Note 7 — Segment Reporting and Major Customers

Refer to Note 21 of the Company’s audited financial statements for the year ended December 31, 2016, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC, for a discussion regarding segment reporting and major customers.

At TSYS, the chief operating decision maker (CODM) is a group consisting of Senior Executive Management and above. In the first quarter of 2017, the CODM combined the North America Services and International Services segments for purposes of segment reporting into the new Issuer Solutions segment, since they provide similar services to similar customers and to reflect the manner in which decisions on allocation of resources are made. All prior periods were restated to reflect this change. This change is used to evaluate performance and assess resources starting in the first quarter of 2017. The information utilized by the CODM consists of the financial statements and the main metrics monitored are revenue growth and growth in profitability.

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


		As of
(in thousands)		September 30, 2017	December 31, 2016
Issuer Solutions	$	5,830,046	5,892,410
Merchant Solutions		3,190,378	3,295,509
Netspend		1,438,916	1,474,595
Intersegment assets		(4,240,450)	(4,296,337)
Total assets	$	6,218,890	6,366,177

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


	As of
(in thousands)	September 30, 2017		December 31, 2016
United States	$	231,264	236,913
Europe		43,935	38,866
Other		7,291	6,566
Total	$	282,490	282,345

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



	Three months ended September 30,			Nine months ended September 30,
(in thousands)		2017	2016		2017	2016
Depreciation and amortization by segment:
Issuer Solutions	$	36,699	34,590		109,287	105,858
Merchant Solutions		7,588	6,846		21,990	18,702
Netspend		3,785	3,241		12,057	9,466
Depreciation and amortization		48,072	44,677		143,334	134,026
Acquisition intangible amortization		50,856	53,341		156,966	134,748
Corporate Administration and Other		1,356	898		3,521	2,694
Total depreciation and amortization	$	100,284	98,916		303,821	271,468

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


	Three months ended September 30, 2017
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend	Total
United States	$	261,878	625,148	179,488	$	1,066,514
Europe1		80,492	49	-		80,541
Canada1		79,098	381	-		79,479
Other1		20,762	280	-		21,042
Total	$	442,230	625,858	179,488	$	1,247,576


	Nine months ended September 30, 2017
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend	Total
United States	$	780,728	1,795,919	559,183	$	3,135,830
Europe1		237,039	187	-		237,226
Canada1		234,055	1,004	-		235,059
Other1		45,656	905	-		46,561
Total	$	1,297,478	1,798,015	559,183	$	3,654,676


	Three months ended September 30, 2016
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend		Total
United States	$	264,062	570,796	154,750	$	989,608
Europe1		74,827	57	-		74,884
Canada1		65,839	185	-		66,024
Other1		16,190	182	-		16,372
Total	$	420,918	571,220	154,750	$	1,146,888


	Nine months ended September 30, 2016
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend	Total
United States	$	776,671	1,275,474	500,889	$	2,553,034
Europe1		225,677	164	-		225,841
Canada1		208,762	507	-		209,269
Other1		49,121	588	-		49,709
Total	$	1,260,231	1,276,733	500,889	$	3,037,853

1Certain 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			Nine months ended
	September 30,			September 30,
(in thousands)		2017	2016	2017	2016
Adjusted operating income by segment1:
Issuer Solutions (a)	$	147,758	128,949	428,909	392,519
Merchant Solutions (b)		103,275	90,784	296,551	219,056
Netspend (c)		48,560	40,856	143,251	125,538
Corporate Administration and Other		(39,560)	(37,022)	(111,170)	(99,830)
Adjusted segment operating income (d)		260,033	223,567	757,541	637,283
Less:
Share-based compensation		8,407	13,069	28,462	33,792
TransFirst M&A and integration expenses2		1,052	1,830	10,086	25,908
Litigation, claims, judgments or settlements		26	-	1,904	-
Acquisition intangible amortization		50,856	53,341	156,966	134,748
Operating income		199,692	155,327	560,123	442,835
Nonoperating expenses, net		(28,835)	(30,368)	(88,780)	(82,225)
Income before income taxes and equity in income of equity investments	$	170,857	124,959	471,343	360,610

Net revenue by segment:
Issuer Solutions (e)	$	401,074	379,145	1,181,090	1,135,016
Merchant Solutions (f)		281,819	262,494	820,968	644,573
Netspend (g)		179,918	155,349	560,448	502,961
Segment net revenue		862,811	796,988	2,562,506	2,282,550
Less: Intersegment revenues		10,052	7,400	32,787	26,381
Net revenue3 (h)		852,759	789,588	2,529,719	2,256,169
Add: reimbursable items, interchange and assessments expenses		394,817	357,300	1,124,957	781,684
Total revenues	$	1,247,576	1,146,888	3,654,676	3,037,853

Adjusted segment operating margin on segment net revenue:
Issuer Solutions (a)/(e)		36.8%	34.0%	36.3%	34.6%
Merchant Solutions (b)/(f)		36.6%	34.6%	36.1%	34.0%
Netspend (c)/(g)		27.0%	26.3%	25.6%	25.0%

Adjusted segment operating margin on net revenue: (d)/(h)		30.5%	28.3%	29.9%	28.2%

Adjusted segment operating income excludes acquisition intangible amortization, TransFirst M&A and integration expenses, share-based compensation and expenses associated with Corporate Administration and Other.

Excludes share-based compensation

Net revenue is defined as 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.

Major Customers

For the three and nine months ended September 30, 2017 and 2016, the Company did not have any major customers.