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Business, consolidation and presentation

We are a leading pure play payments technology company delivering innovative software and services to our customers globally. Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to operate their businesses more efficiently across a variety of channels around the world. We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions, which are described in "Note 11—Segment Information." Global Payments Inc. and its consolidated subsidiaries are referred to herein collectively as "Global Payments," the "Company," "we," "our" or "us," unless the context requires otherwise.

These unaudited consolidated financial statements include our accounts and those of our majority-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated balance sheet as of December 31, 2019 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 but does not include all disclosures required by GAAP for annual financial statements.

In the opinion of our management, all known adjustments necessary for a fair presentation of the results of the interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amount of assets and liabilities. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

COVID-19 Update

In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. The pandemic is causing major disruptions to businesses and markets worldwide as the virus continues to spread. A number of countries as well as many states and cities within the United States have implemented measures in an effort to contain the virus, including physical distancing, travel restrictions, border closures, limitations on public gatherings, work from home and closure of nonessential businesses. The effects of the outbreak are still evolving, and the ultimate severity and duration of the pandemic and the implications on global economic conditions remains uncertain.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. In particular, the magnitude, duration and effects of the COVID-19 pandemic are difficult to predict at this time, and the ultimate effect could result in additional charges related to the recoverability of assets, including financial assets, long-lived assets and goodwill and other losses. These unaudited consolidated financial statements reflect the financial statement effects of COVID-19 based upon management’s estimates and assumptions utilizing the most currently available information.

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Recently adopted accounting pronouncements

Accounting Standards Update ("ASU") 2018-15— In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract (A Consensus of the FASB Emerging Issues Task Force)." ASU 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract. The new guidance amends the definition of a hosting arrangement and requires a customer in a hosting arrangement that is a service contract to capitalize certain implementation costs following the internal-use software capitalization criteria within Accounting Standards Codification ("ASC") Subtopic 350-40.

We adopted ASU 2018-15 on January 1, 2020, applying the guidance prospectively to all implementation costs incurred on or after the date of adoption. The adoption of this standard did not have a material effect on our consolidated financial statements. We have historically capitalized implementation costs associated with cloud computing arrangements that are service contracts following the guidance in Subtopic 350-40 and will continue to do so pursuant to the clarifications provided in the new guidance. We amortize capitalized implementation costs to expense on a straight-line basis over the term of the applicable hosting arrangement.

ASU 2016-13— We adopted ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" on January 1, 2020 using the modified retrospective transition method. The adoption of this standard resulted in a cumulative-effect adjustment to decrease retained earnings by $5.4 million, net of tax. The amendments in this update changed how we measure and recognize credit impairment for certain financial instruments measured at amortized cost. Under the current expected credit losses model required by ASU 2016-13, we recognize at asset inception and each subsequent reporting date an estimate of credit losses expected to occur over the remaining life of each pool of financial assets with similar risk characteristics.

We have exposure to credit losses for financial assets such as accounts receivable, certain settlement processing assets, check guarantee claims receivable assets and advances to sales representatives. We utilize a combination of aging or loss-rate methods to develop an estimate of current expected credit losses, depending on the nature and risk profile of the underlying asset pool. A broad range of information is considered in the estimation process, including historical loss information adjusted for current conditions and expectations of future trends. The estimation process also includes consideration of qualitative and quantitative risk factors associated with the age of asset balances, expected timing of payment, contract terms and conditions, changes in specific customer risk profiles or mix of customers, geographic risk, industry or economic trends and relevant environmental factors.

As of June 30, 2020, the total allowance for credit losses was approximately $39.9 million. Financial assets are presented net of the allowance for credit losses in the consolidated balance sheets. The measurement of the allowance for credit losses is recognized through credit loss expense. Depending on the nature of the underlying asset, credit loss expense is included as a component of cost of service or selling, general and administrative expense in the consolidated statements of income. Write-offs are recorded in the period in which the asset is deemed to be uncollectible. Recoveries are recorded when received as a direct credit to the credit loss expense in the consolidated statements of income. Prior to the adoption of ASU 2016-13, credit losses on these financial instruments were recognized when an occurrence was deemed to be probable.

Recently issued pronouncements not yet adopted

ASU 2019-12—In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in ASC Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted in any interim period. We are evaluating the effect of ASU 2019-12 on our consolidated financial statements. Based upon the analysis performed to date, we do not believe the adoption of ASU 2019-12 will have a material effect on our consolidated financial statements. 

ASU 2020-04—In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships

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entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and are retained through the end of the hedging relationship. The amendments in this update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. If elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant ASC Topic or Industry Subtopic that contains the guidance that otherwise would be required to be applied. The amendments in this update were effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are evaluating the effect of ASU 2020-04 on our consolidated financial statements.

Total System Services, Inc.

On September 18, 2019, we merged with Total System Services, Inc. ("TSYS") (the "Merger"). We accounted for this transaction as a business combination, which generally requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date. The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as of December 31, 2019 and June 30, 2020, including a reconciliation to the total purchase consideration, were as follows:

		Provisional Amounts at December 31, 2019				Measurement-Period Adjustments				Provisional Amounts at June 30, 2020
		(in thousands)
Cash and cash equivalents		$	446,009			$	—			$	446,009
Accounts receivable		442,848				(2,860		)		439,988
Identified intangible assets		10,980,000				978				10,980,978
Property and equipment		644,084				(978		)		643,106
Other assets		1,474,825				(4,120		)		1,470,705
Accounts payable and accrued liabilities		(614,060		)		4,333				(609,727		)
Debt		(3,295,342		)		4,787				(3,290,555		)
Deferred income tax liabilities		(2,687,849		)		63,419				(2,624,430		)
Other liabilities		(314,415		)		—				(314,415		)
Total identifiable net assets		7,076,100				65,559				7,141,659
Goodwill		17,398,853				(65,559		)		17,333,294
Total purchase consideration		$	24,474,953			$	—			$	24,474,953

As of June 30, 2020, we considered these amounts to be provisional because we were still in the process of reviewing information to support the valuations of the assets acquired and liabilities assumed. During the six months ended June 30, 2020, we made measurement-period adjustments, as shown in the table above, that decreased the amount of provisional goodwill by $65.6 million. The decrease in deferred income tax liabilities for the six months ended June 30, 2020 primarily relates to a refined analysis of the outside bases of partnerships. The effects of the measurement-period adjustments on our consolidated statements of income for the three and six months ended June 30, 2020 were not material.

As of June 30, 2020, provisional goodwill arising from the acquisition of $17.3 billion was included in our reportable segments as follows: $7.1 billion in the Merchant Solutions segment, $7.9 billion in the Issuer Solutions segment and $2.3 billion in the Business and Consumer Solutions segment. Goodwill was attributable to expected growth opportunities, an assembled workforce and potential synergies from combining the acquired business into our existing business. We expect that substantially all of the goodwill from this acquisition will not be deductible for income tax purposes.

The following unaudited pro forma information shows the results of our operations for the three and six months ended June 30, 2019 as if the Merger had occurred on January 1, 2018. The unaudited pro forma information is presented for informational purposes

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only and is not necessarily indicative of what would have occurred if the Merger had occurred as of that date. The unaudited pro forma information is also not intended to be a projection of future results due to the integration of TSYS. The unaudited pro forma information reflects the effects of applying our accounting policies and certain pro forma adjustments to the combined historical financial information of Global Payments and TSYS.

	Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
	Actual				Pro Forma				Actual				Pro Forma
	(in thousands)
Total revenues	$	935,152			$	1,963,663			$	1,818,190			$	3,873,433
Net income attributable to Global Payments	$	120,458			$	207,336			$	232,800			$	395,201

For the three and six months ended June 30, 2020, the acquired operations of TSYS contributed $997.0 million and $2,052.0 million, respectively, to our consolidated revenues and $103.8 million and $219.3 million, respectively, to our consolidated operating income.

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The following tables present a disaggregation of our revenue from contracts with customers by geography for each of our reportable segments for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30, 2020
	Merchant Solutions				Issuer Solutions				Business and Consumer Solutions				Intersegment Eliminations				Total
	(in thousands)
Americas	$	862,927			$	363,140			$	216,722			$	(14,728	)		$	1,428,061
Europe	102,460				105,263				—				—				207,723
Asia Pacific	36,168				1,622				—				(1,622		)		36,168
	$	1,001,555			$	470,025			$	216,722			$	(16,350	)		$	1,671,952

	Three Months Ended June 30, 2019
	Merchant Solutions				Issuer Solutions				Business and Consumer Solutions				Intersegment Eliminations				Total
	(in thousands)
Americas	$	715,919			$	—			$	—			$	—			$	715,919
Europe	155,111				5,238				—				—				160,349
Asia Pacific	58,884				—				—				—				58,884
	$	929,914			$	5,238			$	—			$	—			$	935,152

	Six Months Ended June 30, 2020
	Merchant Solutions				Issuer Solutions				Business and Consumer Solutions				Intersegment Eliminations				Total
	(in thousands)
Americas	$	1,887,433			$	756,893			$	420,668			$	(32,461	)		$	3,032,533
Europe	238,459				213,626				—				—				452,085
Asia Pacific	90,932				3,268				—				(3,268		)		90,932
	$	2,216,824			$	973,787			$	420,668			$	(35,729	)		$	3,575,550

	Six Months Ended June 30, 2019
	Merchant Solutions				Issuer Solutions				Business and Consumer Solutions				Intersegment Eliminations				Total
	(in thousands)
Americas	$	1,394,341			$	—			$	—			$	—			$	1,394,341
Europe	292,724				10,494				—				—				303,218
Asia Pacific	120,631				—				—				—				120,631
	$	1,807,696			$	10,494			$	—			$	—			$	1,818,190

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The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended								Six Months Ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
	(in thousands)
Relationship-led	$	566,414			$	502,239			$	1,242,935			$	961,281
Technology-enabled	435,141				427,675				973,889				846,415
	$	1,001,555			$	929,914			$	2,216,824			$	1,807,696

ASC Topic 606, Revenues from Contracts with Customers ("ASC 606") requires that we determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the three and six months ended June 30, 2020 and 2019, substantially all of our revenues were recognized over time.

Supplemental balance sheet information related to contracts from customers as of June 30, 2020 and December 31, 2019 was as follows:

	Balance Sheet Location		June 30, 2020				December 31, 2019
			(in thousands)
Assets:
Capitalized costs to obtain customer contracts, net	Other noncurrent assets		$	236,539			$	226,945
Capitalized costs to fulfill customer contracts, net	Other noncurrent assets		$	62,532			$	38,150
Liabilities:
Contract liabilities, net (current)	Accounts payable and accrued liabilities		$	194,743			$	193,405
Contract liabilities, net (noncurrent)	Other noncurrent liabilities		$	42,413			$	35,272

Net contract assets were not material at June 30, 2020 or at December 31, 2019. Revenues recognized for the three months ended June 30, 2020 and 2019 from contract liability balances at the beginning of each period was $86.7 million and $52.0 million. Revenue recognized for the six months ended June 30, 2020 and 2019 from contract liability balances at the beginning of each period was $159.9 million and $97.1 million.

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. 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 our existing contracts. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at June 30, 2020. However, as permitted, we have elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. Accordingly, the total unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amounts disclosed in the table below (in thousands):

Year ending December 31,
Remainder of 2020	$	470,328
2021	827,955
2022	622,653
2023	415,228
2024	262,735
2025-2029	623,428
Total	$	3,222,327

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As of June 30, 2020 and December 31, 2019, goodwill and other intangible assets consisted of the following:  

	June 30, 2020				December 31, 2019
	(in thousands)
Goodwill	$	23,679,923			$	23,759,740
Other intangible assets:
Customer-related intangible assets	$	9,204,915			$	9,238,728
Acquired technologies	2,763,538				2,732,218
Contract-based intangible assets	1,972,143				1,974,429
Trademarks and trade names	1,237,691				1,239,471
	15,178,287				15,184,846
Less accumulated amortization:
Customer-related intangible assets	1,552,272				1,225,785
Acquired technologies	775,610				576,928
Contract-based intangible assets	98,826				82,225
Trademarks and trade names	212,958				145,253
	2,639,666				2,030,191
	$	12,538,621			$	13,154,655

The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the six months ended June 30, 2020:

	Merchant Solutions				Issuer Solutions				Business and Consumer Solutions				Total
	(in thousands)
Balance at December 31, 2019	$	13,415,352			$	7,985,731			$	2,358,657			$	23,759,740
Goodwill acquired	23,000				—				—				23,000
Effect of foreign currency translation	(24,873		)		(12,385		)		—				(37,258		)
Measurement-period adjustments	(6,648		)		(61,352		)		2,441				(65,559		)
Balance at June 30, 2020	$	13,406,831			$	7,911,994			$	2,361,098			$	23,679,923

There were no accumulated impairment losses for goodwill as of June 30, 2020 or December 31, 2019.

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As of June 30, 2020 and December 31, 2019, long-term debt consisted of the following:

	June 30, 2020				December 31, 2019
	(in thousands)
3.800% senior notes due April 1, 2021	$	756,597			$	760,996
3.750% senior notes due June 1, 2023	564,794				567,330
4.000% senior notes due June 1, 2023	569,226				572,522
2.650% senior notes due February 15, 2025	992,266				991,423
4.800% senior notes due April 1, 2026	814,974				820,623
4.450% senior notes due June 1, 2028	484,785				486,982
3.200% senior notes due August 15, 2029	1,235,634				1,234,843
2.900% senior notes due May 15, 2030	988,408				—
4.150% senior notes due August 15, 2049	739,610				739,431
Unsecured term loan facility	1,983,767				1,981,758
Unsecured revolving credit facility	—				903,000
Finance lease liabilities	47,140				32,996
Other borrowings	96,400				33,597
Total long-term debt	9,273,601				9,125,501
Less current portion	833,334				35,137
Long-term debt, excluding current portion	$	8,440,267			$	9,090,364

The carrying amounts of our senior notes and term loans in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At June 30, 2020, unamortized discount on senior notes was $8.9 million, and unamortized debt issuance costs on senior notes and the unsecured term loan facility were $51.4 million. Unamortized debt issuance costs on our senior notes and unsecured term loans at December 31, 2019 were $46.6 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At June 30, 2020, unamortized debt issuance costs on the unsecured revolving credit facility were $15.3 million, and, at December 31, 2019, unamortized debt issuance costs on the unsecured revolving credit facility were $17.6 million. The amortization of debt discounts and debt issuance costs is recognized as an increase to interest expense over the terms of the respective debt instruments. Amortization of discounts and debt issuance costs for the three and six months ended June 30, 2020 was $3.0 million and $5.9 million, respectively. Amortization of discounts and debt issuance costs for the three and six months ended June 30, 2019 was $3.1 million and $6.1 million, respectively.

At June 30, 2020, maturities of long-term debt (excluding finance lease liabilities) were as follows by year (in thousands):

Year ending December 31,
Remainder of 2020	$	36,227
2021	801,771
2022	58,403
2023	1,300,000
2024	1,750,000
2025	1,000,000
2026 and thereafter	4,200,000
Total	$	9,146,401

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Senior Unsecured Notes

 

We have $7.1 billion in aggregate principal amount of senior unsecured notes, as presented in the table above. Interest on the senior notes is payable semi-annually upon various dates. Each series of the senior notes is redeemable, at our option, in whole or in part, at any time and from time-to-time at the redemption prices set forth in the related indenture. The difference between the acquisition fair value and face value of senior notes assumed in the Merger is recognized over the terms of the respective notes as a reduction of interest expense. The amortization of this fair value adjustment was $9.0 million and $18.1 million, respectively, for the three and six months ended June 30, 2020.

On May 15, 2020, we issued $1.0 billion aggregate principal amount of 2.900% senior unsecured notes due May 2030 and received proceeds of $996.7 million, net of discounts. We incurred debt issuance costs of approximately $8.4 million, including underwriting fees, fees for professional services and registration fees, all of which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at June 30, 2020. Interest on the notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 2020. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. We used the net proceeds from the offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes.

As of June 30, 2020, our senior notes had a total carrying amount of $7.1 billion and an estimated fair value of $7.7 billion. The estimated fair value of our senior notes was based on quoted market prices in an active market and is considered to be a Level 1 measurement of the valuation hierarchy. The fair value of other long-term debt approximated its carrying amount at June 30, 2020.

Senior Unsecured Credit Facilities

We have a term loan credit agreement ("Term Loan Credit Agreement") and a revolving credit agreement ("Unsecured Revolving Credit Agreement") in each case with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents. The Term Loan Credit Agreement provides for a senior unsecured $2 billion term loan facility, and the Unsecured Revolving Credit Agreement provides for a senior unsecured $3 billion revolving credit facility.

Borrowings under the term loan facility were made in U.S. dollars and borrowings under the revolving credit facility are available to be made in U.S. dollars, euros, sterling, Canadian dollars and, subject to certain conditions, certain other currencies at our option. Borrowings in U.S. dollars and certain other LIBOR quoted currencies will bear interest, at our option, at a rate equal to either (1) the rate (adjusted for any statutory reserve requirements for eurocurrency liabilities) for eurodollar deposits in the London interbank market, (2) a floating rate of interest set forth on the applicable LIBOR screen page designated by Bank of America, N.A. or (3) the highest of (a) the federal funds effective rate plus 0.5%, (b) the rate of interest as publicly announced by Bank of America as its "prime rate" or (c) LIBOR plus 1.0%, in each case, plus an applicable margin. 

As of June 30, 2020, the interest rate on the term loan facility was 1.55%. In addition, we are required to pay a quarterly commitment fee with respect to the unused portion of the revolving credit facility at an applicable rate per annum ranging from 0.125% to 0.300% depending on our credit rating. Beginning on December 31, 2022, and at the end of each quarter thereafter, the term loan facility must be repaid in quarterly installments in the amount of 2.50% of original principal through the maturity date with the remaining principal balance due upon maturity in September 2024. The revolving credit facility also matures in September 2024.

We may issue standby letters of credit of up to $250 million in the aggregate under the revolving credit facility. Outstanding letters of credit under the revolving credit facility reduce the amount of borrowings available to us. The amounts available to borrow under the revolving credit facility are also determined by our financial leverage covenant. As of June 30, 2020, the total available commitments under the revolving credit facility were $2.3 billion and there were no outstanding borrowings.

Compliance with Covenants

The senior unsecured term loan and revolving credit facility contain customary conditions to funding, affirmative covenants, negative covenants, financial covenants and events of default. As of June 30, 2020, financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00. We were in compliance with all applicable

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covenants as of June 30, 2020.

Settlement Lines of Credit

In various markets where we do business, we have specialized lines of credit, which are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. For certain of our lines of credit, the available credit is increased by the amount of cash we have on deposit in specific accounts with the lender. Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit. As of June 30, 2020 and December 31, 2019, a total of $62.1 million and $74.5 million, respectively, of cash on deposit was used to determine the available credit. 

As of June 30, 2020 and December 31, 2019, we had $439.5 million and $463.2 million, respectively, outstanding under these lines of credit with additional capacity to fund settlement of $1,124.6 million as of June 30, 2020. During the six months ended June 30, 2020, the maximum and average outstanding balances under these lines of credit were $508.5 million and $282.9 million, respectively. The weighted-average interest rate on these borrowings was 2.11% and 3.16% at June 30, 2020 and December 31, 2019, respectively.

Derivative Agreements

We have interest rate swap agreements with financial institutions to hedge changes in cash flows attributable to interest rate risk on a portion of our variable-rate debt instruments. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since we have designated the interest rate swap agreements as portfolio cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recorded as components of other comprehensive income (loss). The fair values of our interest rate swaps were determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. These derivative instruments were classified within Level 2 of the valuation hierarchy.

The table below presents information about our derivative financial instruments, designated as cash flow hedges, included in the consolidated balance sheets:

								Fair Values
Derivative Financial Instruments		Balance Sheet Location		Weighted-Average Fixed Rate of Interest at June 30, 2020		Range of Maturity Dates at June 30, 2020		June 30, 2020				December 31, 2019
								(in thousands)
Interest rate swaps (Notional of $250 million at December 31, 2019)		Prepaid expenses and other current assets		NA		NA		$	—			$	472
Interest rate swaps (Notional of $550 million at June 30, 2020)		Accounts payable and accrued liabilities		1.65%		July 31, 2020 - March 31, 2021		$	4,244			$	—
Interest rate swaps (Notional of $1.25 billion at June 30, 2020 and $1.55 billion at December 31, 2019)		Other noncurrent liabilities		2.73%		December 31, 2022		$	82,479			$	45,604

NA = not applicable.

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The table below presents the effects of our interest rate swaps on the consolidated statements of income and comprehensive income for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended								Six Months Ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
	(in thousands)
Net unrealized losses recognized in other comprehensive income (loss)	$	(5,630	)		$	(42,222	)		$	(53,526	)		$	(56,731	)
Net unrealized losses (gains) reclassified out of other comprehensive income (loss) to interest expense	$	9,982			$	(893	)		$	14,653			$	(2,723	)

As of June 30, 2020, the amount of net unrealized losses in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was $42.4 million.

Interest Expense

Interest expense was $81.1 million and $65.5 million for the three months ended June 30, 2020 and 2019, respectively, and $162.2 million and $123.9 million for the six months ended June 30, 2020 and 2019, respectively.

Our effective income tax rates for the three and six months ended June 30, 2020 were 3.0% and 9.0%, respectively. Our effective income tax rate for the three and six months ended June 30, 2020 differed from the U.S. statutory rate primarily as a result of tax credits, excess tax benefits of share-based awards that are recognized upon vesting or settlement and the foreign-derived intangible income deduction. Our effective income tax rates for the three and six months ended June 30, 2019 were 19.9% and 18.4%, respectively.

We conduct business globally and file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities around the world, including, without limitation, the United States and the United Kingdom. We are no longer subject to state income tax examinations for years ended on or before May 31, 2007, U.S. federal income tax examinations for years ended on or before May 31, 2016 and U.K. federal income tax examinations for years ended on or before May 31, 2016.

We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs. During the three months ended June 30, 2020, there were no repurchases. During the three months ended June 30, 2019, we repurchased and retired 513,116 shares of our common stock at a cost, including commissions, of $72.0 million, or $140.32 per share. During the six months ended June 30, 2020 and 2019, we repurchased and retired 2,094,731 and 1,808,398 shares of our common stock at a cost, including commissions, of $404.0 million and $230.0 million, or $192.85 per share and $127.18 per share, respectively.

On February 26, 2020, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $1 billion. As of June 30, 2020, the amount that may yet be purchased under our share repurchase program was $880.0 million.

On July 29, 2020, our board of directors declared a dividend of $0.195 per share payable on September 24, 2020 to common shareholders of record as of September 10, 2020.

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The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options:

	Three Months Ended								Six Months Ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
	(in thousands)
Share-based compensation expense	$	34,983			$	16,496			$	62,805			$	27,914
Income tax benefit	$	7,742			$	3,728			$	14,215			$	6,237

 

Share-Based Awards

The following table summarizes the changes in unvested restricted stock and performance awards for the six months ended June 30, 2020:

	Shares			Weighted-Average Grant-Date Fair Value
	(in thousands)
Unvested at December 31, 2019	1,844				$149.96
Granted	572			192.40
Vested	(638	)		119.07
Forfeited	(38	)		168.98
Unvested at June 30, 2020	1,740				$174.85

The total fair value of restricted stock and performance awards vested during the six months ended June 30, 2020 and June 30, 2019 was $76.0 million and $24.6 million, respectively.

For restricted stock and performance awards, we recognized compensation expense of $30.8 million and $14.8 million during the three months ended June 30, 2020 and 2019, respectively, and $56.0 million and $24.9 million during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, there were $184.2 million of unrecognized compensation expense related to unvested restricted stock and performance awards that we expect to recognize over a weighted-average period of 2.3 years.

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Stock Options

The following table summarizes stock option activity for the six months ended June 30, 2020: 

	Options			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)							(years)		(in millions)
Outstanding at December 31, 2019	1,755				$74.06			6.5		$190.3
Granted	125			200.42
Forfeited	(2	)		113.48
Exercised	(484	)		61.77
Outstanding at June 30, 2020	1,394				$89.60			6.6		$115.3
Options vested and exercisable at June 30, 2020	996				$68.52			5.7		$100.7

We recognized compensation expense for stock options of $2.2 million and $0.9 million during the three months ended June 30, 2020 and 2019, respectively, and $4.1 million and $1.6 million for the six months ended June 30, 2020 and 2019, respectively. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2020 and 2019 was $66.5 million and $18.9 million, respectively. As of June 30, 2020, we had $12.6 million of unrecognized compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of 2.0 years.

The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2020 and 2019 was $54.85 and $39.60, respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

	Six Months Ended
	June 30, 2020		June 30, 2019
Risk-free interest rate	1.24%		2.49%
Expected volatility	30%		30%
Dividend yield	0.39%		0.04%
Expected term (years)	5		5

The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Our assumption on expected volatility was based on our historical volatility. The dividend yield assumption was determined using our average stock price over the preceding year and the annualized amount of our most current quarterly dividend per share. We based our assumptions on the expected term of the options on our analysis of the historical exercise patterns of the options and our assumption on the future exercise pattern of options.

Basic earnings per share ("EPS") was computed by dividing net income attributable to Global Payments by the weighted-average number of shares outstanding during the period. Earnings available to common shareholders was the same as reported net income attributable to Global Payments for all periods presented.

Diluted EPS is computed by dividing net income attributable to Global Payments by the weighted-average number of shares outstanding during the period, including the effect of share-based awards that would have a dilutive effect on EPS. All stock options with an exercise price lower than the average market share price of our common stock for the period are assumed to have a dilutive effect on EPS. The dilutive share base for the three and six months ended June 30, 2020 excluded approximately

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124,888 shares, related to stock options that would have an antidilutive effect on the computation of diluted earnings per share. There were no such shares for the three and six months ended June 30, 2019.

The following table sets forth the computation of diluted weighted-average number of shares outstanding for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended						Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	(in thousands)
Basic weighted-average number of shares outstanding	299,140			156,768			299,264			157,141
Plus: Dilutive effect of stock options and other share-based awards	1,106			494			1,277			497
Diluted weighted-average number of shares outstanding	300,246			157,262			300,541			157,638

The changes in the accumulated balances for each component of other comprehensive income (loss) were as follows for the three and six months ended June 30, 2020 and 2019:

	Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Hedging Activities				Other				Accumulated Other Comprehensive Loss
	(in thousands)
Balance at March 31, 2020	$	(438,350	)		$	(102,198	)		$	768			$	(539,780	)
Other comprehensive income	77,217				3,295				122				80,634
Balance at June 30, 2020	$	(361,133	)		$	(98,903	)		$	890			$	(459,146	)
Balance at March 31, 2019	$	(294,467	)		$	(14,725	)		$	(3,416	)		$	(312,608	)
Other comprehensive income (loss)	5,273				(32,588		)		17				(27,298		)
Balance at June 30, 2019	$	(289,194	)		$	(47,313	)		$	(3,399	)		$	(339,906	)

Other comprehensive income attributable to noncontrolling interests, which relates only to foreign currency translation, was $5.4 million and $3.9 million for the three months ended June 30, 2020 and 2019, respectively.

	Foreign Currency Translation Gains (Losses)				Unrealized Gains (Losses) on Hedging Activities				Other				Accumulated Other Comprehensive Loss
	(in thousands)
Balance at December 31, 2019	$	(241,899	)		$	(69,319	)		$	647			$	(310,571	)
Other comprehensive (loss) income	(119,234		)		(29,584		)		243				(148,575		)
Balance at June 30, 2020	$	(361,133	)		$	(98,903	)		$	890			$	(459,146	)
Balance at December 31, 2018	$	(304,274	)		$	(2,374	)		$	(3,527	)		$	(310,175	)
Other comprehensive income (loss)	15,080				(44,939		)		128				(29,731		)
Balance at June 30, 2019	$	(289,194	)		$	(47,313	)		$	(3,399	)		$	(339,906	)

Other comprehensive loss attributable to noncontrolling interests, which relates only to foreign currency translation, was $1.3 million and $0.6 million for the six months ended June 30, 2020 and 2019, respectively.

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We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions. We evaluate performance and allocate resources based on the operating income of each operating segment. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Corporate. Interest and other income, interest and other expense, income tax expense and equity in income of equity method investments, net of tax, are not allocated to the individual segments. We do not evaluate the performance of or allocate resources to our operating segments using asset data. The accounting policies of the reportable operating segments are the same as those described in our Annual Report on Form 10-K for the year ended December 31, 2019 and our summary of significant accounting policies in "Note 1 - Basis of Presentation and Summary of Significant Accounting Policies."

In connection with an organizational realignment implemented during the fourth quarter of 2019, the presentation of segment information for the three and six months ended June 30, 2019 has been recast to align with the current segment presentation. Information on segments and reconciliations to consolidated revenues, consolidated operating income and consolidated depreciation and amortization was as follows for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended								Six Months Ended
	June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
	(in thousands)
Revenues(1):
Merchant Solutions	$	1,001,555			$	929,914			$	2,216,824			$	1,807,696
Issuer Solutions	470,025				5,238				973,787				10,494
Business and Consumer Solutions	216,722				—				420,668				—
Intersegment eliminations	(16,350		)		—				(35,729		)		—
Consolidated revenues	$	1,671,952			$	935,152			$	3,575,550			$	1,818,190
Operating income (loss)(1)(2):
Merchant Solutions	$	175,078			$	283,411			$	479,231			$	521,540
Issuer Solutions	58,027				3,596				117,331				7,035
Business and Consumer Solutions	48,195				—				79,307				—
Corporate	(173,726		)		(65,281		)		(324,316		)		(107,357		)
Consolidated operating income	$	107,574			$	221,726			$	351,553			$	421,218
Depreciation and amortization(1):
Merchant Solutions	$	236,840			$	143,914			$	469,862			$	291,299
Issuer Solutions	136,254				164				272,991				346
Business and Consumer Solutions	24,114				—				47,755				—
Corporate	5,467				1,045				9,885				2,108
Consolidated depreciation and amortization	$	402,675			$	145,123			$	800,493			$	293,753

⁽¹⁾ Revenues, operating income and depreciation and amortization reflect the effects of acquired businesses from the respective acquisition dates. For further discussion of our acquisitions, see "Note 2—Acquisitions."

⁽²⁾ During the three months ended June 30, 2020 and 2019, operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $4.4 million and $3.7 million, respectively. Operating loss for Corporate included acquisition and integration expenses of $80.7 million and $10.5 million during the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, operating income for our Merchant

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Solutions segment reflected the effect of acquisition and integration expenses of $6.6 million and $8.4 million, respectively. Operating loss for Corporate included acquisition and integration expense of $150.4 million and $11.1 million during the six months ended June 30, 2020 and 2019, respectively.

Purchase Obligations

During the six months ended June 30, 2020, our purchase obligations increased as a result of our entry into an arrangement to acquire software and related services for $293.8 million. We financed $97.6 million of this amount utilizing a two-year vendor financing arrangement. As of June 30, 2020, the estimated remaining purchase commitments that are due for this purchase were $29.7 million during the remainder of 2020, $64.9 million during 2021, $66.9 million during 2022 and $16.8 million during 2023.

Legal Matters

On September 23, 2019, a jury in the Superior Court of Dekalb County, Georgia, awarded Frontline Processing Corp. ("Frontline") $135.2 million in damages, costs and attorney's fees (plus interest) following a trial of a breach of contract dispute between Frontline and Global Payments, wherein Frontline alleged that Global Payments violated provisions of the parties' Referral Agreement and Master Services Agreement. The Superior Court entered a final judgment on the verdict in favor of Frontline on September 30, 2019. We believe the jury verdict is in error and Frontline’s case is completely without merit, and we are appealing the decision to the Georgia Court of Appeals. While it is reasonably possible that we will incur some loss between zero and the judgment amount plus interest, we have determined that it is not probable that Global Payments has incurred a loss under the applicable accounting standard (Accounting Standards Codification Topic 450, Contingencies) as of June 30, 2020. As a result, we have not recorded a liability on the consolidated balance sheet with respect to this litigation.

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Consolidated revenues for the three and six months ended June 30, 2020 increased to $1,672.0 million and $3,575.6 million, respectively, compared to $935.2 million and $1,818.2 million for the prior-year periods due to additional revenues from the acquired operations of TSYS of $997.0 million and $2,052.0 million, respectively, partially offset by the unfavorable effects of COVID-19 on our revenues.

•	Consolidated operating income for the three and six months ended June 30, 2020 was $107.6 million and $351.6 million, respectively, compared to $221.7 million and $421.2 million for the prior-year periods. Operating margin for the three and

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Net income attributable to Global Payments for the three and six months ended June 30, 2020 was $37.3 million and $180.9 million, respectively, compared to $120.5 million and $232.8 million for the prior-year periods. The additional income from the acquired operations of TSYS was more than offset by increases in acquisition and integration expenses and interest expense, and the unfavorable effects of COVID-19 on our revenues.

•	Diluted earnings per share for the three and six months ended June 30, 2020 was $0.12 and $0.60, compared to $0.77 and $1.48 for the prior-year periods, primarily reflecting the unfavorable effects of COVID-19 on our net income, as well as an increase in the number of weighted-average number of shares outstanding as a result of issuing common shares as purchase consideration in the Merger.

•	On May 15, 2020, we issued $1.0 billion aggregate principal amount of 2.900% senior unsecured notes due May 2030. We used the net proceeds from this offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes. As of June 30, 2020, there were no outstanding borrowings under the revolving credit facility.

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•	Third-party disruptions, including potential outages at network providers, call centers and other suppliers;

•	Increased cyber and payment fraud risk related to COVID-19, as cybercriminals attempt to profit from the disruption, given increased online banking, e-commerce and other online activity; and

•	Challenges to the availability and reliability of our solutions and services due to changes to operations, including the possibility of one or more clusters of COVID-19 cases occurring at our facilities, affecting our employees or affecting the systems or employees of our clients or other third parties on which we depend.

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(1)

Our board of directors has authorized us to repurchase shares of our common stock through any combination of Rule 10b5-1 open-market repurchase plans, accelerated share repurchase plans, discretionary open-market purchases or privately negotiated transactions. During the quarter ended June 30, 2020, pursuant to our employee incentive plans, we withheld 22,755 shares, at an average price per share of $172.87 in order to satisfy employees' tax withholding and payment obligations in connection with the vesting of awards of restricted stock.

(2)

On February 26, 2020, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $1.0 billion. As of June 30, 2020, the amount that may yet be purchased under our share repurchase program was $880.0 million. The board authorization does not expire, but could be revoked at any time. In addition, we are not required by the board’s authorization or otherwise to complete any repurchases by any specific time or at all.

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