“AOF”), transactions and authorizations processed, statements generated, and other processing services for cardholder AOF. Cardholder AOF includes active and inactive consumer credit, retail, prepaid, stored value and commercial card accounts. TSYS’ clients also have the option to use fraud and portfolio management services which are based on authorizations processed and AOF, respectively. 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, non-volume based revenues include licensing, managed services and output services such as card and document production.

Merchant Solutions

The Merchant Solutions segment’s revenues primarily consist of volume-based revenues generated from charges based on sales volume processed, and authorized transactions and settled transactions processed. Non-volume related revenues include chargeback and retrieval services, data transmissions, value added products and managed services which are not directly associated with transactional activity.

Consumer Solutions

The Consumer Solutions segment’s revenues primarily consist of volume-based revenues generated from a portion of the service fees collected from cardholders and interchange revenues. Non-volume related revenues include value-added products and services which are not directly associated with transactional activity.

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The following table summarizes revenue from contracts with customers, by currency, for the three months ended March 31, 2019 and 2018:


	Three months ended March 31, 2019
(in thousands)	Issuer Solutions		Merchant Solutions		Consumer Solutions		Total
U.S. dollar	$	372,000		344,871		219,191	$	936,062
British Pound Sterling		65,152		-		-		65,152
Euro		25,611		-		-		25,611
Other		7,396		310		-		7,706
Total revenues	$	470,159		345,181		219,191	$	1,034,531


	Three months ended March 31, 2018
(in thousands)	Issuer Solutions		Merchant Solutions		Consumer Solutions		Total
U.S. dollar	$	359,870		319,219		210,388	$	889,477
British Pound Sterling		63,121		-		-		63,121
Euro		26,597		-		-		26,597
Other		7,771		204		-		7,975
Total revenues	$	457,359		319,423		210,388	$	987,170

See Note 11 for disclosure of revenues by geography.

Performance obligations

The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period. The purpose of this disclosure is to provide additional information about the amounts and expected timing of revenue to be recognized from the remaining performance obligations in the Company’s existing contracts. For revenue which is recognized using (i) the “as-invoiced” practical expedient and (ii) the “direct allocation” method, the Company is required to disclose the value of unsatisfied performance obligations for contractual minimums only. Accordingly, the total unsatisfied or partially unsatisfied performance obligations related to processing services are materially higher than the amounts disclosed in the below table.


(in thousands)	Remainder of 2019		2020	2021	2022	2023 - 2029		Total
Unsatisfied or partially unsatisfied performance obligations	$	586,952	632,569	532,219	387,996	468,465	$	2,608,201

Contract balances

Contract assets are defined as an entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

Contract liabilities are defined as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

Net contract assets and liabilities may include amounts related to signing incentives for signing or renewing long-term contracts. Capitalized signing incentives are amortized over the contract term and the amortization is included as a reduction of revenues in the Company’s Consolidated Statements of Income.

ASC 606 requires an entity to present in its Consolidated Balance Sheets the net position in a customer contract on a contract-by-contract basis. The net position in a customer contract is presented as either

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contract assets or contract liabilities. Significant changes in the contract assets and liabilities balances during the three months ended March 31, 2019 are as follows:


	Three months ended March 31, 2019
(in thousands)	Contract Assets Increase/(Decrease)		Contract Liabilities (Increase)/Decrease
Signing incentive additions	$	22,540	$	-
Signing incentive amortization		(6,721)		(1,093)
Revenue recognized in advance of billings		6,005		-
Billed amounts transferred to receivables		(2,004)		-
Cash received from customers		(1,396)		(47,981)
Deferred revenue that was recognized as revenue		2,349		37,294

Other changes in contract assets and contract liabilities primarily relate to movements in net contract position (between contract assets and contract liabilities) each period and foreign currency translation.

Note 4 – Leases

The Company adopted ASU No. 2016-02 and related ASUs (“ASC 842”) as of January 1, 2019 using the cumulative effect method. Upon adoption, the Company recorded right-of-use (“ROU”) assets of $195.2 million and additional operating liabilities of approximately $190.7 million for existing operating leases. Also as part of the initial adoption, the Company wrote off the carrying value of favorable lease intangible assets of $2.1 million and increased the ROU assets by the same amount. The cumulative effect adjustment recorded to opening retained earnings was not material. The adoption of this ASU did not have a material impact on the Company’s results of operations or cash flows.

Description of leases and lease policies - lessee

TSYS enters into leases for datacenters, facilities, computer equipment and certain other equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. TSYS recognizes lease expense or depreciation expense for leases on a straight-line basis over the lease term. Variable lease expense primarily relates to maintenance and other monthly expenses that do not depend on an index or rate.

TSYS determines if an arrangement is a lease at contract inception. Operating leases are included in operating lease ROU assets, other current liabilities, and operating lease liabilities in our Consolidated Balance Sheet. Finance leases are included in property and equipment, net and current and long-term obligations under finance leases in our Consolidated Balance Sheet.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of the future lease payments. As most of its leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. TSYS uses the implicit rate when readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives received. TSYS lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

TSYS has lease agreements with lease and non-lease components, which are combined and accounted for as a single lease component for all asset classes excluding computer equipment. For computer equipment leases, the Company accounts for the lease and non-lease components as separate components. The majority of computer equipment lease commitments come with a renewal option or an option to terminate the lease. These lease commitments may be replaced with new leases, which allow the Company to continually update its computer equipment.

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Practical expedients and policy elections

The Company has elected to utilize the following practical expedients and accounting policy elections:

 Electing as a package, the Company did not reassess: (a) whether expired or existing contracts contain leases under the new definition of a lease, (b) lease classification for expired or existing leases, and (c) whether previously capitalized initial direct costs would qualify for capitalization under ASU No. 2016-02.

 The Company did not evaluate land easements that existed or expired before the Company’s adoption of ASU No. 2016-02 and that were not previously accounted for as leases.

 From a lessee perspective, the Company has elected to combine lease and non-lease components for all classes of assets except for computer equipment. Accordingly, for all asset classes excluding computer equipment, the Company accounts for the combined lease and non-lease components as a single lease component. For computer equipment, the Company accounts for lease and non-lease components, such as maintenance, separately.

 From a lessee perspective, the Company has elected, as an accounting policy election by class of underlying asset, not to recognize ROU assets and lease liabilities for short-term leases.

 From a lessor perspective, the Company has elected to utilize the practical expedient in ASU No. 2018-11 to not separate non-lease components from the associated lease component for arrangements including point-of-sale (“POS”) terminals. Since the predominant component in these arrangements is service revenue and not the POS terminal, the combined components in these arrangements will be accounted for under ASC 606 and not ASC 842.

 The Company utilized incremental borrowing rates in transition (as of January 1, 2019) based on the remaining lease payments and remaining lease term.

The Company decided not to elect the use of hindsight in determining the lease term and in assessing impairment of the Company’s ROU assets.

Supplemental Information

Supplemental balance sheet information related to leases is as follows:


(in thousands)	March 31, 2019		December 31, 2018
Lease assets:
Operating lease right-of-use assets, net:
Computer equipment	$	74,587	na
Facilities		131,420	na
Other		232	na
Total operating lease right-of-use assets, net		206,239	na
Finance lease right-of-use assets:
Computer and other equipment		78,794	91,526
Furniture and other equipment		3,859	6,104
Total finance lease assets		82,653	97,630
Less accumulated depreciation:
Computer and other equipment		(37,622)	(47,903)
Furniture and other equipment		(2,823)	(4,859)
Total accumulated depreciation		(40,445)	(52,762)
Total finance lease right-of-use assets, net		42,208	44,868
Total lease assets	$	248,447	44,868
Lease liabilities:
Current portion of operating lease liabilities	$	49,469	na
Operating lease liabilities, excluding current portion		168,505	na
Current portion of obligations under finance leases		5,976	5,934
Obligations under finance leases, excluding current portion		29,849	31,243
Total lease liabilities	$	253,799	37,177
na = not applicable since TSYS adopted ASC 842 as of January 1, 2019

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As of March 31, 2019, finance lease assets and finance lease accumulated depreciation decreased by approximately $15.0 million and $12.3 million, respectively, when compared to December 31, 2018. This decrease is related to the execution of purchase options for certain finance leases as well as the retirement of certain assets no longer in use. The balances of any finance leases subject to purchase options exercised during the three months ended March 31, 2019 were subsequently moved to Property and Equipment.

Lease expense

The components of lease expense are as follows:


	Three months ended
(in thousands)	March 31, 2019
Operating lease expense:
Fixed lease expense	$	14,975
Variable lease expense		1,969
Short-term lease expense		1,369
Total operating lease expense		18,313
Finance lease expense:
Amortization of ROU assets		2,891
Interest on finance lease liabilities		388
Total finance lease expense		3,279
Total lease expense	$	21,592

Total rental expense under all operating leases for the year ended December 31, 2018 was $128.6 million.

Other lease information

Supplemental cash flow information related to leases is as follows:


	Three months ended
(in thousands)	March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	18,882
Operating cash flows from finance leases		388
Financing cash flows from finance leases		1,461


	Three months ended March 31,
(in thousands)	2019		2018
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	36,369	na
Finance leases		-	6,818
na = not applicable since TSYS adopted ASC 842 as of January 1, 2019

The weighted-average remaining lease term and weighted-average discount rate are as follows:


	Three months ended
	March 31, 2019
Weighted-average remaining lease term (years):
Operating leases	5.32
Finance leases	5.81
Weighted-average discount rate:
Operating leases	4.25	%
Finance leases	8.46	%

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Maturity of lease liabilities

The future minimum lease payments under noncancelable operating and finance leases with remaining terms greater than one year for the next five years and thereafter and in the aggregate as of March 31, 2019 and December 31, 2018, are as follows:


	March 31, 2019			December 31, 2018
(in thousands)	Operating Leases		Finance Leases	Operating Leases	Finance Leases
2019 1	$	43,544	5,581	54,818	7,393
2020		54,611	7,406	54,738	7,319
2021		51,209	7,161	50,794	7,085
2022		42,355	7,127	42,048	7,051
2023		19,226	6,732	19,089	6,658
Thereafter		33,057	6,936	32,894	6,868
Total lease payments		244,002	40,943	254,381	42,374
Less imputed interest		(24,081)	(4,840)	na	(5,197)
Total	$	219,921	36,103	254,381	37,177
na = not applicable since TSYS adopted ASC 842 as of January 1, 2019

For the three months ended March 31, 2019, this row represents the remaining payments from April to December 2019.

In March 2019, the Company entered into operating and finance leases for certain computer equipment whose commencement dates range from July 2019 to August 2019. Amounts related to these operating and finance leases totaling $2.2 million are not reflected on the Company’s consolidated balance sheet as of March 31, 2019. However, amounts related to these operating and finance leases are reflected in the above disclosure of future operating lease commitments as of March 31, 2019.

In April 2019, the Company entered into operating leases for certain facilities whose commencement dates range from April 1, 2019 to November 1, 2019. Amounts related to these operating leases are not reflected on the Company’s consolidated balance sheet as of March 31, 2019 or in the above disclosure of operating lease commitments as of March 31, 2019.

Note 5 — Long-Term Borrowings and License Agreements

Refer to Note 12 of the Company’s audited financial statements for the year ended December 31, 2018, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, for further discussion regarding long-term borrowings and license agreements.

Note 6 — Commitments and Contingencies

Refer to Note 15 of the Company’s audited financial statements for the year ended December 31, 2018, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, for a discussion regarding commitments and contingencies.

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. Legal costs are expensed as incurred. 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.

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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) (Bankr. D. Nev.); (ii) Anthony Cellucci, et al. v. TelexFree, Inc., et. al. (Case No. 4:14-BK-40987) (Bankr. D. Mass.); (iii) Maduako C. Ferguson Sr., et al. v. Telexelectric, LLP, et. al (Case No. 5:14-CV-00316-D) (E.D.N.C.); (iv) Todd Cook v. TelexElectric LLP et al. (Case No. 2:14-CV-00134) (N.D. Ga.); (v) Felicia Guevara v. James M. Merrill et al., CA No. 1:14-cv-22405-DPG) (S.D. Fla.); (vi) Reverend Jeremiah Githere, et al. v. TelexElectric LLP et al. (Case No. 1:14-CV-12825-GAO) (D. Mass.); (vii) Paulo Eduardo Ferrari et al. v. Telexfree, Inc. et al. (Case No. 14-04080) (Bankr. D. Mass); (viii) Magalhaes v. TelexFree, Inc., et al., No. 14-cv-12437 (D. Mass.); (ix) Griffith v. Merrill et al., No. 14-CV-12058 (D. Mass.); (x) Abelgadir v. Telexelectric, LLP, No. 14-09857 (S.D.N.Y.); and (xi) Rita Dos Santos, v. TelexElectric, LLP et al., 2:15-cv-01906-NVW (D. Ariz.) (together, the “Actions”).

On October 21, 2014, the Judicial Panel on Multidistrict Litigation (“JPML”) transferred and consolidated the Actions filed before that date to the United States District Court for the District of Massachusetts (the “Consolidated Action”). The JPML subsequently transferred the remaining Actions to the Consolidated Action. The Consolidated Action is styled In Re: Telexfree Securities Litigation (4:14-md-02566-TSH) (D. Mass.).

The plaintiffs in the Consolidated Action filed a First Consolidated Amended Complaint on March 31, 2015 and filed a Second Consolidated Amended Complaint (the “Second Amended Complaint”) on April 30, 2015. The Second Amended Complaint, which supersedes the complaints filed prior to consolidation of the Actions, 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. With respect to ProPay, the Second Amended Complaint 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. The court held a hearing on the motions to dismiss on November 2, 2015.

On January 29, 2019, the court granted in part and denied in part ProPay’s motion to dismiss the Second Amended Complaint. The court dismissed plaintiffs’ claim that ProPay was unjustly enriched by the alleged TelexFree fraud, but denied ProPay’s motion to dismiss the plaintiffs’ claim that ProPay allegedly aided and abetted TelexFree’s purported scheme. The court’s ruling does not reflect any determination of the merits of the plaintiffs’ aiding and abetting claim against ProPay, but instead is merely a ruling that the plaintiffs have alleged facts that could potentially entitle them to relief from ProPay if those facts were true. ProPay denies that it had any knowledge of TelexFree’s alleged fraud or that it aided and abetted that fraud in any way.

After deciding the motions to dismiss filed by ProPay and some of the other defendants in the litigation, the court lifted the stay on discovery that had been in place since the outset of the Consolidated Action. Approximately 50 defendants remain in the litigation. The Court held a scheduling conference on March 20, 2019, but has not yet entered an order setting the case schedule.

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

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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.

While the Company and ProPay intend to vigorously defend the Consolidated Action and other 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 7 — Share-Based Compensation

Refer to Notes 1 and 18 of the Company’s audited financial statements for the year ended December 31, 2018, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 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.

Below is a summary of share-based compensation expense for the three months ended March 31, 2019 and 2018:

Nonvested Share Awards - Time-Based

The Company granted awards 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. As of March 31, 2019, there was approximately $41.2 million of unrecognized compensation cost related to time-based nonvested share awards.



	Three months ended
	March 31,
	2019		2018
Number of shares granted		304,911	292,359
Market value ( in millions )	$	28.0	26.1

Performance- and Market-Based Awards

The Company granted performance- and market-based awards 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 2019 and 2018, the Compensation Committee established performance goals based primarily on various financial and market-based measures. The Company’s market-based awards are based upon the Company’s Total Shareholder Return (“TSR”) as compared to the TSR of the companies in the S&P 500 determined at the end of the performance period for 2018 and determined using a twenty day average of the fair market value at the beginning and end of the performance period for 2019 awards.

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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, 2019, there was approximately $28.4 million of unrecognized compensation cost related to TSYS performance-based awards that is expected to be recognized through December 2021. As of March 31, 2019, there was approximately $4.7 million of unrecognized compensation cost related to TSYS market-based awards that is expected to be recognized through December 2021.

During the three months ended March 31, 2019 and 2018, the Company granted performance-based awards based on non-financial metrics and the following performance measures:


Performance Measure	Definition of Measure
Adjusted diluted EPS	Adjusted earnings divided by weighted average diluted shares outstanding used for diluted EPS calculations. Adjusted earnings is net income excluding the after-tax impact of share-based compensation expense, amortization of acquisition intangibles, merger and acquisition expenses for completed acquisitions and litigation claims, judgments or settlement expenses and related legal expenses.
Net revenue	Net revenue is total revenues less reimbursable items that are recorded by TSYS as expense.
Adjusted EBITDA	Adjusted EBITDA is net income excluding equity in income of equity investments, nonoperating income/(expense), income taxes, depreciation, amortization, share-based compensation expenses and other items.

The number of performance-based shares with a one to two year performance period granted during the three months ended March 31, 2019 and 2018 totaled 86,779 and 95,748. The number of performance-based shares with a three year performance period granted during the three months ended March 31, 2019 and 2018, totaled 79,132 and 79,218, respectively. The grants awarded with a three year performance period during the first three months of 2019 and 2018 will be expensed through December 31, 2021 and 2020, respectively.

The number of market-based awards granted during the three months ended March 31, 2019 and 2018 were 30,856 and 33,940, respectively. The performance measure for the market-based awards is the Company’s TSR as compared to the TSR of the companies in the S&P 500 determined at the end of the performance period for 2018 and determined using a twenty day average of the fair market value at the beginning and end of the performance period for 2019 awards.

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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,
	2019			2018
Number of options granted		223,520		341,659
Weighted average exercise price	$	91.93		87.08
Risk-free interest rate		2.48	%	2.55	%
Expected volatility		22.79	%	21.80	%
Expected term (years)		4.8		4.8
Dividend yield		0.57	%	0.60	%
Weighted average fair value	$	21.85		19.34

As of March 31, 2019, there was approximately $7.0 million of unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 1.9 years.

Note 8 — Income Taxes

Refer to Notes 1 and 14 of the Company’s audited financial statements for the year ended December 31, 2018, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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, consolidated income tax returns for most states and separate entity basis income tax returns for most foreign jurisdictions. 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 2011. There are currently federal income tax examinations in progress for the years 2011 through 2013. In March 2019, TSYS reached a closing agreement with the IRS for the federal income tax examinations of these years. 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 tax rate was 16.6% and 12.0% for the three months ended March 31, 2019 and 2018, respectively. The primary reasons for the higher effective income tax rate for the three months ended March 31, 2019 as compared to the same period last year is a decrease to the favorable discrete item for excess tax benefits of share-based compensation offset by a reduction in FIN 48 reserves.

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 unrecognized tax benefit amounts were $18.4 million and $22.3 million as of March 31, 2019 and December 31, 2018, respectively, which resulted in a decrease of $3.9 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 $1.5 million and $2.5 million as of March 31, 2019 and December 31, 2018, respectively. The total amounts of unrecognized income tax benefits as of March 31, 2019 and December 31, 2018, that, if recognized, would affect the effective tax rates are $18.8 million and $23.5 million (net of the federal benefit on state tax issues), respectively, which include interest and penalties of $0.9 million and $1.7 million,

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respectively. TSYS does not expect any significant changes to its calculation of uncertain tax positions during the next twelve months.

Note 9 – Earnings Per Share

The following tables illustrate basic and diluted EPS for the three months ended March 31, 2019 and 2018:



	Three months ended
	March 31,
	2019		2018
(in thousands, except per share data)	Common Stock		Common Stock
Basic EPS:
Net income attributable to TSYS common shareholders	$	161,607		141,841
Less income allocated to nonvested awards		(38)		(168)
Net income allocated to common stock for EPS calculation (a)	$	161,569		141,673
Weighted average shares outstanding		178,435		181,612
Less participating securities		(41)		(217)
Average common shares outstanding (b)		178,394		181,395
Basic EPS (a)/(b)	$	0.91		0.78

Diluted EPS:
Net income attributable to TSYS common shareholders	$	161,607		141,841
Less income allocated to nonvested awards		(38)		(168)
Add income reallocated to nonvested awards 1		38		168
Net income allocated to common stock for EPS calculation (c)	$	161,607		141,841
Weighted average shares outstanding		178,435		181,612
Less participating securities		(41)		(217)
Average common shares outstanding		178,394		181,395
Increase due to assumed issuance of shares related to common equivalent shares outstanding		867		1,236
Average nonvested awards 1		625		667
Average common and common equivalent shares outstanding (d)		179,886		183,298
Diluted EPS (c)/(d)	$	0.90		0.77

In accordance with the diluted EPS guidance under the two-class method, the Company uses the approach- either the treasury stock method or the two-class method assuming a participating security is not exercised- that is more dilutive.

The diluted EPS calculation excludes stock options and nonvested awards that are exercisable into 0.3 million common shares for the three months ended March 31, 2019, and excludes 0.3 million common shares for the three months ended March 31, 2018, because their inclusion would have been anti-dilutive.

Note 10 — Supplementary Cash Flow Information

Software Acquired Under License Agreements

There was approximately $6.9 million and $3.4 million of software acquired under license agreements in the first three months of 2019 and 2018, respectively. Additionally, the Company did not acquire software through vendor financing and other arrangements during the first three months of 2019 compared to $36.5 million of software acquired through vendor financing and other arrangements during the first three months of 2018.

Note 11 — Segment Reporting and Major Customers

Refer to Note 21 of the Company’s audited financial statements for the year ended December 31, 2018, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC, for a discussion regarding segment reporting and major customers.

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At TSYS, the chief operating decision maker (“CODM”) is a group consisting of Senior Executive Management. In the first quarter of 2019, the CODM changed the profitability measure for its operating segments to adjusted segment EBITDA. All periods presented have been adjusted to reflect this new measure.

The following table presents the Company’s total assets by segment:


	As of
(in thousands)	March 31, 2019		December 31, 2018
Issuer Solutions	$	7,075,930	6,843,451
Merchant Solutions		4,247,317	4,248,183
Consumer Solutions		1,419,687	1,374,667
Intersegment assets		(4,968,802)	(4,997,592)
Total assets	$	7,774,132	7,468,709

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


	As of
(in thousands)	March 31, 2019		December 31, 2018
United States	$	321,654	321,119
Europe		47,994	45,872
Other		15,752	16,083
Total	$	385,400	383,074

The following table presents the Company’s depreciation and amortization by segment:


	Three months ended
		March 31,
(in thousands)	2019		2018
Depreciation and amortization by segment:
Issuer Solutions	$	35,167	28,331
Merchant Solutions		7,682	7,825
Consumer Solutions		4,416	4,259
Segment depreciation and amortization		47,265	40,415
Acquisition intangible amortization		54,957	63,023
Corporate administration and other		1,488	951
Total depreciation and amortization	$	103,710	104,389

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, 2019
(in thousands)	Issuer Solutions		Merchant Solutions	Consumer Solutions	Total
United States	$	271,130	344,298	219,191	$	834,619
Europe 1		94,387	160	-		94,547
Canada 1		79,633	388	-		80,021
Other 1		25,009	335	-		25,344
Total	$	470,159	345,181	219,191	$	1,034,531

Certain of these revenues are impacted by movements in foreign currency exchange rates.

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	Three months ended March 31, 2018
(in thousands)	Issuer Solutions		Merchant Solutions	Consumer Solutions	Total
United States	$	264,032	318,749	210,388	$	793,169
Europe 1		95,143	125	-		95,268
Canada 1		77,582	279	-		77,861
Other 1		20,602	270	-		20,872
Total	$	457,359	319,423	210,388	$	987,170

Certain of these revenues are impacted by movements in foreign currency exchange rates.

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


Operating Segments	Three months ended March 31,

(in thousands)		2019	2018
Adjusted segment EBITDA 1 :
Issuer Solutions (a)	$	204,934	195,764
Merchant Solutions (b)		128,836	118,940
Consumer Solutions (c)		63,693	53,667
Corporate administration and other		(40,176)	(37,449)
Total		357,287	330,922
Less:
Share-based compensation		10,714	6,295
Cayan and TransFirst merger & acquisition (M&A) and integration expenses 2		3,710	14,367
Depreciation and amortization		103,710	104,389
Contract asset amortization		8,038	6,874
Contract cost asset amortization		7,845	10,726
Operating income		223,270	188,271
Nonoperating expenses, net		(42,991)	(37,642)
Income before income taxes and equity in income of equity investments	$	180,279	150,629

Net revenue by segment:
Issuer Solutions (e)	$	433,473	423,574
Merchant Solutions (f)		342,956	317,403
Consumer Solutions (g)		219,178	210,489
Segment net revenue		995,607	951,466
Less: intersegment revenues		15,337	15,969
Net revenue 3		980,270	935,497
Add: reimbursable items		54,261	51,673
Total revenues	$	1,034,531	987,170

Adjusted segment EBITDA margin on net revenue:
Issuer Solutions (a)/(e)		47.3%	46.2%
Merchant Solutions (b)/(f)		37.6%	37.5%
Consumer Solutions (c)/(g)		29.1%	25.5%

Adjusted segment EBITDA is net income excluding equity in income investments, interest expense (net of interest income), income taxes, depreciation, amortization, contract asset amortization, contract cost asset amortization, gains or losses on foreign currency translation, other nonoperating income or expenses, share-based compensation, litigation, claims, judgements or settlements and Cayan and TransFirst M&A and integration expenses.

Excludes share-based compensation

Net revenue is defined as total revenues less reimbursable items (such as postage) that are recorded by TSYS as expense .

Major Customers

For the three months ended March 31, 2019 and 2018, the Company did not have any major customers.

Note 12 — Subsequent Events

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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Financial Overview

Total System Services, Inc.’s (“TSYS'” or the “Company’s”) revenues are derived from providing payment processing services, 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 and payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses. The Company's services are provided through three operating segments: Issuer Solutions, Merchant Solutions and Consumer Solutions.

Through the Company’s Issuer Solutions segment, TSYS processes information through its cardholder systems to financial and nonfinancial institutions throughout the United States and internationally. The Company's Merchant Solutions segment provides merchant services to merchant acquirers and merchants mainly in the United States. The Company’s Consumer Solutions segment provides financial service solutions to consumers and businesses in the United States.

For a detailed discussion regarding the Company’s operations, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 2019, as compared to 2018, is provided below:



	Three months ended
	March 31,
				Percent
(in thousands, except per share data)	2019		2018	Change
Total revenues	$	1,034,531	987,170	4.8	%
Net revenue 1	$	980,270	935,497	4.8
Operating income	$	223,270	188,271	18.6
Net income attributable to TSYS common shareholders	$	161,607	141,841	13.9
Basic earnings per share (EPS) attributable to TSYS common shareholders 2	$	0.91	0.78	16.0
Diluted EPS attributable to TSYS common shareholders 2	$	0.90	0.77	16.1
Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) 3	$	357,287	330,922	8.0
Adjusted earnings 4	$	215,446	207,586	3.8
Adjusted diluted EPS 5	$	1.20	1.13	5.8
Cash flows from operating activities	$	227,589	211,893	7.4
Free cash flow 6	$	147,160	165,657	(11.2)

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

Net revenue is defined as total revenues less reimbursable items (such as postage) that are recorded by TSYS as expense.

Under GAAP, entities that have participating securities must compute basic EPS using the two-class method and compute diluted EPS using the more dilutive approach of either the two-class method or the treasury stock method. Refer to Note 9 in the Notes to Unaudited Consolidated Financial Statements for more information on EPS.

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

⁴

Adjusted earnings is net income excluding noncontrolling interests, the after-tax impact of share-based compensation expenses, amortization of acquisition intangibles and other items.

⁵

Adjusted diluted EPS is defined as adjusted earnings divided by weighted average shares outstanding used for diluted EPS calculations.

⁶

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

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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, 2018, 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 on the judgments affecting the application of those estimates and assumptions in 2019. TSYS has updated its lease policies in conjunction with the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASC 842”) as further described in Notes 1 and 4 in the Notes to Unaudited Consolidated Financial Statements. The most significant impact of adopting ASC 842 in 2019 is primarily the addition of operating lease right-of-use assets and corresponding liabilities to the Consolidated Balance Sheet.

Off-Balance Sheet Arrangements

Operating Leases

As a method of funding its operations, TSYS employs noncancelable operating leases for computer equipment 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 Consolidated Balance Sheets as of December 31, 2018. With the adoption of ASC 842, operating lease right-of-use assets and operating lease liabilities were recognized on the Consolidated Balance Sheet as of January 1, 2019.

Contractual Obligations

The Company has long-term obligations which consist of required minimum future payments under contracts with certain of our distributors and other service providers.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 1 in the Notes to Unaudited Consolidated Financial Statements.

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. 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 4.8%, for the three months ended March 31, 2019, compared to the same period in 2018. Revenues for the three months ended March 31, 2019 also included a decrease of $8.3 million related to the effects of currency translation of the Company’s foreign-based subsidiaries and branches.

Table of Contents

The Company reviews revenue performance on a net revenue basis which is a non-GAAP measure. Net revenue is defined as total revenues less reimbursable items that are recorded by TSYS as expense. 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 fees. The Company’s reimbursable items are primarily impacted by changes in postal rates and changes in the volumes of mailing activities by its clients. Reimbursable items for the three months ended March 31, 2019 were $54.3 million, an increase of 5.0%, compared to the same period last year, primarily due to an increase in postal rates.

Net revenue increased $44.8 million, or 4.8% during the three months ended March 31, 2019, compared to the same period in 2018. The increase in net revenue for the three months ended March 31, 2019, as compared to the same period in 2018, is primarily the result of organic growth, partially offset by a decrease of $7.7 million associated with currency translation.

Major Customers

For a discussion regarding the Company’s major customers, refer to Note 11 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, 2018, 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, 2019, the Company did 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 three operating segments: Issuer Solutions, Merchant Solutions and Consumer Solutions. Refer to Note 11 in the Notes to Unaudited Consolidated Financial Statements for more information on the Company’s operating segments.

Issuer Solutions

The Company’s Issuer Solutions segment has 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 permit 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 contract assets and contract cost assets 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.

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TSYS’ revenues in its Issuer Solutions segment are primarily derived from electronic payment processing. There are certain basic core services directly tied to accounts on file (“AOF”) and transactions. These are provided to all of TSYS’ processing clients. The core services begin with AOF.

The core services include housing 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 which are based on authorizations processed and AOF, respectively. Collectively, these services are considered volume-based revenues.

Below is a summary of AOF for the Company’s Issuer Solutions segment:


(in millions)	As of March 31,
AOF	2019	2018	Percent Change
Consumer	523.0	486.5	7.5	%
Commercial	60.2	55.2	8.9
Other	45.0	36.9	22.2
Traditional AOF 1	628.2	578.6	8.6
Prepaid/Stored Value 2	11.5	38.7	(70.3)
Commercial Card Single-Use 3	116.3	97.5	19.3
Government Services 4	-	96.5	(100.0)
Total AOF	756.0	811.3	(6.8)

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 Consumer Solutions 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.

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

⁴

Government services accounts are disbursements of student loan accounts issued by the Department of Education, which have minimal activity. This portfolio of AOF had deconverted by December 31, 2018.

Non-volume related revenues include processing fees which are not directly associated with AOF and transactional activity, such as certain 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.

The Issuer Solutions segment provides payment processing and related services to clients based in the United States and internationally. 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 months ended March 31, 2019.

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Below is a summary of the Issuer Solutions segment:


	Three months ended
	March 31,
(in thousands, except key indicators)	2019			2018		Percent Change
Volume-based revenues	$	215,423		205,624		4.8	%
Non-volume related revenues:
Processing fees		74,865		79,841		(6.2)
Value-added, custom programming, licensing and other		71,548		76,055		(5.9)
Output and managed services		71,637		62,054		15.4
Total non-volume related revenues		218,050		217,950		0.0
Net revenue 1	$	433,473		423,574		2.3
Adjusted segment EBITDA 2	$	204,934		195,764		4.7
Adjusted segment EBITDA margin 3		47.3	%	46.2	%
Key indicators (in millions) :
AOF		756.0		811.3		(6.8)
Traditional AOF		628.2		578.6		8.6
Transactions		5,948.9		5,547.9		7.2

Net revenue is defined as total revenues less reimbursable items (such as postage) that are recorded by TSYS as expense.

Adjusted segment EBITDA excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

Adjusted segment EBITDA margin is adjusted segment EBITDA divided by net revenue .

For the three months ended March 31, 2019, approximately 49.7% of net revenue was driven by the volume of AOF and transactions processed and approximately 50.3% was derived from non-volume based revenues.

The increase in net revenue for the three months ended March 31, 2019, as compared to the same period in 2018, was driven by organic growth.

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.

Net revenue for the three months ended March 31, 2019, as compared to the same period in 2018, included a decrease of $7.8 million associated with currency translation.

Merchant Solutions

The Merchant Solutions segment provides merchant processing and related services to clients based primarily in the United States. Merchant Solutions revenues are derived from providing processing services, acquiring solutions, related systems and 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 Solutions include authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; and merchant billing services. This segment has no major customers for the three months ended March 31, 2019.

The Merchant Solutions segment's results are driven by dollar sales volume and the authorization and capture transactions processed at the point-of-sale ("POS”). This segment's authorization and capture transactions are primarily through Internet connectivity.

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Below is a summary of the Merchant Solutions segment:


	Three months ended
	March 31,
(in thousands, except key indicators)	2019			2018		Percent Change
Net revenue 1	$	342,956		317,403		8.1	%
Adjusted segment EBITDA 2	$	128,836		118,940		8.3
Adjusted segment EBITDA margin 3		37.6	%	37.5	%
Key indicators:
Dollar sales volume ( in millions )	$	40,241.6		37,266.7		8.0
POS transactions ( in millions )		1,524.3		1,339.6		13.8
Net revenue per POS transaction	$	0.225		0.237		(5.1)

Net revenue is defined as total revenues less reimbursable items (such as postage) that are recorded by TSYS as an expense.

Adjusted segment EBITDA excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

Adjusted segment EBITDA margin is adjusted segment EBITDA divided by net revenue.

For the three months ended March 31, 2019, approximately 93.5% of net revenue was influenced by several factors, including volumes related to transactions and dollar sales volume. The remaining 6.5% of this segment’s net revenue was derived from value added services, chargebacks, managed services, investigation and risk and collection services performed.

The increase in net revenue and adjusted segment EBITDA for the three months ended March 31, 2019, as compared to the same period in 2018, was driven by higher processing volumes, product fees and processing fees.

Consumer Solutions

The Consumer Solutions segment provides GPR prepaid cards, payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses in the United States. The segment’s products provide customers with access to depository accounts insured by the Federal Deposit Insurance Corporation (“FDIC”) with a menu of pricing and features specifically tailored to their needs. The Consumer Solutions segment has an extensive distribution and reload network including financial service centers and other retail locations throughout the United States, and is a program manager for FDIC-insured depository institutions that issue the products that the segment develops, promotes and distributes. The Consumer Solutions segment currently has active agreements with five issuing banks.

The Consumer Solutions segment markets its products through multiple distribution channels, including alternative financial service providers, traditional retailers, direct-to-consumer and online marketing programs, and contractual relationships with corporate employers. This segment has no major customers and one major third-party distributor for the three months ended March 31, 2019.

The Consumer Solutions segment’s revenues primarily consist of a portion of the service fees and interchange revenues received by the segment’s issuing banks and others in connection with the programs managed by this segment. Customers are charged fees for transactions including fees for PIN and signature-based purchase transactions made using their cards, for ATM withdrawals or other transactions conducted at ATMs, for balance inquiries, and monthly maintenance fees among others. Customers are also charged fees associated with additional features and services offered in connection with certain products including the use of courtesy overdraft protection, bill payment options, custom card designs and card-to-card transfers of funds initiated through call centers. The Consumer Solutions segment also earns revenues from a portion of the interchange fees remitted by merchants when customers make purchase transactions using their products. Subject to applicable law, interchange fees are fixed by card associations and network organizations.

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Below is a summary of the Consumer Solutions segment:


	Three months ended
	March 31,
(in thousands, except key indicators)	2019			2018		Percent Change
Net revenue 1	$	219,178		210,489		4.1	%
Adjusted segment EBITDA 2	$	63,693		53,667		18.7
Adjusted segment EBITDA margin 3		29.1	%	25.5	%
Key indicators (in millions) :
Gross dollar volume 4	$	10,053.5		9,690.0		3.8
Number of active cards 5		5.2		5.2		0.0
Number of active cards with direct deposit 6		2.7		2.7		0.4
Percentage of active cards with direct deposit		51.3	%	51.1	%

Net revenue is defined as total revenues less reimbursable items (such as postage) that are recorded by TSYS as an expense.

Adjusted segment EBITDA excludes acquisition intangible amortization and expenses associated with Corporate Administration and Other.

Adjusted segment EBITDA margin is adjusted segment EBITDA divided by net revenue.

⁴

Gross dollar volume represents the total dollar volume of debit transactions and cash withdrawals made using Consumer Solutions products.

⁵

Number of active cards represents the total number of 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, adjusted to remove prepaid cards that consumers upgraded to a demand deposit account during the period.

⁶

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, adjusted to remove prepaid cards that consumers upgraded to a demand deposit account during the period.

For the three months ended March 31, 2019, 69.6% of revenues were derived from service fees charged to customers and 30.4% 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. Customers 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. Substantially all of the Consumer Solutions segment revenues were volume driven as they were driven by the active card and gross dollar volume indicators.

Net revenue for the three months ended March 31, 2019, as compared to the same period in 2018, increased $8.7 million. Service fee revenue increased $5.4 million, or 3.7%. Revenues from interchange and other services increased $3.3 million, or 5.2%.

On January 25, 2018, the Consumer Financial Protection Bureau (“CFPB”) announced that it had finalized updates to its 2016 prepaid rule. The CFPB’s 2016 prepaid rule put in place requirements for treatment of funds on lost or stolen cards, error resolution and investigation, upfront fee disclosures, access to account information, and overdraft features if offered in conjunction with prepaid accounts. The changes announced by the CFPB adjust requirements for resolving errors on unregistered accounts, provide greater flexibility for credit cards linked to digital wallets, and extend the effective date of the rule by one year to April 1, 2019.

Operating Expenses

The Company’s operating expenses were $811.3 million for the three months ended March 31, 2019, compared to $798.9 million for the same period in 2018. 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.

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Operating expenses for the three months ended March 31, 2019 increased $12.4 million. The increase primarily related to an increase in cost of services offset partially by a decrease in selling, general and administrative expenses.

The Company’s cost of services were $632.2 million for the three months ended March 31, 2019, which was an increase of 3.1%, compared to the same period last year. The increase in cost of services for the three months ended March 31, 2019 is due to an increase in merchant referral fees and commissions, reimbursable expenses and salaries. The Company’s selling, general and administrative expenses were $179.0 million for the three months ended March 31, 2019, a decrease of 3.5%, compared to the same period last year. The decrease in selling, general, and administrative costs for the three months ended March 31, 2019 is the result of a decrease in merger and acquisition expenses and amortization of acquisition intangibles.

The Company’s transaction and integration expenses related to acquisitions were $4.0 million for the three months ended March 31, 2019. These expenses consist of costs related to the completion of the acquisitions such as legal, accounting and professional fees, share-based compensation, as well as, personnel costs for severance and retention.

Operating Income

Operating income increased 18.6% for the three months ended March 31, 2019, compared to the same period in 2018. The Company’s operating profit margin for the three months ended March 31, 2019, was 21.6%, compared to 19.1% for the same period last year. TSYS’ operating margin increased for the three months ended March 31, 2019, as compared to the same period in 2018, due primarily to a decrease in merger and acquisition expenses and amortization of acquisition intangibles.

Nonoperating Income (Expense)

Nonoperating income (expense) consists of interest expense, interest income and gains and losses on currency translation and transactions. Net nonoperating expense increased for the three months ended March 31, 2019 , as compared to the same period in 2018.

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


	Three months ended
	March 31,
(in thousands)	2019		2018	Percent Change
Interest expense 1	$	(43,997)	(37,400)	(17.6)	%
Interest income		1,228	747	64.4
Currency translation and transaction gains (losses), net		(1,138)	(427)	nm
Other		916	(562)	nm
Total	$	(42,991)	(37,642)	(14.2)
nm = not meaningful

Interest expense includes interest on Senior Notes of $32.9 million for the three months ended March 31, 2019, and $25.5 million for the same period in 2018.

Interest expense for the three months ended March 31, 2019, increased $6.6 million, compared to the same period in 2018. The increase in interest expense for the three months ended March 31, 2019 was primarily the result of the addition of $450 million of bonds in May 2018 as well as the expiration of lower interest rate borrowings in June 2018. Additionally, the increase in interest expense is attributable to higher interest rates associated with the 4.000% and 4.450% Senior Notes issued in May 2018 compared to the 2.375% Senior Notes that were paid off at maturity on June 1, 2018.

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 consolidated financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in the Company’s Consolidated Statements of Income.

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The Company records foreign currency translation adjustments on foreign-denominated balance sheet accounts. The Company maintains several cash accounts denominated in foreign currencies. 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 currency translation and transaction gain or loss on foreign currency translation in the Company’s Consolidated 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, 2019, was approximately $34.2 million, the majority of which is denominated in U.S. dollars and Euros. The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. dollar as of March 31, 2019 was $66.6 million.

Income Taxes

For a detailed discussion regarding income taxes, refer to Notes 1 and 14 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, 2018, as filed with the SEC. See also Note 8 in the Notes to Unaudited Consolidated Financial Statements for additional information on income taxes for the three months ended March 31, 2019.

Below is a summary of income tax expense:


	Three months ended
	March 31,
(in thousands)	2019			2018		Percent Change
Income tax expense	$	29,899		18,135		64.9	%
Effective income tax rate		16.6	%	12.0	%

The primary reason for the higher effective income tax rate for the three months ended March 31, 2019, as compared to the same period last year, is the unfavorable variance in discrete items related to excess tax benefits from share-based compensation. However, some of this unfavorable variance was offset by favorable variances in discrete items related to FIN 48 releases.

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 current year 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 withholding tax upon distribution was approximately $122.4 million as of March 31, 2019. Although TSYS does not intend to repatriate these earnings, a distribution of these non-U.S. earnings in the form of dividends, or otherwise, may subject the Company to withholding taxes payable to some of the various non-U.S. jurisdictions.

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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)	2019		2018	Percent Change
Equity in income of equity investments, net of tax	$	11,227	10,608	5.8	%

The increase in equity income for the three months ended March 31, 2019 , compared to the same period in 2018, is primarily the result of increased operating results associated with China UnionPay Data Services Co., LTD.

Net Income

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


	Three months ended
	March 31,
(in thousands, except per share data)	2019		2018	Percent change
Net income	$	161,607	143,102	12.9	%
Net income attributable to noncontrolling interests		-	(1,261)	100.0
Net income attributable to TSYS common shareholders	$	161,607	141,841	13.9
Basic EPS attributable to TSYS common shareholders 1	$	0.91	0.78	16.0
Diluted EPS attributable to TSYS common shareholders 1	$	0.90	0.77	16.1

Basic and diluted EPS is computed based on the two-class method in accordance with the guidance under GAAP. Refer to Note 9 in the Notes to Unaudited Consolidated Financial Statements for more information on EPS.

Non-GAAP Measures

Management evaluates the Company's operating performance based upon net revenue, a constant currency basis, adjusted EBITDA, adjusted earnings, adjusted diluted 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 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 measures of other companies due to potential inconsistencies in the method of calculation.

TSYS believes that its provision of non-GAAP financial measures provides investors with important 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 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 understand the business, manage budgets and allocate resources.

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



Net Revenue

	Three months ended
	March 31,
(in thousands)	2019		2018
Total revenues (GAAP)	$	1,034,531	987,170
Less: reimbursable items		54,261	51,673
Net revenue (non-GAAP)	$	980,270	935,497


Constant Currency Comparison

	Three months ended
(in thousands)	March 31,
Consolidated	2019		2018
Total revenues (GAAP)	$	1,034,531	987,170
Foreign currency impact 1		8,270	—
Constant currency 2 (non-GAAP)	$	1,042,801	987,170

Net revenue (non-GAAP)	$	980,270	935,497
Foreign currency impact 1		7,706	—
Constant currency 2 (non-GAAP)	$	987,976	935,497

Operating income (GAAP)	$	223,270	188,271
Foreign currency impact 1		1,897	—
Constant currency 2 (non-GAAP)	$	225,167	188,271

Issuer Solutions
Segment net revenue (GAAP)	$	433,473	423,574
Foreign currency impact 1		7,847	—
Constant currency 2 (non-GAAP)	$	441,320	423,574

Reflects the impact of calculated changes in foreign currency rates from the comparable period.

Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.

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Adjusted EBITDA

	Three months ended
	March 31,
(in thousands)	2019			2018
Net income (GAAP) (a)	$	161,607		143,102
Adjust for:
Less: Equity in income of equity investments		(11,227)		(10,608)
Add: Income tax expense		29,899		18,135
Add: Interest expense, net		42,769		36,652
Add: Depreciation and amortization		103,710		104,389
Add: Contract asset amortization		8,038		6,874
Add: Contract cost asset amortization		7,845		10,726
Add: Loss on foreign currency translation and transaction (gains) losses		1,138		427
Add/Less: Other nonoperating (income) expenses		(916)		562
Add: Share-based compensation		10,714		6,295
Add: Cayan and TransFirst M&A and integration expenses 1		3,710		14,368
Adjusted EBITDA (non-GAAP) (b)	$	357,287		330,922

Total revenues (GAAP) (c)	$	1,034,531		987,170
Net income margin on total revenues (GAAP) (a)/(c)		15.6	%	14.5	%

Net revenue (non-GAAP) (d)	$	980,270		935,497
Adjusted EBITDA margin on net revenue (non-GAAP) (b)/(d)		36.4	%	35.4	%

Costs associated with the Cayan and TransFirst acquisitions which are included in selling, general and administrative expenses and nonoperating expenses.


Adjusted Earnings and Adjusted Diluted Earnings Per Share

	Three months ended
	March 31,
(in thousands, except per share data)	2019		2018
Net income attributable to TSYS common shareholders (GAAP)	$	161,607	141,841
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization		54,957	62,988
Add: Share-based compensation		10,714	6,294
Add: Cayan and TransFirst M&A and integration expenses 1		3,710	14,368
Less: Tax impact of adjustments 2		(15,542)	(17,905)
Adjusted earnings (non-GAAP)	$	215,446	207,586

Diluted EPS - Net income attributable to TSYS common shareholders:
As reported (GAAP)	$	0.90	0.77
Adjusted diluted EPS (non-GAAP)	$	1.20	1.13

Weighted average diluted shares		179,886	183,298

Costs associated with the Cayan and TransFirst acquisitions which are included in selling, general and administrative expenses and nonoperating expenses.

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


Free Cash Flow
	Three months ended
	March 31,
(in thousands)	2019		2018
Net cash provided by operating activities (GAAP)	$	227,589	211,893
Capital expenditures		(80,429)	(46,236)
Free cash flow (non-GAAP)	$	147,160	165,657

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.

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Cash Flows From Operating Activities


	Three months ended
	March 31,
(in thousands)	2019		2018
Net income	$	161,607	143,102
Depreciation and amortization		103,710	104,389
Amortization of operating lease right-of-use assets		12,654	-
Provisions for cardholder losses		13,269	15,545
Share-based compensation		10,714	6,295
Provisions for bad debt expenses and billing adjustments		2,948	2,839
Charges for transaction processing provisions		7	729
Amortization of debt issuance costs		1,322	1,035
Deferred income tax expense		27,745	15,180
Equity in income of equity investments		(11,227)	(10,608)
Other noncash items and charges, net		934	662
Net change in current and other assets and current and other liabilities		(96,094)	(67,275)
Net cash provided by operating activities	$	227,589	211,893

TSYS' main source of funds is derived from operating activities, specifically net income . The amortization of operating lease right-of-use assets relates to the Company’s adoption of ASC 842, Leases , as of January 1, 2019. See further discussion in Notes 1 and 4 in the Notes to Unaudited Consolidated Financial Statements. Net change in current and other assets includes accounts receivable, contract assets and contract liabilities, contract cost assets, prepaid expenses, other current assets and other long-term assets. Net change in current and other liabilities includes accounts payable, accrued salaries and employee benefits, and other current liabilities and other long-term liabilities. The change in accounts receivable as of March 31, 2019, as compared to March 31, 2018, is the result of timing of payments by clients. The change in accounts payable and other liabilities for the same period is the result of the timing of payments of vendor invoices. The change in accrued salaries and employee benefits is due primarily to changes in incentive bonuses and benefits paid in the first three months ended March 31, 2019 compared to the same period in 2018.

Cash Flows From Investing Activities


	Three months ended
	March 31,
(in thousands)	2019		2018
Cash used in acquisitions, net of cash acquired	$	-	(1,036,853)
Additions to licensed computer software from vendors		(48,628)	(13,827)
Purchases of property and equipment		(19,396)	(22,069)
Additions to internally developed computer software		(12,405)	(10,340)
Other investing activities		(2,350)	(1,550)
Net cash used in investing activities	$	(82,779)	(1,084,639)

The primary uses of cash for investing activities in 2019 were for the purchase of licensed computer software, purchases of property and equipment and internal development of computer software. The primary uses of cash for investing activities in 2018 were for the acquisition of Cayan Holdings, LLC, purchases of property and equipment, internal development of computer software and the purchase of licensed computer software.

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Cash Flows From Financing Activities


	Three months ended
	March 31,
(in thousands)	2019		2018
Repurchase of common stock under plans and tax withholding	$	(400,013)	(24)
Principal payments on long-term borrowings, finance lease obligations and license agreements		(157,324)	(129,010)
Dividends paid on common stock		(23,456)	(23,496)
Proceeds from borrowings of long-term debt		450,000	1,040,000
Proceeds from exercise of stock options		6,466	26,461
Subsidiary dividends paid to noncontrolling shareholders		-	(1)
Net cash provided by (used in) financing activities	$	(124,327)	913,930

The main uses of cash for financing activities in 2019 were repurchase of common stock, principal payments on long-term borrowings, finance lease obligations and license agreements and the payment of dividends. The main sources of cash provided by financing activities in 2019 were the proceeds from borrowing of long-term debt and exercises of stock options. The main uses of cash for financing activities in 2018 were principal payments on long-term borrowings, finance lease obligations and license agreements, and the payment of dividends. The main sources of cash provided by financing activities in 2018 were the proceeds from borrowing of long-term debt and exercises of stock options.

Refer to Note 5 in the Notes to Unaudited Consolidated Financial Statements for more information on borrowings.

Dividends

Dividends on common stock of $23.5 million were paid during the three months ended March 31, 2019 and 2018. For the three months ended March 31, 2019 and 2018, the Company paid dividends of $0.13 per share.

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, 2018, as filed with the SEC.

In January 2019, the Company entered into an accelerated share repurchase (“ASR”) agreement with a third-party financial institution to repurchase $400 million of the Company’s common stock. Under the ASR agreement, the Company paid a specified amount to the financial institution and received an initial delivery of shares. This initial delivery of shares represents approximately 83% of the estimated shares delivered under the agreement by repurchasing $400 million of the Company’s common stock divided by the Trade Date closing price. Upon settlement of the ASR agreement, the financial institution delivered additional shares, with the final number of shares delivered determined with reference to the volume-weighted average price of the Company’s common stock over the term of the agreement, less an agreed-upon discount. The transactions are accounted for as equity transactions and are included in Treasury Stock when the shares are received, at which time there is an immediate reduction in the weighted-average common shares calculation for basic and diluted earnings per share.

In February 2019, the Company received an initial delivery of 3.7 million shares. The transaction was completed in March 2019, at which time the Company received an additional 638,414 shares.

Foreign Operations

TSYS operates internationally and is subject to adverse movements in foreign currency exchange rates. On June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit.” The U.K. is currently negotiating the terms of its

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expected exit from the E.U. which is now scheduled to occur no later than October 31, 2019. This date represents an extension of the original date of March 29, 2019 and was jointly agreed to between the U.K. and the E.U. in April 2019. The extension is expected to only be as long as necessary and in any event no later than October 31, 2019 to allow for the ratification of the withdrawal agreement which was negotiated between the U.K. and the E.U. One of the conditions of the extension is that the U.K. must participate in the elections to the E.U. Parliament in May 2019 and, if it does not, the U.K. will exit the E.U. on June 1, 2019. TSYS continues to monitor Brexit and its potential impact across key areas including service continuity, contracts, regulatory (including data privacy), the economy and freedom of movement of people. Uncertainty over the terms of the withdrawal of the U.K. from the E.U. may create global economic uncertainty, and have unknown social and geopolitical impact, which may adversely affect the Company’s business, results of operations and financial condition, as well as potentially affect TSYS’ relationships with its existing and future customers, vendors and employees. Additionally, the U.K. may be required to negotiate new terms of trade with various jurisdictions which could be disruptive and adversely affect TSYS’ tax benefits or liabilities in those jurisdictions. 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 2 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, some remaining amounts may not be presently available to fund domestic operations and obligations without paying withholding 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. may be subject to foreign withholding taxes. Pursuant to the Tax Cuts and Jobs Act of 2017 (“Tax Act”), TSYS has not provided for the U.S. federal tax liability on these amounts for financial statement purposes. 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 2.2:1. As of March 31, 2019, TSYS had working capital of $664.0 million compared to working capital of $625.2 million as of December 31, 2018.

Legal Proceedings

Refer to Note 15 of the Company’s audited financial statements for the year ended December 31, 2018, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, 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 6 in the Notes to Unaudited Consolidated Financial Statements.

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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 impact of the CFPB’s new rule pertaining to prepaid financial products on its Consumer Solutions segment and the Company’s 2019 revenue and earnings; (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’ belief with respect to lawsuits, claims and other complaints; (iv) TSYS’ expectation with respect to certain tax matters; 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 and software;

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;

conversions and deconversions of client portfolios may not occur as scheduled;

risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates, and in particular with respect to the current environment, adverse developments with respect to foreign currency exchange rates as a result of the United Kingdom’s decision to leave the European Union (Brexit);

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 completed Cayan and TransFirst acquisitions, including the costs associated therewith, their being more difficult to integrate than

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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, and in particular the CFPB’s rule regarding prepaid financial products;

the success of TSYS’ business expansion and product diversification strategies for the Consumer Solutions segment which success will depend on, among other things, the rate of adoption of the Company’s new products (both by consumers and the Company’s distribution partners), the rate of utilization of the various product features by cardholders, and overall market and regulatory dynamics;

TSYS’ ability to obtain and protect its own patents and intellectual property and also avoid liability for infringement of third party rights;

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;

the potential for TSYS’ systems and software to contain undetected errors, viruses or defects;

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, 2018 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 disclaims any obligation to update any forward-looking statement as a result of new information, future developments or otherwise except as required by law.

Subsequent Events

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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, 2019:


(in thousands)	As of March 31, 2019
Europe	$	220,585
China		153,307
Cyprus		46,074
Other		22,169

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 consolidated 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 Euros. 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 Consolidated Statements of Income.

TSYS recorded net translation gains of approximately $1.1 million for the three months ended March 31, 2019, respectively, relating to the translation of cash and other balance sheet accounts. The balance of the Company’s foreign-denominated cash accounts subject to risk of translation gains or losses as of March 31, 2019, was approximately $34.2 million, the majority of which was denominated in U.S. dollars and Euros.

The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. dollar as of March 31, 2019, was $66.6 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 $66.6 million as of March 31, 2019.


	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 and equity in income of equity investments	$	666	3,328	6,656	(666)	(3,328)	(6,656)

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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, 2018, 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.

Item 4. Controls and Procedure s.

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, 2019, 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.

TSYS adopted the leases guidance under Accounting Standards Update No. 2016-02 (ASC 842) as of January 1, 2019. The adoption of this guidance required the implementation of new accounting processes, procedures and internal controls over financial reporting surrounding the adoption of the standard, periodic reporting and expanded disclosures. Additionally, on January 1, 2019, the Company implemented a lease software solution to facilitate compliance with the standard.

No other changes in TSYS’ internal control over financial reporting occurred during the period covered by this report that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II — OTHER INFORMATION

Item 1. Legal Proceeding s.

For information regarding TSYS’ legal proceedings, refer to Note 6 of the Notes to Unaudited Consolidated Financial Statements which is incorporated by reference into this item.

Item 1A. Risk Factor s.

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, 2018, 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 2018 Annual Report on Form 10-K.

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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 2	Maximum Number of Shares That May Yet Be Purchased Under the Plans of Programs 2
January 2019	3,677		$	92.68		15,177	4,823
February 2019	-	1		93.29	1	15,177	4,823
March 2019	639	1		92.68	1	15,816	4,184
Total	4,316		$	92.68

Includes a total of 64 shares (not rounded) in February and 76 shares (not rounded) in March withheld for payment of taxes.

In January 2015, TSYS’ Board of Directors approved a 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 for the plan.

Item 6. Exhibit s.

a) Exhibits


Exhibit Number		Description
10.1		Summary of Board of Directors Compensation

10.2		Form of Performance Share Agreement for 2019 performance share awards under the Total System Services, Inc. 2017 Omnibus Plan

10.3		Form of Time-Based Restricted Stock Unit Agreement for 2019 restricted stock unit awards under the Total System Services, Inc. 2017 Omnibus Plan

10.4		Form of Stock Option Agreement for 2019 stock option awards under the Total System Services, Inc. 2017 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

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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 1, 2019	by:	/s/ M. Troy Woods
		M. Troy Woods
		Chairman, President and Chief Executive Officer

Date: May 1, 2019	by:	/s/ Paul M. Todd
		Paul M. Todd
		Senior Executive Vice President and
		Chief Financial Officer

Exhibit 10.1

Total System Services, Inc.

Board of Directors Compensation for Non-Employee Directors

(Effective May 2019)


Cash Compensation
Annual Board Retainer	$	85,000
Annual Committee Member Retainers
Audit Committee	$	15,000
Compensation Committee	$	10,000
Technology Committee	$	10,000
Corporate Governance and Nominating Committee	$	7,500
Annual Committee Chair Retainers*
Audit Committee	$	15,000
Compensation Committee	$	10,000
Technology Committee	$	10,000
Corporate Governance and Nominating Committee	$	13,750
Annual Lead Director Retainer	$	22,500

* Note: The committee chair receives both an annual committee member retainer and an annual committee chair retainer.

Equity Compensation

Annual equity award with a fixed value of $145,000, awarded in the form of fully vested stock options or in the form of fully vested shares or any combination thereof at the director’s choice.

Exhibit 10.2

TOTAL SYSTEM SERVICES, INC.

PERFORMANCE SHARE AGREEMENT (20__-20__)

Total System Services, Inc. (“Company”) confirms that on __________, 20__ the Compensation Committee of the Board of Directors of the Company (the “Committee”) approved, effective __________, 20__ (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) ___% of your LTIP multiplier as determined by the Committee prior to the Grant Date (such initial economic value being the “20__-20__ (three years) Performance Opportunity”). The number of Performance Shares initially granted pursuant to this Agreement will be determined by dividing the 20__-20__ 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 20__-20__ pursuant to the provisions of Section 1 below, with ______ percent (__%) of your Initial Performance Shares adjusted pursuant to Section 1(b) and ______ percent (__%) 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 5 in the event of a Change in Control), and will be payable in accordance with the provisions of Section 11.

In consideration of this 20__-20__ Performance Opportunity, you agree that the Performance Shares that you receive in connection with this 20__-20__ Performance Opportunity, if any, are subject to the terms and conditions of this Performance Share Agreement (this “Agreement”) and the Total System Services, Inc. 2017 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 6 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.

1. Standard Performance Terms .

(a) Performance Period . The number of Performance Shares you will be entitled to receive in connection with the 20__-20__ Performance Opportunity will be determined on the basis of the Company’s performance during the Performance Period beginning on January 1, 20__ and ending on December 31, 20__ (three years).

(b) Performance Goals Based on Relative TSR . The Committee will set the performance goals for ______ percent (__%) of your Initial Performance Shares based on the Company’s total shareholder return performance (“TSR”) relative to the S&P 500, determined as of ________, 20__ (first date of Performance Period), 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
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. For the purpose of measuring TSR for the Company and the other S&P 500 component companies, a 20-day average closing market price will be used to measure market value at the beginning and the end of 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 Diluted EPS Growth . The Committee will set the performance goals for ______ percent (__%) of your Initial Performance Shares based on the compounded annual growth rate of the Company’s adjusted diluted earnings per share (as reflected on the Company’s financial statements) for the Performance Period (the “Adjusted Diluted EPS Growth”), subject to adjustment as provided in Section 1(d). Within 90 days after the beginning of the Performance

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

Period, the Committee will establish a target Adjusted Diluted EPS Growth, as well as minimum and maximum threshold levels of Adjusted Diluted EPS Growth.

After the end of the Performance Period, the Committee will certify the Adjusted Diluted 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 Diluted EPS Growth as follows:

 If the Adjusted Diluted 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 Diluted 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 Diluted 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 Diluted 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 Diluted 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 Diluted 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); and (iii) exclude foreign currency exchange gains or losses included in non-operating income; and the Committee may 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.

After the foregoing adjustments have been made, the Committee has the discretion to further adjust the payout of this Award with respect to any individuals classified by the Company as officers for purposes of Section 16 of the Securities

Exchange Act of 1934 and both the Chief Executive Officer and the Chief HR Officer have the discretion to further adjust the payout of this Award with respect to any non-Section 16 officer.

2. Change of Employment Status .

(a) Vesting . Except as otherwise provided in this Section 2 or Section 5, you must remain employed with the Company one of its Affiliates or Subsidiaries through the Performance Period in order to vest in your Performance Shares. For purposes of this Section 2, your transfer between the Company and an Affiliate or a Subsidiary, or among Affiliates and Subsidiaries, will not be a Termination of Service. In the event of a Change of Control, any applicable terms of Section 5 (Change of Control) will supersede the terms of this Section 2.

(b) Long-Term Disability or Death . If your Termination of Service occurs 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 an Affiliate or a 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 your Termination of Service occurs on or after the date you attain (i) age 65 or (ii) age 62 with 15 or more years of service ("Retirement"), 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 your Termination of Service due to Retirement occurs before __________, 20__ (one year from grant), 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 your Termination of Service due to Retirement occurs on or after __________, 20__ (one year from grant), 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, an Affiliate or a 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 Service . Except as set forth in Section 2(b) or (c), if you incur a voluntary or involuntary Termination of Service 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 6 (whether or not a Termination of Service has occurred), your Initial Performance Shares will be forfeited immediately.

3. Termination . For purposes of this Agreement, a Termination of Service will be deemed to have occurred as of the date you are no longer actively providing services to the Company, its Affiliates or Subsidiaries (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or otherwise providing services or the terms of your employment or service agreement, if any), and will not be extended by any notice period ( e.g., your period of service will not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where you are employed or otherwise rendering services, or the terms of your employment or service agreement, if any). The Committee shall have the exclusive discretion to determine when you are no longer actively providing services for purposes of your Performance Shares and Dividend Equivalents (including whether you may still be considered to be providing services while on a leave of absence).

4. Retirement . Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that there has been a legal judgment and/or legal development in your jurisdiction that would likely result in the favorable treatment that applies to your Performance Shares if your Termination of Service occurs as a result of your Retirement being deemed unlawful and/or discriminatory, the provisions of Section 2(c) will not be applicable to you and the remaining provisions of Section 2 will govern.

5. Change of Control .

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:

6. 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.

7. Nontransferability of Awards . Except as provided in Section 8 or as otherwise permitted by the Committee, you may not sell, transfer, pledge, assign or otherwise alienate or hypothecate any of your Performance Shares.

8. Beneficiary Designation . If permitted by the Committee, you may name any beneficiary or beneficiaries who may be entitled to any right in the Performance Shares received pursuant to this Agreement by filing a beneficiary designation for your Fidelity Account® with Fidelity Investments, provided such beneficiary designation can be validly made under applicable laws.

9. Responsibility for Taxes . You acknowledge that, regardless of any action taken by the Company, or if different, the Affiliate or Subsidiary for which you provide services (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (the “Tax-Related Items”) is and remains your responsibility and may exceed the amount actually withheld by the Company or the Employer. You further acknowledge that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Performance Shares, including but not

limited to, the grant, vesting or settlement of the Performance Shares, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends paid on such Shares; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the Performance Shares to reduce or eliminate your liability for Tax-Related Items or achieve any particular tax result. Further, if you are subject to Tax-Related Items in more than one jurisdiction, you acknowledge that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to any relevant taxable or tax withholding event, as applicable, you agree to pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, you authorize the Company and/or the Employer and their respective agents, at their discretion, to satisfy any withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (a) withholding from your wages or other cash compensation paid to you by the Company and/or the Employer; (b) withholding from the proceeds of the sale of Shares acquired upon vesting of the Performance Shares either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization, without further consent); (c) withholding Shares to be issued upon vesting of the Performance Shares; or (d) any method determined by the Committee to be in compliance with applicable laws; provided, however, that if you are a Section 16 officer of the Company under the Exchange Act, then the Committee shall establish the method of withholding from alternatives (a)-(d) herein and, if the Committee does not exercise discretion prior to the Tax-Related Items withholding event, then you shall be entitled to elect the method of withholding from the alternatives above.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case you may receive a refund of any over-withheld amount in cash and will have no entitlement to the common stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, you will be deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, you agree to pay the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of your participation in the Plan that cannot be satisfied by the means previously described. The Company shall have no obligation to make any payment in any form under this Agreement or under any Performance Share or Dividend Equivalent issued in accordance herewith, unless and until such tax obligations have been satisfied.

10. 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 10 will be conclusive.

11. 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 Service 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 Diluted 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 __________, 20__.

(c) Performance Shares, if any, that vest pursuant to Section 5(a) will be paid in Shares not later than sixty (60) days following the date of your Termination of Service. Performance Shares, if any, that vest pursuant to Section 5(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.

12. 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 represented by the Initial Performance Shares (including deemed reinvested additional Shares attributable to the Initial Performance Shares pursuant to this paragraph) were actually outstanding. These Dividend Equivalents will be deemed to be reinvested in additional Shares 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 5, 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 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.

13. 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 Employer to terminate

your employment at any time. This Agreement does not give you any right to continue in the employ of the Employer, the Company or any other Affiliate or Subsidiary.

14. 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.

15. Miscellaneous . For purposes of this Agreement, “Committee” includes any direct or indirect delegate of the Committee (to the extent permitted by the Plan and applicable law), 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 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.

16. 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.

17. Amendments . The Committee has the exclusive right to amend this Agreement as long as the amendment does not adversely affect your 20__-20__ 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.

18. Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line electronic system established and maintained by the Company or a third party designated by the Company. You also agree that your electronic acknowledgement of this Agreement shall be considered the equivalent of your written signature.

19. 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 Service 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 Service” 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 19 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.

20. 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.

21. Nature of Grant . In accepting the Performance Shares, you acknowledge, understand and agree that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan;

(b) the grant of Performance Shares and Dividend Equivalents is exceptional, voluntary and occasional and does not create any contractual or other right to receive future Performance Shares or Dividend Equivalents, or benefits in lieu of Performance Shares and Dividend Equivalents, even if Performance Shares and their corresponding Dividend Equivalents have been granted in the past;

(c) all decisions with respect to future Performance Shares, Dividend Equivalents or other grants, if any, will be at the sole discretion of the Company;

(d) the grant of Performance Shares and Dividend Equivalents and your participation in the Plan shall not create a right to employment or be interpreted as forming an employment or service relationship with the Company;

(e) You are voluntarily participating in the Plan;

(f) the Performance Shares, Dividend Equivalents and Shares underlying the Performance Shares and Dividend Equivalents, and the income from and value of same, are not intended to replace any pension rights or compensation;

(g) the Performance Shares, Dividend Equivalents and Shares underlying the Performance Shares and Dividend Equivalents, and the income from and value of same, are not part of normal or expected compensation for any purpose, including without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(h) the future value of Shares underlying the Performance Shares and Dividend Equivalents is unknown, indeterminable and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from the forfeiture of Performance Shares and Dividend Equivalents resulting from your Termination of Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment or other laws in the jurisdiction where you are employed or otherwise rendering services or the terms of your employment or service agreement, if any), and in consideration of the grant of Performance Shares and Dividend Equivalents, you agree not to institute any claim against the Company or any Affiliate or Subsidiary;

(j) unless otherwise agreed with the Company, the Performance Shares, Dividend Equivalents and Shares underlying the Performance Shares and Dividend Equivalents, and the income from and value of same, are not granted as consideration for, or in connection with the service you may provide as a director of any Affiliate or Subsidiary;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the Performance Shares, Dividend Equivalents and the benefits evidenced by this Agreement do not create any entitlement to have the Performance Shares, Dividend Equivalents or any such benefits transferred to, or assumed by, another company, nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the common stock; and

(l) the Company shall not be liable for any foreign exchange rate fluctuation between your local currency and the U.S. Dollar that may affect the value of the Performance Shares, Dividend Equivalents or any amounts due to you pursuant to

the settlement of the Performance Shares or subsequent sale of Shares acquired under the Plan.

22. Data Privacy . You understand that the Company may hold certain personal information about you, including, but not limited to, your name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all Performance Shares, Dividend Equivalents or any other entitlement to Shares awarded, cancelled, exercised, vested, unvested or outstanding in your favor (“Data”), for the exclusive purpose of implementing, administering and managing your participation in the Plan.

You understand that Data may be tranferred to Fidelity Stock Plan Services, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. You understand that the recipients of the Data may be located in the United States or elswhere, and that the recipient’s country may have different data privacy laws and protections than your country. You understand that you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the Company, Fidelity Stock Plan Services and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing your participation in the Plan. You understand that Data will be held only as long as is necessary to implement, administer and manage your participation in the Plan. You understand that you may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case, without cost, by contacting your local human resources representative. Further, you understand that you are providing the consents herein on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your employment or service relationship will not be affected; the only consequence of refusing or withdrawing your consent is that the Company would not be able to grant the Performance Shares, Dividend Equivalents or other equity awards to you or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative.

Finally, upon request of the Company, you agree to provide an executed data privacy consent form (or any other agreements or consents) that the Company may deem necessary to obtain from you for the purpose of administering your participation in the Plan in compliance with the data privacy laws in your country, either now or in the future. You understand and agree that you will not be able to

participate in the Plan if you fail to provide such consent or agreement as requested by the Company.

23. Reserved.

24. Insider Trading Restrictions/Market Abuse Laws . You acknowledge that, depending on your, or the broker’s country, or the country in which the Shares are listed, you may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, which may affect your ability to accept, acquire, sell or attempt to sell or otherwise dispose of Shares, rights to Shares ( e.g., Performance Shares), or rights linked to the value of Shares, during such times as you are considered to have “inside information” regarding the Company (as defined by the laws and/or regulations in the applicable jurisdictions or in your country). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders you placed before possessing the inside information. Furthermore, you may be prohibited from (i) disclosing the inside information to any third party, including fellow employees or service providers (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. You are responsible for ensuring compliance with any applicable restrictions and should consult with your personal legal advisor on the matter.

25. Foreign Asset/Account Reporting Requirements . You acknowledge that there may be certain foreign asset and/or account reporting requirements which may affect your ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any Dividend Equivalents) in a brokerage or bank account outside your country. You may be required to report such accounts, assets or transactions to the tax or other authorities in your country. You may also be required to repatriate sale proceeds or other funds received as a result of participating in the Plan to your country through a designated bank or broker within a certain time after receipt. You acknowledge that it is your responsibility to be compliant with such regulations, and that you should speak to your personal advisor on this matter.

26. Language . You acknowledge that you are sufficiently proficient in English to understand the terms and conditions of the Agreement. Furthermore, if you have received the Agreement, or any other document related to the Performance Shares and/or the Plan translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.

27. Compliance with Law . Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon settlement of the Performance Shares prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal

or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. You understand and agrees that the Company shall have unilateral authority to amend the Agreement without your consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.

28. Imposition of Other Requirements . The Company reserves the right to impose other requirements on your participation in the Plan, on the Performance Shares and Dividend Equivalents, and any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

29. Waiver . You acknowledge that a waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other Plan participant.

30. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying Shares. You are hereby advised to consult with your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Plan.

TOTAL SYSTEM SERVICES, INC.

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. 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 TEAM MEMBER, TOTAL SYSTEM SERVICES, INC., a Georgia corporation (the “ Company ”), and each of its affiliates and subsidiaries (collectively, the “ Company Group ”). In consideration of the Company’s grant of certain equity interests to Team Member and other good and valuable consideration, the receipt of which is hereby acknowledged by the parties, the parties agree as follows:

1. Acknowledgments .

(a) Team Member acknowledges that during the course of Team Member’s employment, Team Member has had or will have access to Confidential Information (as defined below). Team Member understands and agrees that such Confidential Information is of great competitive importance and commercial value to the Company Group, and that the improper use or disclosure of such Confidential Information by Team Member would cause irreparable harm to the Company Group. Accordingly, Team Member 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 Team Member against the Company Group will not constitute a defense to the enforcement of such restrictive covenants.

(b) Team Member acknowledges that an important part of Team Member’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, information security, communication, and investor relations.

(i) customarily and regularly solicit clients or prospective clients; and/or

(ii) customarily and regularly engage in making sales or obtaining contracts for products or services to be performed by others; and/or

(iii) perform each of the following duties:

a. have the primary duty of managing the enterprise (or a customarily recognized department or subdivision thereof) in

which the Team Member is employed;

b. customarily and regularly direct the work of two or more employees; and

c. have the authority to hire or fire other employees or have particular weight given to Team Member’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; and/or

(iv) 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:

a. gained a high level of notoriety, fame, reputation, or public persona as the Company Group’s representative or spokesperson; or

b. gained a high level of influence or credibility with the Company Group’s clients, vendors, or other business relationships; and/or

c. 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

d. obtained selective or specialized skills, knowledge, abilities, or client contacts or information.

2. Protection of Confidential Information .

(a) Non-disclosure of Confidential Information . From and after __________, except as otherwise provided in Section 11, Team Member 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 an executive officer of the Company Group. Team Member’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 Team Member 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 Team Member or of which Team Member becomes aware as a consequence of or through Team Member’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 Team Member, 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 Team Member 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 . Except as otherwise provided in Section 11, in the event Team Member is requested or required pursuant to any legal, governmental, or investigatory proceeding or process or otherwise to disclose any Confidential Information, Team Member shall promptly notify the General Counsel of the Total System Services, Inc. in writing 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. Team Member shall cooperate with the Company Group to preserve the confidentiality of such Confidential Information consistent with applicable law or court order, and shall use Team Member’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 . Team Member agrees and covenants that for a period of two (2) years from and after his termination of employment, Team Member shall not, directly or indirectly, whether personally 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 Team Member or any other person or entity that competes with the Business (as defined below) or any part thereof, without the written consent of the Chief Executive Officer or Chief HR Officer of Total System Services, Inc.

(a) For purposes of this Agreement:

(i) Team Member’s “ Prohibited Activities ” means activities of the type conducted, provided, or offered by Team Member within two (2) years prior to his termination of employment, including supervisory, management, operational, business development, maintenance of client relationships, corporate strategy, community relations, public policy, regulatory strategy, sales, marketing, investor relations, financial, accounting, information security, legal, human resource, technical and other similar or related activities and including service as a director or in any similar capacity.

(ii) “ Territory ” means each geographic area in which a Restricted Company conducts the Business during the last two (2) years of Team Member’s employment, including, without limitation, each of the following areas: (a) the following states within the United States of America: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming; (b) the following provinces with Canada: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, and Saskatchewan; (c) the following states within Mexico: Aguascalientes, Baja California, Baja California Sur, Campeche, Chiapas, Ciudad de México, Chihuahua, Coahuila, Colima, Durango, Guanajuato, Guerrero, Hidalgo, Jalisco, México, Michoacán, Morelos, Nayarit, Nuevo León, Oaxaca, Puebla, Querétaro, Quintana Roo, San Luis Potosí, Sinaloa, Sonora, Tabasco, Tamaulipas, Tlaxcala, Veracruz, Yucatán, and Zacatecas; (d) the following states within Brazil: Acre, Alagoas, Amapá, Amazonas, Bahia, Ceará, Distrito Federal, Espírito Santo, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Minas Gerais, Pará, Paraíba, Paraná, Pernambuco, Piaui, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, Rondônia, Roraima, Santa Catarina, São Paulo, Sergipe, and Tocantins; and (e) the following countries in Europe: Albania, Andorra, Armenia, Austria, Azerbaijan, Belrus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Kazakhstan, Kosovo, Latvia, Liechtenstein, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Monaco, Montenegro, Netherlands, Norway, Poland, Portugal, Romania, Russia, San Marino, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, and the United Kingdom.

(iii) “ Business ” 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 (iii) providing general-purpose reloadable prepaid debit cards and payroll cards and alternative financial services to underbanked consumers and others; (iv) providing certain payments-related reselling services, information reporting services related to transactions, billing services, point of sale equipment sales and services, and other value-added services (including fraud detection, mitigation and management services) relating to (i) – (iii); or (v), or similar or related businesses or activities conducted, authorized, offered or provided by a Restricted Company within two (2) years prior to the date of Team Member’s termination of employment.

(iv) “ Restricted Company ” means the entity in the Company Group that employs the Team Member (the “ Employer ”) and any member of the Company Group (other than the Employer) for which Team Member performed services or had responsibility during the last two (2) years of Team Member’s employment.

4. Non-solicitation of Clients . Team Member agrees and covenants that for a period of two (2) years from and after the date of Team Member’s termination of employment, Team Member 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 Team Member had Material Contact during Team Member’s employment 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 Team Member’s termination of employment.

(b) For purposes of this Agreement, the term “ Material Contact ” means contact between Team Member and each client or potential client (i) with whom Team Member dealt on behalf of the Company Group, (ii) whose dealings with the Company Group were coordinated or supervised by Team Member, (iii) about whom the Team Member obtained Confidential Information in the ordinary course of business as a result of Team Member’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 Team Member within two (2) years prior to the Team Member’s termination of employment.

5. Non-solicitation of Employees . Team Member agrees and covenants that for a period of two (2) years from and after the date of Team Member’s termination of employment, Team Member 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 Team Member had contact while employed by, or serving as a director of, any member of the Company Group, for purposes of inducing such person to leave the employment of the

Company Group.

6. Not Applicable if Prohibited by Applicable Law . Notwithstanding any provision of this Agreement, if Team Member’s principle place of employment on the Grant Date is in California or any other jurisdiction where any provisions of Section 3, Section 4 and/or Section 5 is prohibited by law, then the provisions of Section 3, Section 4 and/or Section 5 will not apply following Team Member’s termination of employment, to the extent any such provision is prohibited by law.

7. Non-disparagement . Except as otherwise provided in Section 11, Team Member 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, or any of their respective directors, officers and employees. This Section 7 does not in any way, restrict or impede Team Member 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 (as defined below).

8. Enforcement . Team Member 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, Team Member 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.

9. 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 Team Member 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 Team Member 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.

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

11. Permitted Disclosures . Notwithstanding any other provision of this Agreement, nothing contained in this Agreement limits Team Member’s ability to file a charge or complaint with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission (individually “ Government Agency ” and collectively, “ Government Agencies ”), or restricts Team Member from providing truthful information in response to a lawfully issued subpoena or court order. Further, this Agreement does not limit Team Member’s ability to communicate with any Government Agencies or otherwise participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or other information, without notice to the Company Group.

12. 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 Team Member: Most recent address on file with the Company Group

(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 12.

13. 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.

14. Assignability . This Agreement is personal to Team Member and may not be assigned by Team Member. This Agreement shall be assignable by the Company and shall inure to the benefit of the Company and its successors and assigns.

15. 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.

16. 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.

17. Modification . No provision of this Agreement may be modified or waived except in writing signed by Team Member and a duly authorized representative of the Company Group, which writing shall specifically reference this Agreement and the provision that the Company and the Team Member intend to modify or waive. 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.

18. Survival . Team Member’s obligations under this Agreement shall survive the termination of Team Member’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 Team Member by the Company Group.

19. Electronic Signature. Team Member’s acceptance and execution of this Agreement shall be made by electronic acknowledgment, and Team Member 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.,

on behalf of the Company Group

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. Executive Vice President and Chief HR Officer

Exhibit 10.3

TIME-BASED RESTRICTED STOCK UNIT AGREEMENT

THIS TIME BASED RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”), is made effective as of ____________ (the “Grant Date”), by and between TOTAL SYSTEM SERVICES, INC., a Georgia corporation (the “Company”), and Team Member.

WHEREAS, Team Member has been awarded a number of restricted stock units (“RSUs”) determined as follows: (1) multiply the Team Member’s base salary as of the Grant Date by ____% of his LTIP multiplier as determined by the Compensation Committee prior to the Grant Date, and (2) divide the product determined in (1) above by the closing price of the Company’s Shares on the New York Stock Exchange on the Grant Date; and

WHEREAS, the RSUs are subject to the terms and conditions of the Total System Services, Inc. 2017 Omnibus Plan (the “Plan”) and the provisions of this Agreement;

WHEREAS, unless otherwise defined in this Agreement, any capitalized terms used herein shall have the meanings ascribed to such terms in the Plan; and

NOW, THEREFORE, in consideration of the grant of this award to Team Member, Team Member hereby agrees to the following terms and conditions:

1. Vesting of RSUs .

(a) Vesting Conditions . If Team Member remains in the continuous employ of the Company or one of its Affiliates or Subsidiaries (collectively the "Company Group") through the date(s) indicated in Column (I) below (the “Vesting Period”), the RSUs will become non‑forfeitable ( i.e. , “vest”) to the extent indicated in Column (II) below:


(I) If employment continues through	then	(II) the % of the RSUs which vests is
___________ (one year from grant)		33%
___________ (two years from grant)		67%
___________ (three years from grant)		100%.

Such vesting will occur (to the extent indicated in Column (II) above) at the close of business on the applicable date(s) indicated in Column (I) above. Except as provided in Section 1(b) or 1(c) below, or in the Plan, any RSUs which are not vested on the date of Team Member’s Termination of Service will be forfeited to the Company, unless the Committee in its sole and exclusive discretion determines otherwise.

For purposes of this Agreement, a Termination of Service will be deemed to have occurred as of the date Team Member is no longer actively providing services to the Company Group (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where Team Member is employed or otherwise providing services or the terms of his or her employment or service agreement, if any), and will not be extended by any notice period ( e.g., Team Member’s period of service will not include any contractual notice period or any period of “garden leave” or similar period mandated under employment laws in the jurisdiction where Team Member is employed or is otherwise rendering services or the terms of his or her employment or service agreement, if any). The Committee shall have exclusive discretion to determine when Team Member is no longer actively providing services for purposes of the RSUs (including whether Team Member may still be considered to be providing services while on a leave of absence).

(b) Effect of Death or Disability . If the Termination of Service occurs by reason of Team Member’s death or long-term disability (determined on the basis of qualification for long-term disability benefits under a plan or arrangement offered by the Company or, if different, the Affiliate or Subsidiary for which Team Member is rendering services (the "Employer") (“Disability”)), then any RSUs which are not vested at the time of such termination will become vested automatically.

(c) Effect of Retirement . If Team Member retires from the Company Group on or after the date Team Member attains age 65, or age 62 with 15 or more years of service, the RSUs will vest as follows:

(i) If Team Member retires before __________ (one year from date of grant), a percentage of the RSUs will vest as of the date of retirement, with such percentage determined based on the ratio of the number of months since __________ (the date of grant) that Team Member was been employed to 36. Partial months of employment will be counted as full number of months; or

(ii) If Team Member retires on or after __________ (one year from date of grant), Team Member shall be deemed to have continued employment through the end of the Vesting Period and the RSUs will become 67% vested on __________ (two years from the date of grant) and 100% vested on __________ (three years from the date of grant.

If Team Member is involuntarily terminated by an entity within the Company Group, Team Member will not be considered to have “retired” for purposes of this Section 1(c), regardless of whether Team Member’s Termination of Service occurs on or after the date he or she attained (i) age 65 or (ii) age 62 with 15 or more years of service, unless the Committee determines otherwise, in its sole discretion.

Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that there has been a legal judgment and/or legal development in Team Member’s jurisdiction that would likely result in the favorable treatment that applies to the RSUs if Team Member's Termination of Service occurs as a result of Team Member’s retirement

being deemed unlawful and/or discriminatory, the provisions of this Section 1(c) regarding the treatment of the RSUs if Team Member's Termination of Service as a result of retirement will not be applicable to Team Member and the remaining provisions of this Section 1 will govern.

(d) Violation of Covenants . In the event that Team Member violates any of the covenants set forth in Section 2 (whether or not a Termination of Service has occurred), any non-vested RSUs will be forfeited immediately.

2. Acceptance of Terms and Conditions of Restrictive Covenant Agreement . By accepting this award of RSUs, Team Member agrees 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.

3. Timing and Form of Payment . If Shares are to be paid to Team Member, Team Member will receive evidence of ownership of those Shares. RSUs shall be paid in Shares within sixty (60) following the date such RSUs become vested pursuant to Section 1.

4. Dividend Equivalents . The RSUs that Team Member is entitled to pursuant to Section 1 will be credited with Dividend Equivalents equal to the amount of cash dividend payments that would have otherwise been paid if the Shares represented by such RSUs (including deemed reinvested additional shares attributable to such RSUs pursuant to this paragraph) were actually outstanding on the Grant Date. These Dividend Equivalents will be deemed to be reinvested in additional Shares determined by dividing the deemed cash dividend amount by the Fair Market Value of a Share on the applicable dividend payment date. Such credited amounts will vest or be forfeited in accordance with Section 1 based on the vesting or forfeiture of the RSUs to which they are attributable. In addition, the RSUs that Team Member is entitled to pursuant to Section 1 will be credited with any dividends or distributions that are paid in Shares represented by such RSUs and will otherwise be adjusted by the Committee for other capital or corporate events as provided for in the Plan.

5. General Provisions

(a) Administration, Interpretation and Construction . The terms and conditions set forth in this Agreement will be administered, interpreted and construed by the Committee, whose decisions will be final, conclusive and binding on the Company, on Team Member and on anyone claiming under or through the Company or Team Member. Without limiting the generality of the foregoing, any determination as to whether an event has occurred or failed to occur which causes the RSUs to be forfeited pursuant to the terms and conditions set forth in this Agreement, will be made by the Committee in its sole discretion. By accepting the this award of RSUs, Team Member irrevocably consents and agrees to the terms and conditions set forth in this Agreement and to all actions, decisions and determinations to be taken or made by the Committee in good faith pursuant to the terms and conditions set forth in this Agreement

(b) Responsibility for Taxes . Team Member acknowledges that, regardless of any action taken by the Company or the Employer, the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Team Member’s participation in the Plan and legally applicable to Team Member (the “Tax-Related Items”) is and remains Team Member’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Team Member further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the RSUs, including but not limited to, the grant, vesting or settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends paid on such Shares; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of the RSUs to reduce or eliminate Team Member’s liability for Tax-Related Items or achieve any particular tax result. Further, if Team Member is subject to Tax-Related Items in more than one jurisdiction, Team Member acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to any relevant taxable or tax withholding event, as applicable, Team Member agrees to pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Team Member authorizes the Company and/or the Employer and their respective agents, at their discretion, to satisfy any withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (a) withholding from Team Member’s wages or other cash compensation paid to Team Member by the Company and/or the Employer; (b) withholding from the proceeds of the sale of Shares acquired upon vesting of the RSUs either through a voluntary sale or through a mandatory sale arranged by the Company (on Team Member’s behalf pursuant to this authorization, without further consent); (c) withholding Shares to be issued upon vesting of the RSUs; or (d) any method determined by the Committee to be in compliance with applicable laws; provided, however, that if Team Member is a Section 16 officer of the Company under the Exchange Act, then the Committee shall establish the method of withholding from alternatives (a)-(d) herein, and if the Committee does not exercise its discretion prior to the Tax-Related Items withholding event, then Team Member shall be entitled to elect the method of withholding from the alternatives above.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Team Member may receive a refund of any over-withheld amount in cash and will have no entitlement to the common stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Team Member is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, Team Member agrees to pay the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account

for as a result of Team Member’s participation in the Plan that cannot be satisfied by the means previously described. The Company shall have no obligation to make any payment in any form under this Agreement or under any RSU or Dividend Equivalent issued in accordance herewith, unless and until such tax obligations have been satisfied.

(c) Nontransferability of RSUs . Except as provided in Section 5(d) or as otherwise permitted by the Committee, Team Member may not sell, transfer, pledge, assign or otherwise alienate his or her RSUs.

(d) Beneficiary Designation . If permitted by the Committee, Team Member may name any beneficiary or beneficiaries who may be entitled to any right in the RSUs received pursuant to this Agreement by filing a beneficiary designation for his or her Fidelity Account® with Fidelity Investments, provided such beneficiary designation can be validly made under applicable laws.

(e) Terms and Conditions Binding . The terms and conditions set forth in the Plan and in this Agreement will be binding upon and inure to the benefit of the Company, its successors and assigns, including any assignee of the Company and any successor to the Company by merger, consolidation or otherwise, and Team Member, Team Member’s heirs, devisees and legal representatives.

(f) No Employment Rights . No provision of this Agreement or the Plan will be deemed to confer upon Team Member any right to continue in the employ of the Company Group or will in any way affect the right of the Company or the Employer, as applicable, to dismiss or otherwise terminate Team Member’s employment or service at any time for any reason with or without cause, or will be construed to impose upon the Company Group any liability for any forfeiture of RSUs which may result under this Agreement if a Termination of Service occurs.

(g) No Liability for Good Faith Business Acts or Omissions . Team Member recognizes and agrees that the Committee, the Board, or the officers, agents or employees of the Company, in their oversight or conduct of the business and affairs of the Company, may in good faith cause the Company to act, or to omit to act, in a manner that may, directly or indirectly, prevent the RSUs from vesting. No provision of this Agreement will be interpreted or construed to impose any liability upon the Company Group, the Committee, Board or any officer, agent or employee of the Company Group, for any forfeiture of RSUs that may result, directly or indirectly, from any such action or omission.

(h) Adjustments. In accordance with Section 4.4 of the Plan, the Committee will make appropriate adjustments in the terms and conditions of Team Member’s RSUs 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 changes) to prevent unintended dilution or enlargement of the potential benefit

of Team Member’s RSUs. The Committee’s determination pursuant to this Section 5(h) shall be conclusive.

(i) Legal Representative . In the event of Team Member’s death or a judicial determination of Team Member’s incompetence, reference in this Agreement to Team Member shall be deemed, where appropriate, to Team Member’s heirs, devises, or guardian.

(j) Titles . The titles to sections or paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section or paragraph.

(k) Plan Governs . RSUs are being awarded to Team Member pursuant to and subject to the Plan, a copy of which is available upon request to the Corporate Secretary of the Company. The provisions of the Plan are incorporated herein by this reference. The terms and conditions set forth in this Agreement will be administered, interpreted and construed in accordance with the Plan, and any such term or condition which cannot be so administered, interpreted or construed will to that extent be disregarded.

(l) Complete Agreement . This instrument contains the entire agreement of the parties relating to the RSUs and supersedes and replaces all prior agreements and understandings with respect to such matter. The parties hereto have made no agreements, representations or warranties relating to the RSUs which are not set forth herein or incorporated by reference.

(m) Amendment; Modification; Waiver . Subject to Section 12 of this Agreement, no provision set forth in this Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Committee and shall be agreed to in writing, signed by Team Member and by an officer of the Company duly authorized to do so. No waiver by either party hereto of any breach by the other party of any condition or provision set forth in this Agreement to be performed by such other party will be deemed a waiver of a subsequent breach of such condition or provision, or will be deemed a waiver of a similar or dissimilar provision or condition at the same time or at any prior or subsequent time.

(n) 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.

(o) Electronic Delivery and Acceptance. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. Team Member hereby consents to receive such documents by

electronic delivery and agrees to participate in the Plan through an on-line electronic system established and maintained by the Company or a third party designated by the Company. Team Member also agrees that his or her electronic acknowledgement of this Agreement shall be considered the equivalent of his or her written signature.

(p) 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.

(q) 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 Service 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 Service” or like terms shall mean “such a separation from service.” Any provision of this Agreement to the contrary notwithstanding, if the Company determines that Team Member is a “specified employee,” within the meaning of Code Section 409A, then to the extent any payment that Team Member is entitled to under this Agreement on account of his or her 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 his or her death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed pursuant to this Section 5(q) 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.

6. Nature of Grant . In accepting the RSUs, Team Member acknowledges, understands and agrees that:

(b) the grant of RSUs and Dividend Equivalents is exceptional, voluntary and occasional and does not create any contractual or other right to receive future RSUs

or Dividend Equivalents, or benefits in lieu of RSUs and Dividend Equivalents, even if RSUs and their corresponding Dividend Equivalents have been granted in the past;

(c) all decisions with respect to future RSUs, Dividend Equivalents or other grants, if any, will be at the sole discretion of the Company;

(d) the grant of RSUs and Dividend Equivalents and Team Member’s participation in the Plan shall not create a right to employment or be interpreted as forming an employment or service relationship with the Company;

(e) Team Member is voluntarily participating in the Plan;

(f) the RSUs, Dividend Equivalents and Shares underlying the RSUs and Dividend Equivalents, and the income from and value of same, are not intended to replace any pension rights or compensation;

(g) the RSUs, Dividend Equivalents and Shares underlying the RSUs and Dividend Equivalents, and the income from and value of same, are not part of normal or expected compensation for any purpose, including without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(h) the future value of Shares underlying the RSUs and Dividend Equivalents is unknown, indeterminable and cannot be predicted with certainty;

(i) no claim or entitlement to compensation or damages shall arise from the forfeiture of RSUs and Dividend Equivalents resulting from Team Member’s Termination of Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment or other laws in the jurisdiction where Team Member is employed or otherwise rendering services or the terms of Team Member’s employment or service agreement, if any), and in consideration of the grant of RSUs and Dividend Equivalents, Team Member agrees not to institute any claim against the Company Group;

(j) unless otherwise agreed with the Company, the RSUs, Dividend Equivalents and Shares underlying the RSUs and Dividend Equivalents, and the income from and value of same, are not granted as consideration for, or in connection with the service Team Member may provide as a director of any Affiliate or Subsidiary;

(k) unless otherwise provided in the Plan or by the Company in its discretion, the RSUs, Dividend Equivalents and the benefits evidenced by this Agreement do not create any entitlement to have the RSUs, Dividend Equivalents or any such benefits transferred to, or assumed by, another company, nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the common stock; and

(l) the Company shall not be liable for any foreign exchange rate fluctuation between Team Member’s local currency and the U.S. Dollar that may affect

the value of the RSUs, Dividend Equivalents or any amounts due to Team Member pursuant to the settlement of the RSUs or subsequent sale of Shares acquired under the Plan.

7. Data Privacy . Team Member understands that the Company may hold certain personal information about Team Member, including, but not limited to, Team Member’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all RSUs, Dividend Equivalents or any other entitlement to Shares awarded, cancelled, exercised, vested, unvested or outstanding in Team Member’s favor (“Data”), for the exclusive purpose of implementing, administering and managing Team Member’s participation in the Plan.

Team Member understands that Data may be transferred to Fidelity Stock Plan Services, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Team Member understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Team Member’s country. Team Member understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Team Member authorizes the Company, Fidelity Stock Plan Services and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Team Member’s participation in the Plan. Team Member understands that Data will be held only as long as is necessary to implement, administer and manage Team Member’s participation in the Plan. Team Member understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case, without cost, by contacting his or her local human resources representative. Further, Team Member understands that he or she is providing the consents herein on a purely voluntary basis. If Team Member does not consent, or if Team Member later seeks to revoke his or her consent, his or her employment or service relationship will not be affected; the only consequence of refusing or withdrawing Team Member’s consent is that the Company would not be able to grant the RSUs, Dividend Equivalents or other equity awards to Team Member or administer or maintain such awards. Therefore, Team Member understands that refusing or withdrawing his or her consent may affect Team Member’s ability to participate in the Plan. For more information on the consequences of Team Member’s refusal to consent or withdrawal of consent, Team Member understands that he or she may contact his or her local human resources representative.

Finally, upon request of the Company, Team Member agrees to provide an executed data privacy consent form (or any other agreements or consents) that the Company may deem necessary to obtain from Team Member for the purpose of administering his or her participation in the Plan in compliance with the data privacy laws in his or her country, either now or in the future. Team Member understands and agrees that he or she will not be able to participate in the Plan if Team Member fails to provide such consent or agreement as requested by the Company.

8. Change of Control . In the event of a Change of Control (as defined in Section 2.7 of the Plan), the following provisions shall apply:

(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 RSUs are otherwise equitably converted or substituted, and if Team Member subsequently incurs a Termination of Service within two (2) years following the date of such Change of Control either (i) by the Company for any reason other than Cause or (ii) by Team Member 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 an additional percentage of the RSUs will become non-forfeitable ( i.e. , “vest”) as of the date of the Termination of Service, with such additional percentage determined by multiplying (i) the incremental percentage of the RSUs that has not yet vested and that would have become vested pursuant to the schedule in Section 1 on the next anniversary date if Team Member had not incurred a Termination of Service, by (ii) the ratio of the number of months since the immediately preceding anniversary date (or since the Grant Date, if the Termination of Service occurs prior to ______________ (one year from date of grant )) through the Termination of Service to 12. Partial months of employment will be counted as full months for purposes of this proration calculation.

(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 RSUs are not otherwise equitably converted or substituted, then an additional percentage of the RSUs will become non-forfeitable as of the date of the Change of Control, with such additional percentage determined by multiplying (i) the incremental percentage of the RSUs that has not yet vested and that would have become vested pursuant to the schedule in Section 1 on the next anniversary date if the Change of Control had not occurred, 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 date of grant )) through the date of the Change of Control to 12. Partial months will be counted as full months for purposes of this proration calculation.

9. Insider Trading Restrictions/Market Abuse Laws . Team Member acknowledges that, depending on his or her country, or the broker’s country, or the country in which the Shares are listed, Team Member may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, which may affect his or

her ability to accept, acquire, sell or attempt to sell or otherwise dispose of Shares, rights to Shares ( e.g., RSUs), or rights linked to the value of Shares, during such times as he or she is considered to have “inside information” regarding the Company (as defined by the laws and/or regulations in the applicable jurisdictions or in Team Member’s country). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by Team Member before possessing the inside information. Furthermore, Team Member may be prohibited from (i) disclosing the inside information to any third party, including fellow employees or service providers (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Team Member is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on the matter.

10. Foreign Asset/Account Reporting Requirements . Team Member acknowledges that there may be certain foreign asset and/or account reporting requirements which may affect Team Member’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan (including from any Dividend Equivalents) in a brokerage or bank account outside of Team Member’s country. Team Member may be required to report such accounts, assets or transactions to the tax or other authorities in his or her country. Team Member may also be required to repatriate sale proceeds or other funds received as a result of participating in the Plan to Team Member’s country through a designated bank or broker within a certain time after receipt. Team Member acknowledges that it is his or her responsibility to be compliant with such regulations, and that Team Member should speak to his or her personal advisor on this matter.

11. Language . Team Member acknowledges that he or she is sufficiently proficient in English to understand the terms and conditions of the Agreement. Furthermore, if Team Member has received the Agreement, or any other document related to the RSUs and/or the Plan translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.

12. Compliance with Law . Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon settlement of the RSUs prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Team Member understands and agrees that the Company

shall have unilateral authority to amend the Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.

13. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Team Member’s participation in the Plan, on the RSUs and Dividend Equivalents, and any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Team Member to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

14. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Team Member’s participation in the Plan, or Team Member’s acquisition or sale of the underlying Shares. Team Member is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding Team Member’s participation in the Plan before taking any action related to the Plan.

15. Equity Recovery . If this award and the RSUs or Shares you receive pursuant to this Agreement are subject to recovery under any law, government regulation or stock exchange listing requirement, the award and the RSUs or 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 and the RSUs or Shares.

TOTAL SYSTEM SERVICES, INC.

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. Executive Vice President and Chief Officer

EXHIBIT A

RESTRICTIVE COVENANT AGREEMENT

1. Acknowledgments .

(i) customarily and regularly solicit clients or prospective clients; and/or

(ii) customarily and regularly engage in making sales or obtaining contracts for products or services to be performed by others; and/or

(iii) perform each of the following duties:

a. have the primary duty of managing the enterprise (or a customarily recognized department or subdivision thereof) in

which the Team Member is employed;

b. customarily and regularly direct the work of two or more employees; and

(iv) 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:

a. gained a high level of notoriety, fame, reputation, or public persona as the Company Group’s representative or spokesperson; or

b. gained a high level of influence or credibility with the Company Group’s clients, vendors, or other business relationships; and/or

c. 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

d. obtained selective or specialized skills, knowledge, abilities, or client contacts or information.

2. Protection of Confidential Information .

(a) Non-disclosure of Confidential Information . From and after ____________, except as otherwise provided in Section 11, Team Member 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 an executive officer of the Company Group. Team Member’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 Team Member 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

(a) For purposes of this Agreement:

Company Group.

12. 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 Team Member: Most recent address on file with the Company Group

(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 12.

14. Assignability . This Agreement is personal to Team Member and may not be assigned by Team Member. This Agreement shall be assignable by the Company Group and shall inure to the benefit of the Company Group and its successors and assigns.

16. 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.

TOTAL SYSTEM SERVICES, INC.,

on behalf of the Company Group

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. Executive Vice President and Chief HR Officer

Exhibit 10.4

TOTAL SYSTEM SERVICES, INC.

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (the "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”).

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. 2017 Omnibus Plan (the "Plan"); and

WHEREAS, the Company intends to provide 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 (the “Committee”) of the Company approved the grant to Option Holder effective __________ (the “Grant Date”), pursuant to Section 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 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 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. Miscellaneous . 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. Grant of Nonqualified Stock Option . Subject to and in accordance with the provisions of the Plan, the Company hereby grants to 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 Committee, in its sole

and exclusive discretion, shall authorize Option Holder to exercise all or part of the Option at an earlier date.

3. Vesting . 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) Death or Long-term Disability . In the event of Option Holder’s Termination of Service due to 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) Retirement . If Option Holder's Termination of Service is due to Option Holder's retirement from the Company, its Affiliates and Subsidiaries on or after the date Option Holder attains age 65, or age 62 with 15 or more years of service ("Retirement"), Option Holder shall be able to exercise the Option, as follows:

(i) If Option Holder's Termination of Service due to Retirement occurs 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's Termination of Service due to Retirement occurs on or after ___________ (one year from the date of grant) 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's Termination of Service is involuntary, Option Holder will not be considered to have “Retired” for purposes of this Section 3(b), regardless of whether Option Holder’s Termination of Service 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.

Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that there has been a legal judgment and/or legal development in Option Holder’s

jurisdiction that would likely result in the favorable treatment that applies to Options if Option Holder’s Termination of Service occurs as a result of Option Holder’s Retirement being deemed unlawful and/or discriminatory, the provisions of this Section 3(b) will not be applicable to Option Holder and the remaining provisions of Section 3 will govern.

(c) Other Termination of Employment . In the event of Option Holder’s Termination of Service 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 Termination of Service, for 90 days following the date of such Termination of Service. In the event of a Change of Control (as defined in Section 2.7 of the Plan) , any applicable terms of Section 8 will supersede the terms of this Section 3.

(d) Termination of Service . For purposes of this Agreement, a Termination of Service will be deemed to have occurred as of the date Option Holder is no longer actively providing services to the Company, its Affiliates or its Subsidiaries (regardless of the reason for such termination and whether or not later founds to be invalid or in breach of employment laws in the jurisdiction where Option Holder is employed or otherwise providing services or the terms of Option Holder’s employment or service agreement, if any), and will not be extended by any notice period ( e.g., Option Holder’s period of service will not include any contractual notice period or any period of “garden leave” or similar period mandated in the jurisdiction where Option Holder is employed or is otherwise rendering services or the terms of his or her employment agreement, if any). The Committee shall have exclusive discretion to determine when Option Holder is no longer actively providing services for purposes of the Option (including whether Option Holder may still be considered to be providing services while on a leave of absence).

(e) Violation of Covenants . If Option Holder violates any of the covenants referenced in Section 9, his unvested Options shall be immediately forfeited.

4. Payment/Responsibility for Taxes . 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 shall be made in the manner provided in the Plan.

Option Holder acknowledges that, regardless of any action taken by the Company, or if different, the Affiliate or Subsidiary for which Option Holder provides services (the “Employer”), the ultimate liability for all income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to Option Holder’s participation in the Plan and legally applicable to Option Holder (the “Tax-Related Items”) is and remains Option Holder’s responsibility and may exceed the amount actually withheld by the Company or the Employer. Option Holder further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including but not limited to, the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired upon exercise and the receipt of any dividends paid on such Shares; and (ii) do not commit to and are under no obligation to structure the terms of the grant

or any aspect of the Option to reduce or eliminate Option Holder’s liability for Tax-Related Items or achieve any particular tax result. Further, if Option Holder is subject to Tax-Related Items in more than one jurisdiction, Option Holder acknowledges that the Company and/or the Employer (or former employer, as applicable) may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

Prior to any relevant taxable or tax withholding event, as applicable, Option Holder agrees to pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items. In this regard, Option Holder authorizes the Company and/or the Employer and their respective agents, at their discretion, to satisfy any withholding obligations with regard to all Tax-Related Items by one or a combination of the following: (a) withholding from Option Holder’s wages or other cash compensation paid to Option Holder by the Company and/or the Employer; (b) withholding from the proceeds of the sale of Shares acquired upon exercise of the Options either through a voluntary sale or through a mandatory sale arranged by the Company (on Option Holder’s behalf pursuant to this authorization, without further consent); (c) withholding Shares to be issued upon exercise of the Option or (d) any method determined by the Committee to be in compliance with applicable laws; provided, however, that if Option Holder is a Section 16 officer of the Company under the Exchange Act, then the Company will satisfy any withholding obligation for Tax-Related Items only by one or a combination of methods (a) and (b) above.

Depending on the withholding method, the Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case Option Holder may receive a refund of any over-withheld amount in cash and will have no entitlement to the common stock equivalent. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, Option Holder is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.

Finally, Option Holder agrees to pay the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of Option Holder’s participation in the Plan that cannot be satisfied by the means previously described. The Company shall have no obligation to make any payment in any form under this Agreement or under any Shares acquired in accordance herewith, unless and until such tax obligations have been satisfied.

5. Exercise of Option . The Option or any part thereof may be exercised during the lifetime of Option Holder only by Option Holder and only while Option Holder is in the employ of the Company, except as otherwise provided in the Plan. Unless sooner terminated as provided in the Plan or in this Agreement, the Option shall terminate, and all rights of 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).

6. Nontransferability . Unless otherwise designated by the 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. Adjustments . 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 . Change of Control . In the event of a Change of Control (as defined in Section 2.7 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 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 Option Holder’s outstanding Option with stock options having substantially the same intrinsic value and having terms and conditions no less favorable to Option Holder than those applicable to the Option immediately prior to the Change of Control (collectively, an “Equitable Assumption or Replacement”), and if Termination of Service occurs 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 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 of Service 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. Restrictive Covenants . By acceptance of this Option via electronic execution of this Agreement, Option Holder agrees 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.

10 . Notice . 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.

11. No Guarantee of Employment . Nothing herein contained shall affect the right of the Company or the Employer, subject to the terms of any written contractual arrangement to the contrary, to terminate Option Holder’s employment at any time for any reason whatsoever.

12. Binding Agreement . This Agreement shall be binding upon and inure to the benefit of Option Holder, his personal representatives, heirs, legatees.

13. Equity Recovery . If this Option and the Shares acquired upon exercise of this Option are subject to recovery under any law, government regulation or stock exchange listing requirement, this Option 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 Option and the Shares.

14 . Electronic Delivery and Acceptance . The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means. Option Holder hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line electronic system established and maintained by the Company or a third party designated by the Company. Option Holder also agrees that his or her electronic acknowledgement of this Agreement shall be considered the equivalent of his or her written signature.

15. Nature of Grant . In accepting the Option, Option Holder agrees that:

(b) the grant of the Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future options or benefits in lieu of options, even if options have been granted in the past;

(d) the grant of the Option and Option Holder’s participation in the Plan shall not create a right to employment or be interpreted as forming an employment or service relationship with the Company;

(e) Option Holder is voluntarily participating in the Plan;

(f) the Option and any Shares acquired under the Plan, and the income from and value of same, are not intended to replace any pension rights or compensation;

(g) the Option and any Shares acquired under the Plan, and the income from and value of same, are not part of normal or expected compensation for any purpose, including without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;

(h) the future value of Shares underlying the Option is unknown, indeterminable and cannot be predicted with certainty, and if Option Holder exercises the Option and acquires Shares, the value of such Shares may increase or decrease in value, even below the Option price;

(i) if the underlying Shares do not increase in value, this Option will have no value;

(j) no claim or entitlement to compensation or damages shall arise from the forfeiture of the Option resulting from Option Holder’s Termination of Service (for any reason whatsoever, whether or not later found to be invalid or in breach of employment or other laws in the jurisdiction where Option Holder is employed or otherwise rendering services or the terms of Option Holder’s employment or service agreement, if any), and in consideration of the grant of the Option, Option Holder agrees not to institute any claim against the Company, its Affiliates and Subsidiaries;

(k) unless otherwise agreed with the Company, the Option and any Shares acquired under the Plan, and the income from and value of same, are not granted as consideration for, or in connection with the service Option Holder may provide as a director of any Affiliate or Subsidiary;

(l) unless otherwise provided in the Plan or by the Company in its discretion, the Option and the benefits evidenced by this Agreement do not create any entitlement to have the Option or any such benefits transferred to, or assumed by, another company, nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the common stock; and

(m) the Company shall not be liable for any foreign exchange rate fluctuation between Option Holder’s local currency and the U.S. Dollar that may affect the value of the Option or any amounts due to Option Holder pursuant to the exercise of the Option or subsequent sale of Shares acquired under the Plan.

16 . Data Privacy . Option Holder understands that the Company may hold certain personal information about Option Holder, including, but not limited to, Option Holder’s name, home address, email address and telephone number, date of birth, social insurance number, passport or other identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all Options or any other entitlement to Shares awarded, cancelled, exercised, vested, unvested or outstanding in Option Holder’s favor (“Data”), for the exclusive purpose of implementing, administering and managing Option Holder’s participation in the Plan.

Option Holder understands that Data may be transferred to Fidelity Stock Plan Services, or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. Option Holder understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Option Holder’s country. Option Holder understands that he or she may request a list with the names and addresses of any potential recipients of the Data by contacting his or her local human resources representative. Option Holder authorizes the Company, Fidelity Stock Plan Services and any other possible recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purposes of implementing, administering and managing Option Holder’s participation in the Plan. Option Holder understands that Data will be held only as long as is necessary to implement, administer and manage Option Holder’s participation in the Plan. Option Holder understands that he or she may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case, without cost, by contacting his or her local human resources representative. Further, Option Holder understands that he or she is providing the consents herein on a purely voluntary basis. If Option Holder does not consent, or if Option Holder later seeks to revoke his or her consent, his or her employment or service relationship will not be affected; the only consequence of refusing or withdrawing Option Holder’s consent is that the Company would not be able to grant the Options or other equity awards to Option Holder or administer or maintain such awards. Therefore, Option Holder understands that refusing or withdrawing his or her consent may affect Option Holder’s ability to participate in the Plan. For more information on the consequences of Option Holder’s refusal to consent or withdrawal of consent, Option Holder understands that he or she may contact his or her local human resources representative.

Finally, upon request of the Company, Option Holder agrees to provide an executed data privacy consent form (or any other agreements or consents) that the Company may deem necessary to obtain from Option Holder for the purpose of administering his or her participation in the Plan in compliance with the data privacy laws in his or her country, either now or in the future. Option Holder understands and agrees that he or she will not be able to participate in the Plan if Option Holder fails to provide such consent or agreement as requested by the Company.

17. Governing Law; Venue . The validity, interpretation, performance and enforcement of the terms and conditions set forth in this Agreement will be governed by the laws of the State of Georgia, the state in which the Company is incorporated, 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.

18 . Reserved .

19. Insider Trading Restrictions/Market Abuse Laws . Option Holder acknowledges that, depending on his or her country, or the broker’s country, or the country in which the Shares are listed, Option Holder may be subject to insider trading restrictions and/or market abuse laws in applicable jurisdictions, which may affect his or her ability to accept, acquire, sell or attempt to sell or otherwise dispose of Shares, rights to Shares ( e.g., Options), or rights linked to the value of Shares, during such times as he or she is considered to have “inside information” regarding the Company (as defined by the laws and/or regulations in the applicable jurisdictions or in Option Holder’s country). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by Option Holder before possessing the inside information. Furthermore, Option Holder may be prohibited from (i) disclosing the inside information to any third party, including fellow employees or service providers (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. Option Holder is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on the matter.

20 . Foreign Asset/Account Reporting Requirements . Option Holder acknowledges that there may be certain foreign asset and/or account reporting requirements which may affect Option Holder’s ability to acquire or hold Shares acquired under the Plan or cash received from participating in the Plan in a brokerage or bank account outside of Option Holder’s country. Option Holder may be required to report such accounts, assets or transactions to the tax or other authorities in his or her country. Option Holder may also be required to repatriate sale proceeds or other funds received as a result of participating in the Plan to Option Holder’s country through a designated bank or broker within a certain time after receipt. Option Holder acknowledges that it is his or her

responsibility to be compliant with such regulations, and that Option Holder should speak to his or her personal advisor on this matter.

21 . Language . Option Holder acknowledges that he or she is sufficiently proficient in English to understand the terms and conditions of the Agreement. Furthermore, if Option Holder has received the Agreement, or any other document related to the Option and/or the Plan translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.

22 . Compliance with Law . Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon exercise of the Option prior to the completion of any registration or qualification of the shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Option Holder understands and agrees that the Company shall have unilateral authority to amend the Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.

23. Imposition of Other Requirements . The Company reserves the right to impose other requirements on Option Holder’s participation in the Plan, on the Option, and any Shares acquired under the Plan, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Option Holder to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

24. Waiver . Option Holder acknowledges that a waiver by the Company of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by Option Holder or any other Plan participant.

25 . No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Option Holder’s participation in the Plan, or Option Holder’s acquisition or sale of the underlying Shares. Option Holder is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding Option Holder’s participation in the Plan before taking any action related to the Plan.

TOTAL SYSTEM SERVICES, INC.

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. Executive Vice-President and Chief HR Officer

EXHIBIT A

RESTRICTIVE COVENANT AGREEMENT

1. Acknowledgments .

(i) customarily and regularly solicit clients or prospective clients; and/or

(ii) customarily and regularly engage in making sales or obtaining contracts for products or services to be performed by others; and/or

(iii) perform each of the following duties:

a. have the primary duty of managing the enterprise (or a customarily recognized department or subdivision thereof) in

which the Team Member is employed;

b. customarily and regularly direct the work of two or more employees; and

(iv) 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:

a. gained a high level of notoriety, fame, reputation, or public persona as the Company Group’s representative or spokesperson; or

b. gained a high level of influence or credibility with the Company Group’s clients, vendors, or other business relationships; and/or

c. 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

d. obtained selective or specialized skills, knowledge, abilities, or client contacts or information.

2. Protection of Confidential Information.

(b) Definition of Confidential Information . For purposes of this Agreement, “ Confidential Information ” means data or information relating to the business

(a) For purposes of this Agreement:

Company Group.

12. 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 Team Member: Most recent address on file with the Company Group

(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 12.

TOTAL SYSTEM SERVICES, INC.,

on behalf of the Company Group

By: /s/ Ryland Harrelson

Ryland Harrelson

Sr. Executive Vice President and Chief HR Officer

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, M. Troy Woods, certify that:

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

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

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

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

(a)

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

(b)

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

(c)

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

(d)

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

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

(a)

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

(b)

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


Date: May 1, 2019		/s/ M. Troy Woods
		M. Troy Woods
		Chairman, President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Paul M. Todd, certify that:

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

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

(a)

(b)

(c)

(d)

(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.

Date: May 1, 2019		/s/ Paul M. Todd
		Paul M. Todd
		Senior Executive Vice President and
		Chief Financial Officer

EXHIBIT 32

CERTIFICATION OF PERIODIC REPORT

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, M. Troy Woods, the Chairman, President 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, 2019 (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 1, 2019		/s/ M. Troy Woods
		M. Troy Woods
		Chairman, President and Chief Executive Officer


May 1, 2019		/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).