Exhibit 13.1

Selected Financial Data

The following financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Financial Review sections of the Annual Report. The historical trends in Total System Services, Inc.'s (TSYS' or the Company’s) results of operations and financial position over the last five years are presented below.

*Basic and diluted EPS amounts for continuing operations and net income may not total due to rounding.

Financial Overview

TSYS' 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 Netspend.

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 primarily in the United States. The Company’s Netspend segment provides financial service solutions to consumers and businesses in the United States.

TSYS acquires other companies as part of its strategy for growth. On January 11, 2018, the Company completed its acquisition of Cayan Holdings LLC (“Cayan”), which became a part of the Merchant Solutions segment. Refer to Note 25 in the Notes to Consolidated Financial Statements for more information about the acquisition of Cayan. In April 2016, the Company completed the acquisition of all the outstanding stock of TransFirst Holdings Corp. (TransFirst). TransFirst is part of the Merchant Solutions segment. Refer to Note 22 in the Notes to Consolidated Financial Statements for more information about the acquisition of TransFirst.

The following table sets forth each segment’s revenues as a percentage of the Company’s total revenues:

Due to the somewhat seasonal nature of the payments industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Furthermore, growth or declines in card and merchant portfolios of existing clients, the conversion of cardholder and merchant accounts of new clients to the Company's processing platforms, the receipt of fees for early contract termination and the loss of cardholder and merchant accounts either through purges or deconversions impact the results of operations from period to period.

Another factor which may affect TSYS' revenues and results of operations from time to time is consolidation in the financial services or retail industries either through the sale by a client of its business, its card portfolio or a segment of its accounts to a party which processes cardholder or merchant accounts internally or uses another third-party processor. A change in the economic environment in the retail sector, or a change in the mix of payments between cash and cards could favorably or unfavorably impact TSYS' financial position, results of operations and cash flows in the future.

TSYS' reported financial results will also be impacted by significant shifts in currency conversion rates. TSYS does not view foreign currency as an economic event for the Company but as a financial reporting consideration. Because changes in foreign currency exchange rates distort the operating growth rates, TSYS discloses the impact of foreign currency translation on its financial performance.

A significant amount of the Company's revenues are derived from long-term contracts with large clients. Processing contracts with large clients, representing a significant portion of the Company's total revenues, generally provide for discounts on certain services based on the size and activity of clients' portfolios. Therefore, revenues and the related margins are influenced by the client mix relative to the size of client portfolios, as well as the number and activity of individual cardholder or merchant accounts processed for each client.

Also impacting revenues is the impact of TransFirst. TransFirst’s results are part of the Merchant Solutions segment and are reported gross, which includes amounts paid for interchange and payment network fees, due to TransFirst’s relationship with its customers.

Regulation

Government regulation affects key areas of TSYS' business, in the United States of America (U.S.) as well as internationally. TSYS, along with the rest of the financial services industry, continues to experience increased legislative and regulatory scrutiny, including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Reform Act) in 2010. This legislation, which provides for sweeping financial regulatory reform, may have a significant and negative impact on the Company and its clients, which could impact TSYS' earnings through fee reductions, higher costs (both regulatory and implementation) and new restrictions on operations. The Financial Reform Act may also impact the competitive dynamics of the financial services industry in the U.S. by more adversely impacting large financial institutions, some of which are TSYS clients, and by adversely impacting the competitive position of U.S. financial institutions in comparison to foreign competitors in certain businesses.

The Financial Reform Act created a new Consumer Financial Protection Bureau (“CFPB”) with responsibility for regulating consumer financial products and services and enforcing most federal consumer protection laws in the area of financial services, including consumer credit and the prepaid card industry.  For example, the CFPB has promulgated a new rule regarding prepaid financial products, which, among other things, will establish new disclosure requirements specific to prepaid accounts, eliminate certain fees that may currently be imposed on prepaid accounts, and make it economically unfeasible for a prepaid provider such as the Company’s Netspend business to offer courtesy overdraft protection on prepaid accounts. The rule is scheduled to become effective in April 2019.  Similarly, other future actions of the CFPB may make payment card or product transactions generally less attractive to card issuers, acquirers, consumers and merchants by further regulatory disclosures, payment card practices, fees, routing and other matters with respect to credit, debit and prepaid cards, and thus negatively impact the Company’s business.

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, and 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. The accompanying Consolidated Financial Statements and related Notes are an integral part of this Financial Review and should be read in conjunction with it.

Critical Accounting Policies and Estimates

Risk factors that could affect the Company's future operating results and cause actual results to vary materially from expectations are listed in the Company's forward-looking statements. Negative developments in these or other risk factors could have a material adverse effect on the Company's financial position, results of operations and cash flows.

TSYS' financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. Refer to Note 1 in the Consolidated Financial Statements for more information on the Company's basis of presentation and a summary of significant accounting policies.

Management believes that the following accounting policies are the most critical to fully understand and evaluate the Company's results. Within each critical policy, the Company makes estimates that require management's subjective or complex judgments about the effects of matters that are inherently uncertain.

A summary of the Company's critical accounting estimates applicable to the reportable operating segments follows:

Acquisitions — Purchase Price Allocation

TSYS' purchase price allocation methodology requires the Company to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. TSYS estimates the fair value of assets and liabilities based upon appraised values, the carrying value of the acquired assets and widely accepted valuation techniques, including the cost approach, discounted cash flows and market multiple analyses. TSYS adjusts the purchase price allocation, as necessary, up to one year after the acquisition closing date as TSYS obtains more information regarding asset valuations and liabilities assumed. Unanticipated events or circumstances may occur which could affect the accuracy of the Company's fair value estimates, including assumptions regarding industry economic factors and business strategies, and may result in an impairment or a new allocation of purchase price.

Goodwill

In accordance with the provisions of U.S. Generally Accepted Accounting Principles (GAAP), goodwill is required to be tested for impairment at least annually.  The Company tests goodwill for impairment during the second quarter or more frequently whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.  Examples of potential triggering events include, but are not limited to, a deterioration in general economic conditions, industry and market considerations such as a deterioration in the environment in which the Company operates, cost factors such as increases in labor or other costs, overall financial performance such as negative or declining cash flows, other relevant entity-specific factors, events affecting a reporting unit or a sustained decrease in share price.

In evaluating goodwill for recoverability, the Company has the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment using discounted net cash flows for future periods estimated by management.  The combination of the income approach, utilizing the discounted cash flow (DCF) method, and the market approach, utilizing readily available market valuation multiples, is used to estimate the fair value of each reporting unit. Under the DCF method, the fair value of the asset reflects the present value of the projected earnings that will be generated by each asset after taking into account the revenues and expenses associated with the asset, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of invested capital. To the extent the carrying amount of goodwill exceeds its fair value, an impairment charge is measured and recognized.  Cash flows are estimated for future periods based on historical data and projections provided by management. If the actual cash flows are not consistent with the Company's estimates, a material impairment charge may result and net income may be materially different than was initially recorded. Note 5 in the Consolidated Financial Statements contains a discussion of goodwill. The net carrying value of goodwill on the Company's Consolidated Balance Sheet as of December 31, 2017 was $3.3 billion.  The Company did not recognize any goodwill impairment charges during the years ended December 31, 2017, 2016 and 2015.

Long-lived Assets other than Goodwill

The Company reviews long-lived assets, such as property and equipment, intangibles subject to amortization, computer software and contract acquisition costs, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Examples of potential triggering events include, but are not limited to, a significant decrease in the market price of a long-lived asset or asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used, a significant adverse change in legal factors or business climate, an accumulation of costs significantly in excess of the originally expected amount, continuing losses associated with the use of a long-lived asset or asset group, or a current expectation that a long-lived asset or asset group will be sold or otherwise disposed of significantly before its previously estimated useful life.

In evaluating long-lived assets other than goodwill for recoverability, expected undiscounted future operating cash flows are estimated by management.  To the extent the carrying amount of a long-lived asset exceeds its fair value, an impairment charge is measured and recognized.  Assumptions and estimates about future cash flows and remaining useful lives are complex and subjective.  They can be affected by a variety of factors, including industry and economic trends, changes in the Company’s business strategy and changes in internal forecasts.  If the actual cash flows are not consistent with the Company’s estimates, a material impairment charge may result and net income may be materially different than was initially recorded.  The Company did not recognize any material impairment charges during the years ended December 31, 2017, 2016 and 2015.

Revenue Recognition

The Company recognizes revenues in accordance with the provisions of GAAP, which sets forth guidance as to when revenue is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been performed; (3) the seller's price to the buyer is fixed or determinable; and (4) collectability is reasonably assured.

The Company evaluates its contractual arrangements that provide services to clients through a bundled sales arrangement in accordance with the provisions of GAAP to address the determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.

A deliverable in multiple element arrangements indicates any performance obligation on the part of the seller and includes any combination of obligations to perform different services, grant licenses or other rights. Revenue is allocated to the separate units of accounting in a multiple element arrangement based on relative fair values, provided the delivered element has standalone value to the customer and delivery of any undelivered items is probable and substantially within the Company's control. Evidence of fair value must be objective and reliable. An item has value to the customer on a standalone basis if it is sold separately by any vendor or the customer could resell the deliverable on a standalone basis.

There were no material changes or impact to revenue recognition during the years ended December 31, 2017, 2016 and 2015 due to any changes in the determination of the number of deliverables in an arrangement, units of accounting, or estimates of selling prices for existing contractual arrangements.

Income Taxes

 In calculating its effective tax rate, the Company makes decisions regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions. The Company has various tax filing positions, including the timing and amount of deductions and credits, the establishment of reserves for audit matters and the allocation of income among various tax jurisdictions.

The Company makes estimates as to the amount of deferred tax assets and liabilities and records valuation allowances to reduce its deferred tax assets to reflect the amount that is more likely than not to be realized. The Company considers projected future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. Actual results may differ from the Company's estimates. If the Company realizes a deferred tax asset or the Company was unable to realize a net deferred tax asset, an adjustment to the deferred tax asset would increase or decrease earnings, respectively, in the period the difference is recognized.

On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act of 2017 (the “Tax Act”).  A key provision of this law that impacted TSYS was the reduction of the Federal corporate income tax rate from 35% to 21%.  This required us to remeasure our U.S. deferred tax assets and liabilities.  Another provision of the Tax Act that impacted TSYS during this

reporting period was the one-time transition tax on the deemed repatriation of foreign accumulated earnings.  Please see Note 13 for more detail concerning the impacts of the Tax Act.

Pursuant to the Tax Act, some amounts related to repatriation of foreign accumulated earnings and related to executive compensation may be considered provisional amounts pursuant to Securities and Exchange Commission (SEC) Staff Accounting Bulletin No. 118.  As such, these amounts may be adjusted during the measurement period ending December 31, 2018.

Off-Balance Sheet Arrangements

Operating Leases

As a method of funding its operations, TSYS employs noncancelable operating leases for computer equipment, software and facilities. These leases allow the Company to use the latest technology while avoiding the risk of ownership. Neither the assets nor obligations related to these leases are included on the balance sheet. Refer to Notes 1 and 14 in the Consolidated Financial Statements for further information on operating lease commitments.

Contractual Obligations   

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

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, refer to Note 1 in the Notes to the 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 customers 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.

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 (such as postage), as well as merchant acquiring interchange and payment network fees charged by the card associations or payment networks 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 and network association fees. The Company’s reimbursable items are impacted with changes in postal rates and changes in the volumes of mailing activities by its clients. Reimbursable items for the year ended December 31, 2017 were $260.2 million, an increase of $0.7 million or 0.3%, compared to $259.5 million for the same period last year. Reimbursable items for the year ended December 31, 2016 decreased $20.7 million, or 7.4%, compared to $280.2 million for the same period in 2015. Interchange and payment network fees related to the TransFirst business were $1.3 billion and $868.7 million for the year ended December 31, 2017 and 2016, respectively. 

TSYS' revenues in its Issuer Solutions segment are influenced by several factors, including volumes related to accounts on file (AOF) and transactions. TSYS estimates that approximately 49.8.% of the segment’s net revenue is AOF and transaction volume driven. The remaining 50.2% of net revenue is not AOF and transaction volume driven, and is derived from production and optional services TSYS considers to be value added products and services, custom programming and licensing arrangements.

TSYS’ revenues in its Merchant Solutions segment are influenced by several factors, including volumes related to transactions, dollar sales volume, value added services, monthly statement fees, compliance fees and miscellaneous services.

TSYS’ revenues in its Netspend segment primarily consist of a portion of the service fees collected from cardholders and interchange revenues received by Netspend’s prepaid card issuing banks in connection with the programs managed by Netspend.

A summary of the consolidated financial highlights is provided below:

Refer to the reconciliation of GAAP to non-GAAP measures later in this section.

Total revenues increased $757.9 million for the year ended December 31, 2017, compared to the year ended December 31, 2016, which increased $1.4 billion compared to the year ended December 31, 2015. The increase in total revenues for the year ended December 31, 2017, as compared to 2016, is primarily the result of the acquisition of TransFirst in April 2016 as well as organic growth.  The impact of the TransFirst acquisition on total revenues was a year-over-year increase of $419.7 million in 2017 and $1.2 billion in 2016. The increases in revenues for 2017 and 2016 include decreases of $15.5 million and $42.5 million, respectively, related to the effects of currency translation of the Company's foreign-based subsidiaries and branches.

Net revenue increased 11.8%, or $358.5 million, for the year ended December 31, 2017, compared to the year ended December 31, 2016, which increased 21.7%, or $542.5 million, compared to the year ended December 31, 2015. The increase in net revenue for the year ended December 31, 2017, as compared to the same period in 2016, is primarily the result of the acquisition of TransFirst in April 2016, as well as organic growth, partially offset by decreases associated with currency translation. The impact of the TransFirst acquisition on net revenue was $132.3 million for the year ended December 31, 2017.  The increase in net revenue for the year ended December 31, 2016, as compared to the same period in 2015, is primarily the result of the acquisition of TransFirst in April 2016, partially offset by decreases associated with currency translation. The impact of the TransFirst acquisition on net revenue was $380.7 million for the year ended December 31, 2016.

Major Customer

The Company works to maintain a large and diverse customer base across various industries. Although the Company does not have a major customer on a consolidated basis, 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 Netspend.

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 capitalized conversion costs or client incentives associated with the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of the contracts are honored through the contracted expiration date.

These services are provided throughout the period of each account's use, starting from a card-issuing client processing an application for a card. Services may include processing the card application, initiating service for the cardholder, processing each card transaction for the issuing retailer or financial institution and accumulating the account's transactions. Fraud management services monitor the unauthorized use of accounts which have been reported to be lost, stolen, or which exceed credit limits. Fraud detection systems help identify fraudulent transactions by monitoring each account holder'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.

Issuer Solutions revenues are generated from charges based on the number of AOF, transactions and authorizations processed, statements mailed, cards embossed and mailed, and other processing services for cardholder AOF. Cardholder AOF includes active and inactive consumer credit, retail, prepaid, stored value, government services and commercial card accounts.  TSYS’ clients also have the option to use fraud and portfolio management services. Collectively, these services are considered volume-based revenues.

Whether or not an account on file is active can impact TSYS' revenues differently. Active accounts are accounts that have had monetary activity either during the current month or in the past 90 days based on contractual definition. Inactive accounts are accounts that have not had a monetary transaction (such as a purchase or payment) in the past 90 days. The more active an account is, the more revenue is generated for TSYS (items such as transactions and authorizations processed and statements billed).

Occasionally, a client will purge inactive accounts from its portfolio. An inactive account typically will only generate an AOF charge. A processing client will periodically review its cardholder portfolio based upon activity and usage. Each client, based upon criteria individually set by the client, will flag an account to be "purged" from TSYS' system and deactivated.

A deconversion involves a client migrating all of its accounts to an in-house solution or another processor. Account deconversions include active and inactive accounts and can impact the Company's revenues significantly more than an account purge.

A sale of a portfolio typically involves a client selling a portion of its accounts to another party. A sale of a portfolio and a deconversion impact the Company's financial statements in a similar fashion, although a sale usually has a smaller financial impact due to the number of accounts typically involved.

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

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 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 in North America 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’s financial results are impacted by foreign currency. 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. This segment had two major customers for the year ended December 31, 2017.

Below is a summary of the Issuer Solutions segment:

For the year ended December 31, 2017, approximately 49.8% of TSYS’ Issuer Solutions segment net revenue was driven by the volume of accounts on file and transactions processed and approximately 50.2% was derived from non-volume based revenues.

Segment net revenues increased $79.5 million for 2017, as compared to 2016. The increase was attributable to an increase in new business and internal growth, partially offset by decreases related to $15.4 million in currency translation, client deconversions and price reductions. Segment net revenues increased $41.5 million for 2016, as compared to 2015. The increase was attributable to an increase in new business and internal growth, partially offset by decreases related to $39.7 million in currency translation, client deconversions, price reductions.

The increases in adjusted segment operating income for 2017 and 2016 were driven primarily by increases in revenues partially offset by increases in total operating expenses including severance costs, technology and other expenses.

Merchant Solutions

The Merchant Solutions segment provides merchant services 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 integrated support services to merchant acquirers and merchants. Revenues from merchant services include processing all payment forms including credit, debit, prepaid, electronic benefit transfer and electronic check for merchants of all sizes across a wide array of market verticals. Merchant services include authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; merchant billing services; and point-of-sale (POS) equipment sales and service. This segment had no major customers for the year ended December 31, 2017.

Below is a summary of the Merchant Solutions segment:

With the acquisition of TransFirst in April 2016, TSYS included nine months for 2016 of TransFirst’s results as part of the Merchant Solutions segment. TransFirst’s revenues are reported gross, which includes amounts paid for interchange and payment network fees, as TransFirst is the principal in the contractual relationship with its customers. Expenses covering interchange and payment network fees are included in TransFirst’s cost of services and are directly attributable to processing fee revenues.  Merchant Solutions net revenue is defined as total revenues less merchant acquiring interchange and payment network fees charged by the card associations or payment networks that are recorded by TSYS as an expense.

The Merchant Solutions segment results are driven by dollar sales volume and the authorization and capture transactions processed at the point-of-sale and clearing and settlement transactions. This segment's authorization and capture transactions are primarily through dial-up or Internet connectivity.

For the year ended December 31, 2017, approximately 93.5% of TSYS’ Merchant Solutions segment 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, risk and collection services performed.

The increase in adjusted segment operating income for 2017, as compared to 2016, was driven primarily by the acquisition of TransFirst in April 2016 as well as operating cost reductions in connection with the integration. The increase in adjusted segment operating income for 2016, as compared to 2015, was driven primarily by the acquisition of TransFirst in April 2016, partially offset by severance costs.

Netspend

Netspend provides GPR prepaid debit and payroll cards, demand deposit accounts and other financial service solutions to the underbanked and other consumers and businesses in the United States.  Netspend’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.  Netspend has an extensive distribution and reload network comprising 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 Netspend develops, promotes and distributes. Netspend currently has active agreements with six issuing banks.

The Netspend 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 had no major customers and one major third-party distributor for the year ended December 31, 2017.

The Netspend segment’s revenues primarily consist of a portion of the service fees collected from cardholders and interchange revenues received by Netspend’s issuing banks and others in connection with the programs managed by this segment. Customers are charged fees for transactions including fees for Personal Identification Number (PIN) and signature-based purchase transactions made using their cards, for Automated Teller Machine (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 Netspend 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.   

Below is a summary of the Netspend segment:

Netspend segment revenues increased $83.3 million for 2017 from 2016. This increase was comprised of $48.6 million increase in service fee revenues and $34.7 million increase in interchange and other revenues. Netspend segment revenues increased $83.2 million for 2016, as compared to 2015. This increase was comprised of $66.6  million increase in service fee revenues and $16.6 million increase in interchange and other revenues.

For the year ended December 31, 2017, 69.5%  of revenues were derived from service fees charged to customers and 30.5% 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 Netspend segment revenues were volume driven as they were driven by the active card and gross dollar volume indicators.

As discussed in Note 25 in the Consolidated Financial Statements, in January 2018, the CFPB announced that it has finalized updates to its 2016 prepaid rule. The CFPB’s 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 to April 2019. The Company will continue to review and interpret the new rule and analyze its expected impact on Netspend’s business.

Operating Expenses

The Company’s operating expenses were $4.2 billion,  $3.6 billion and $2.2 billion in 2017, 2016 and 2015, respectively. 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 customers, including the cost of direct labor expense in

putting the service in saleable condition. Selling, general and administrative expenses are incurred in selling or marketing and for the direction of the enterprise as a whole, including accounting, legal fees, sales, investor relations and mergers and acquisitions.

The changes in operating expenses for the years ended December 31, 2017 and 2016 include decreases of $7.0 million and $26.0 million, respectively, related to the effects of currency translation of the Company's foreign-based subsidiaries. TransFirst had an incremental year-over-year impact on operating expenses of $417.3 million in 2017. Operating expenses for the year ended December 31, 2016 were also impacted by the TransFirst acquisition. Operating expenses increased $1.3 billion due to the acquisition of TransFirst in 2016. Operating expenses in 2017 and 2016 were also impacted by $1.9 million and $21.7 million, respectively, of litigation settlement, settlement discussions and related legal expenses. In 2017, TSYS incurred an expense associated with a special one-time cash bonus of $1,000 to certain employees as a result of the Company’s continued success and to share some of the savings that will result from the Tax Act legislation passed in December 2017.

The Company’s cost of services were $3.6 billion, $3.0 billion and $1.9 billion in 2017, 2016 and 2015, respectively. The increases in cost of services are due to increases in employment, severance, technology and facilities and other costs to support revenue growth and the acquisition of TransFirst. The Company’s selling, general and administrative expenses were $616.6 million, $603.6 million and $390.3 million in 2017, 2016 and 2015, respectively. The increases in selling, general and administrative costs in 2017 and 2016 were due primarily to the acquisition of TransFirst in April 2016 and litigation settlement and settlement discussions. Expenses in 2015 were also impacted by certain one-time state tax benefits of $15.6 million that resulted from prior years but were recognized in 2015. 

The Company’s transaction and integration expenses related to the acquisition of TransFirst in 2016 were $32.3 million for the year ended December 31, 2016. These expenses consist of costs related to the completion of the acquisition such as legal, accounting and professional fees, as well as, personnel costs for severance and retention.

Operating Income

Operating income increased 28.0% for the year ended December 31, 2017, compared to 2016. The Company’s operating profit margin for the year ended December 31, 2017 was 14.9%, compared to 13.8% in 2016. TSYS’ operating margins increased for the year ended December 31, 2017, as compared to 2016, due primarily to a decrease in the amount of acquisition and integration expenses. TSYS’ operating margins decreased for the year ended December 31, 2016, as compared to 2015, due primarily to the increase in acquisition and integration expenses, severance and the operating results and lower operating margin of TransFirst.

Nonoperating Income (Expense)

Nonoperating income (expense) consists of interest income, interest expense, and gains and losses on currency transactions. Nonoperating expense increased in 2017 as compared to 2016, and increased in 2016 as compared to 2015 primarily due to the increase in interest expense.

The following table provides a summary of nonoperating expense:

Interest expense for the year ended December 31, 2017 increased $2.9 million compared to 2016. The increase in interest expense in 2017 compared to 2016 is due to the debt financing of the acquisition of TransFirst in April 2016. Interest expense for the year ended December 31, 2016 increased $74.6 million compared to 2015. The increase in interest expense in 2016 compared to 2015 is due to the debt financing of the acquisition of TransFirst in April 2016. Refer to Notes 11 and 22 in the Consolidated Financial Statements for more information on long-term borrowings and acquisitions.

Income Taxes

Below is a summary of income tax expense:

During 2017, the Company generated income tax credits in excess of its utilization capacity based on both the Company's current operations and with consideration of future tax planning strategies. Based upon these same considerations, the Company reassessed its need for valuation allowances in all jurisdictions. Accordingly, the Company experienced a net increase in its valuation allowance for deferred income tax assets of $8.2 million.

As a result of the Tax Cuts and Jobs Act of 2017, the Company realized a net tax benefit of $135.9 million. This was primarily the result of remeasuring deferred tax assets and deferred tax liabilities.

In 2017, TSYS reassessed its uncertain tax positions for all jurisdictions.  As a result, the Company increased unrecognized tax benefits by $7.3 million.

Refer to Note 13 in the Consolidated Financial Statements for more information on income taxes.

Equity in Income of Equity Investments

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

The increases in equity income in 2017 and 2016 are the result of organic growth in China Union Pay Data Co., Ltd (CUP Data). Refer to Note 10 in the Consolidated Financial Statements for more information on equity investments.

Discontinued Operations

TSYS sold its Japan-based operations during 2014 and recorded income from discontinued operations, net of tax, of $1.4 million for 2015.

Net Income

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

Net income attributable to noncontrolling interests in 2017 decreased by $0.3 million from 2016 and increased $1.3 million in 2016 from 2015. The decrease in 2017 compared to 2016 is the result of TSYS acquiring an additional 10% ownership in Central Payment Co. LLC (CPAY) in 2017 partially offset by an increase in operating results of CPAY. Refer to Note 22 in the

Consolidated Financial Statements for more information. The increase in 2016 compared to 2015 is driven by the increased operating results of CPAY.

Non-GAAP Financial Measures

Management evaluates the Company's operating performance based upon operating margin on a net revenue basis, adjusted EBITDA, consolidated adjusted operating margin, 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.

The following tables provide a reconciliation of GAAP to non-GAAP financial measures: