Segment Reporting, including Geographic Area Data and Major Customers

12 Months Ended

Dec. 31, 2016

Segment Reporting, including Geographic Area Data and Major Customers

Segment Reporting, including Geographic Area Data and Major Customers

Note 21 Segment Reporting, including Geographic Area Data and Major Customers

TSYS provides global payment processing and other services to card-issuing and merchant acquiring institutions in the United States and internationally through online accounting and electronic payment processing systems. Corporate expenses, such as finance, legal, human resources, mergers and acquisitions and investor relations are categorized as Corporate Administration and Other.

In April 2016, TSYS completed its acquisition of TransFirst which is part of the Merchant Services segment and its results are included in the following tables. Refer to Note 23 for more information on acquisitions.

North America Services includes electronic payment processing services and other services provided from within the North America region. International Services includes electronic payment processing and other services provided from outside the North America region. Merchant Services includes electronic processing and other services provided to merchants and merchant acquirers. The Netspend segment provides GPR prepaid debit and payroll cards and alternative financial service solutions to the underbanked and other consumers in the United States.

At TSYS, the chief operating decision maker (CODM) is a group consisting of Senior Executive Management and above. In 2014, the CODM decided that all share-based compensation costs should be included in the category “Corporate Administration and Other” for purposes of segment disclosures. The information utilized by the CODM consists of the financial statements and the main metrics monitored are revenue growth and growth in profitability.

TSYS’ operating segments share certain resources, such as information technology support, that TSYS allocates asymmetrically.

Operating Segments	Years Ended December 31,
(in thousands)		2016	2015	2014
Operating income (GAAP) (a)	$	573,382	534,107	431,640
Share-based compensation		43,728	41,549	30,790
TransFirst and Netspend M&A and integration expenses1		28,176	-	3,217
Litigation, claims, judgments or settlements		21,719	-	-
Acquisition intangible amortization		189,990	92,521	96,970
Adjusted operating income (non-GAAP) (b)	$	856,995	668,177	562,617
Adjusted operating income by segment (non-GAAP):
North America Services (c)	$	468,251	429,064	351,512
International Services (d)		56,774	60,087	55,123
Merchant Services (e)		307,595	150,225	134,872
Netspend (f)		160,371	137,837	128,285
Corporate Administration and Other		(135,996)	(109,036)	(107,175)
Adjusted segment operating income2 (non-GAAP)	$	856,995	668,177	562,617
Total revenues (GAAP) (g)	$	4,170,077	2,779,541	2,446,877
Less: reimbursable items		259,543	280,192	253,899
Revenue before reimbursable items		3,910,534	2,499,349	2,192,978
Intersegment revenues		39,880	33,481	21,224
Segment revenue before reimbursable items (non-GAAP)	$	3,950,414	2,532,830	2,214,202
Segment revenue before reimbursable items (non-GAAP):
North America Services	$	1,206,013	1,147,254	954,082
International Services		313,631	331,159	341,785
Merchant Services		1,767,191	474,040	435,649
Netspend		663,579	580,377	482,686
Segment revenue before reimbursable items (non-GAAP)	$	3,950,414	2,532,830	2,214,202
Total revenues (GAAP) (g)	$	4,170,077	2,779,541	2,446,877
Less: reimbursable items		259,543	280,192	253,899
Revenue before reimbursable items		3,910,534	2,499,349	2,192,978
Less: interchange and assessments expenses		868,658	-	-
Net revenue2 (non-GAAP) (h)		3,041,876	2,499,349	2,192,978
Intersegment revenues		39,880	33,481	21,224
Segment net revenue (non-GAAP)	$	3,081,756	2,532,830	2,214,202
Segment net revenue (non-GAAP):
North America Services (i)	$	1,206,013	1,147,254	954,082
International Services (j)		313,631	331,159	341,785
Merchant Services (k)		898,533	474,040	435,649
Netspend (l)		663,579	580,377	482,686
Segment net revenue (non-GAAP)	$	3,081,756	2,532,830	2,214,202
Segment external net revenue (non-GAAP):
North America Services	$	1,174,304	1,118,332	936,957
International Services		308,552	326,834	338,126
Merchant Services		898,175	473,806	435,209
Netspend		660,845	580,377	482,686
Segment external net revenue (non-GAAP)	$	3,041,876	2,499,349	2,192,978
Operating margin (GAAP) (a)/(g)		13.8%	19.2%	17.6%
Adjusted operating margin on net revenue (non-GAAP) (b)/(h)		28.2%	26.7%	25.7%
Adjusted segment operating margin on net revenue (non-GAAP):
North America Services (c)/(i)		38.8%	37.4%	36.8%
International Services (d)/(j)		18.1%	18.1%	16.1%
Merchant Services (e)/(k)		34.2%	31.7%	31.0%
Netspend (f)/(l)		24.2%	23.7%	26.6%

¹ Excludes share-based compensation

² Net revenue and adjusted segment operating income are non-GAAP measures. Net revenue is total revenues less reimbursable items (such as postage), as well as, merchant acquiring interchange and assessment fees charged by the card associations or payment networks that are recorded by TSYS as expense.  Adjusted segment operating income excludes acquisition intangible amortization, TransFirst M&A expenses, share-based compensation and expenses associated with Corporate Administration and Other.

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

Operating Segments	Years Ended December 31,
(in thousands)		2016	2015	2014
Depreciation and amortization:
North America Services	$	110,343	99,544	86,513
International Services		30,966	34,892	38,909
Merchant Services		25,553	18,268	14,571
Netspend		13,133	10,686	7,509
Segment depreciation and amortization		179,995	163,390	147,502
Acquisition intangible amortization		189,990	92,521	96,970
Corporate Administration and Other		3,561	2,353	2,148
Total depreciation and amortization	$	373,546	258,264	246,620

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

	As of December 31,
(in thousands)	2016		2015
North America Services	$	5,595,747	3,485,924
Merchant Services		3,295,509	689,781
Netspend		1,474,595	1,504,740
International Services		296,663	348,714
Intersegment assets		(4,296,337)	(2,151,264)
Total assets	$	6,366,177	3,877,895

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

	As of December 31,
(in thousands)	2016		2015
United States	$	236,913	241,814
Europe		38,866	41,953
Other		6,566	6,131
Total	$	282,345	289,898

The following tables reconcile geographic revenues to external revenues by operating segment based on the domicile of the Company’s customers for the years ended December 31:

	2016
(in thousands)	North America Services		International Services	Merchant Services	Netspend	Total		Percentage of Revenues
United States	$	1,032,381	-	1,826,775	660,845	$	3,520,001	84.4	%
Europe1		788	306,106	227	-		307,121	7.4
Canada1		284,005	23	705	-		284,733	6.8
Mexico		14,887	447	-	-		15,334	0.4
Other1		17,804	24,322	762	-		42,888	1.0
Total	$	1,349,865	330,898	1,828,469	660,845	$	4,170,077	100.0	%

	2015
(in thousands)	North America Services		International Services	Merchant Services	Netspend	Total		Percentage of Revenues
United States	$	981,588	-	548,079	580,377	$	2,110,044	75.9	%
Europe1		796	303,832	22	-		304,650	11.0
Canada1		288,728	-	355	-		289,083	10.4
Mexico		16,558	-	-	-		16,558	0.6
Other1		18,329	40,198	679	-		59,206	2.1
Total	$	1,305,999	344,030	549,135	580,377	$	2,779,541	100.0	%

	2014
(in thousands)	North America Services		International Services	Merchant Services	Netspend	Total		Percentage of Revenues
United States	$	778,766	-	508,747	482,686	$	1,770,199	72.3	%
Europe1		781	304,308	-	-		305,089	12.5
Canada1		290,248	-	248	-		290,496	11.9
Mexico		16,216	-	-	-		16,216	0.7
Other1		16,305	47,888	684	-		64,877	2.7
Total	$	1,102,316	352,196	509,679	482,686	$	2,446,877	100.0	%

¹ Revenues are impacted by movements in foreign currency exchange rates

MAJOR CUSTOMER:  For the years ended December 31, 2016, 2015 and 2014, the Company had no major customers.