Segment Information

12 Months Ended

Dec. 31, 2013

Segment Reporting [Abstract]

Segment Information

Note 21—Segment Information

The Company operates in three business segments: Merchant Acquiring, Payment Processing and Business Solutions.

The Merchant Acquiring segment consists of revenues from services that allow merchants to accept electronic methods of payment. In the Merchant Acquiring segment, revenues include a discount fee and membership fees charged to merchants, debit network fees and rental fees from POS devices and other equipment, net of credit card interchange and assessment fees charged by credit cards associations (such as VISA or MasterCard) or payment networks. The discount fee is generally a percentage of the transaction value. EVERTEC also charge merchants for other services that are unrelated to the number of transactions or the transaction value.

The Payment Processing segment revenues are comprised of revenues related to providing access to the ATH network and other card networks to financial institutions, including related services such as authorization, processing, management and recording of ATM and POS transactions, and ATM management and monitoring. Payment Processing revenues also include revenues from card processing services (such as credit and debit card processing, authorization and settlement and fraud monitoring and control to debit or credit issuers), payment processing services (such as payment and billing products for merchants, businesses and financial institutions) and electronic benefit transfer (“EBT”) (which principally consist of services to the government of Puerto Rico for the delivery of benefits to participants).

For ATH network and processing services, revenues are primarily driven by the number of transactions processed. Revenues are derived primarily from network fees, transaction switching and processing fees, and the leasing of POS devices. For card issuer processing, revenues are primarily dependent upon the number of cardholder accounts on file, transactions and authorizations processed, the number of cards embossed and other processing services. For EBT services, revenues are primarily derived from the number of beneficiaries on file.

In September 2012, the Company renamed the transaction processing segment to Payment Processing segment. The change of name does not constitute a change in the segment composition.

The Business Solutions segment consists of revenues from a full suite of business process management solutions in various product areas, such as core bank processing, network hosting and management, IT professional services, business process outsourcing, item processing, cash processing, and fulfillment. Core bank processing and network services revenues are derived in part from a recurrent fee and from fees based on the number of accounts on file (i.e. savings or checking accounts, loans, etc) or computer resources utilized. Revenues from other processing services within the Business Solutions segment are generally volume-based and depend on factors such as the number of accounts processed. In addition, EVERTEC are a reseller of hardware and software products and these resale transactions are generally one-time transactions.

The Company’s business segments are organized based on the nature of products and services. The Chief Operating Decision Maker (“CODM”) reviews their separate financial information to assess performance and to allocate resources.

Management evaluates the operating results of each of its reportable segments based upon revenues and operating income. Segment asset disclosure is not used by the CODM as a measure of segment performance since the segment evaluation is driven by earnings. As such, segment assets are not disclosed in the notes to the accompanying consolidated financial statements.

The following tables set forth information about the Company’s operations by its three business segments for the periods indicated:

(Dollar amounts in thousands)	Merchant acquiring, net		Payment processing		Business solutions		Other			Total
Year ended December 31, 2013
Revenues	$	73,616	$	124,833	$	184,297	$	(25,506	)(1)	$	357,240
Income from operations		35,376		54,429		42,430		(46,474	)(2)		85,761
Year ended December 31, 2012
Revenues		69,591		116,019		177,292		(21,218	)(1)		341,684
Income from operations		33,836		53,682		39,845		(47,717	)(2)		79,646
Year ended December 31, 2011
Revenues		61,997		105,184		173,434		(19,493	)(1)		321,122
Income from operations		30,258		45,031		36,690		(49,464	)(2)		62,515

⁽¹⁾  Represents the elimination of intersegment revenues for services provided by the Payment Processing segment to the Merchant Acquiring segment, and other miscellaneous intersegment revenues.

⁽²⁾  Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

The reconciliation of income from operations to consolidated net (loss) income is as follows:

	Years ended December 31,
(Dollar amounts in thousands)	2013			2012			2011
Segment income from operations
Merchant acquiring	$	35,376		$	33,836		$	30,258
Payment processing		54,429			53,682			45,031
Business solutions		42,430			39,845			36,690
Total segment income from operations		132,235			127,363			111,979
Merger related depreciation and amortization and other unallocated expenses (1)		(46,474	)		(47,717	)		(49,464	)
Income from operations	$	85,761		$	79,646		$	62,515
Interest expense, net		(37,625	)		(54,011	)		(50,160	)
Earnings of equity method investment		935			564			833
Other expenses		(75,682	)		(8,491	)		(18,201	)
Income tax benefit		1,990			59,658			29,227
Net (loss) income	$	(24,621	)	$	77,366		$	24,214

⁽²⁾  Primarily represents non-operating depreciation and amortization expenses generated as a result of the Merger and certain non-recurring fees and expenses.

The geographic segment information below is classified based on the geographic location of the Company’s subsidiaries:

	Years ended December 31,
(Dollar amounts in thousands)	2013		2012		2011
Revenues (1)
Puerto Rico	$	308,573	$	294,479	$	281,392
Caribbean		16,225		16,280		13,051
Latin America		32,442		30,925		26,679
Total revenues	$	357,240	$	341,684	$	321,122

⁽¹⁾  Revenues are based on subsidiaries’ country of domicile.

Major customers

For the years ended December 31, 2013, 2012 and 2011, the Company had one major customer which accounted for approximately $163.8 million or 46%, $151.4 million or 44% and $147.1 million or 46%, respectively, of total revenues. See Note 19.

The Company’s next largest customer, the Government of Puerto Rico, consolidating all individual agencies and public corporations, represented 11%, 9% and 11% of the Company’s total revenues for the years ended December 31, 2013, 2012 and 2011, respectively.