In addition, we and our sponsor financial institutions are subject to the laws and regulations enforced by the Office of Foreign Assets Control, ("OFAC"), which prohibit U.S. persons from engaging in transactions with certain prohibited persons or entities. Similar requirements apply in other countries. Our failureFurthermore, certain of our businesses are regulated as money transmitters or otherwise require licensing in one or more states or jurisdictions, subjecting us to complyvarious licensing, supervisory and other requirements.
Changes to legal rules and regulations, or interpretation or enforcement thereof, even if not directed at us, may require significant efforts to change our systems and services and may require changes to how we price our services to customers, adversely affecting our business. Even an inadvertent failure to comply with laws and regulations, as well as rapidly evolving social expectations of corporate fairness, could damage our business or our reputation. Furthermore, we are subject to tax laws in each jurisdiction where we conduct business. Changes in such lawsAs varying or their interpretations could decrease the value of revenues we receive, the value of tax losses and tax credit carry forwards recorded on our balance sheet and have a material adverse effect on our operating results, financial condition and cash flows.
New or revised tax regulations, unfavorable resolution of tax contingencies or changes to enacted tax rates could adversely affect our tax expense.
Changes in tax laws or their interpretations could result in changes to enacted tax rates and may require complex computations to be performed that were not previously required, significant judgments to be made in interpretation of the new or revised tax regulations and significant estimates in calculations, as well as the preparation and analysis of information not previously relevant or regularly produced. Future changes in enacted tax rates could negatively affect our results of operations.
Our tax returns and positions are subject to review and audit by federal, state, local and international taxing authorities. An unfavorable outcome to a tax audit could result in higher tax expense, thereby negatively affecting our results of operations and cash flows. We have recognized estimated liabilities on the balance sheet for material known tax exposures relating to deductions, transactions and other matters involving some uncertainty as to the proper tax treatment of the item. These liabilities reflect what we believe to be reasonable assumptions as to the likely final resolution of each issue if raised by a taxing authority. While we believe that the liabilities are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be finally resolved at a financial amount nonot significantly more than any related liability. An unfavorable resolution, therefore, could negatively affect our financial position, results of operations and cash flows inliability on the current and/or future periods.balance sheet.
Our risk management policies and procedures may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk.
We operate in a rapidly changing industry. Accordingly, our risk management policies and procedures may not be fully effective to identify, monitor and manage our risks. If our policies and procedures are not fully effective or if we are not always successful in identifying and mitigating all risks to which we are or may bebecome exposed, we may suffer uninsured liability, harm to our reputation or be subject to litigation or regulatory actions that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.business.
Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal control over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.reporting. Furthermore, this assessment may be complicated by any acquisitions we have completed or may complete.
We are party to a number of claims and lawsuits incidental to our business. In our opinion, the liabilities, if any, whichthat may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on our financial position, liquidity, results of operations or cash flows.
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the New York Stock Exchange under the ticker symbol "GPN." The following table provides the intraday high and low prices of our common stock and dividends paid per share for each of the quarters during the year ended December 31, 2017, the 2016 fiscal transition period and the year ended May 31, 2016. We expect to continue to pay our shareholders a dividend, on a quarterly basis, in an amount comparable to the dividends indicated in the table. However, any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements, compliance with debt covenants and such other factors as the board of directors deems relevant. Further, our Credit Facility may prohibit us from paying quarterly dividends in excess of $0.01 per share.
The information regarding our compensation plans under which equity securities are authorized for issuance is set forth in "Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" of this Annual Report.
The following graph compares our cumulative shareholder returns with the Standard & Poor's Information Technology("S&P") 500 Index and the Standard & Poor'sS&P 500 Financials Index for the yearyears ended December 31, 2017, the 2016 fiscal transition period,2023, 2022, 2021, 2020, and the years ended May 31, 2016, 2015, 2014 and 2013.2019. The line graph assumes the investment of $100 in our common stock, the Standard & Poor'sS&P 500 Index and the Standard & Poor's Information TechnologyS&P 500 Financials Index on MayDecember 31, 20122018 and assumes reinvestment of all dividends.
|
| | | | | | | | | | | | |
| | Global Payments | | S&P 500 Index | | S&P Information Technology Index |
May 31, 2012 | | $ | 100.00 |
| | $ | 100.00 |
| | $ | 100.00 |
|
May 31, 2013 | | 113.10 |
| | 127.28 |
| | 115.12 |
|
May 31, 2014 | | 161.90 |
| | 153.30 |
| | 142.63 |
|
May 31, 2015 | | 246.72 |
| | 171.40 |
| | 169.46 |
|
May 31, 2016 | | 367.50 |
| | 174.34 |
| | 174.75 |
|
December 31, 2016 | | 328.42 |
| | 188.47 |
| | 194.08 |
|
December 31, 2017 | | 474.52 |
| | 229.61 |
| | 269.45 |
|
Issuer Purchases of Equity Securities
Information about the shares of our common stock that we repurchased during the quarter ended December 31, 2023 is set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased (1) | | Approximate Average Price Paid per Share, excluding commission | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2) |
| | | | | | | |
| | | | | | | (in millions) |
| | | | | | | |
October 1-31, 2023 | 6,215 | | | $ | 115.44 | | | — | | | $ | — | |
November 1-30, 2023 | 2,652 | | | 110.31 | | | — | | | — | |
December 1-31, 2023 | 4,389 | | | 117.92 | | | — | | | — | |
Total | 13,256 | | | $ | 109.38 | | | — | | | $ | 1,090.2 | |
(1)Our board of directors has authorized us to repurchase shares of our common stock through any combination of Rule 10b5-1 open marketopen-market repurchase plans, accelerated share repurchase plans, discretionary open-market purchases or privately negotiated transactions.
During the quarter ended December 31, 2023, pursuant to our employee incentive plans, we withheld 13,256 shares at an average price per share of $115.24 in order to satisfy employees' tax withholding and payment obligations in connection with the vesting of awards of restricted stock.
(2)As of December 31, 2017,2023, the approximate dollar value of shares that may yet be purchased under our share repurchase program was $264.9 million remaining$1,090.2 million. On January 25, 2024, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available under the board's authorization announced on January 5, 2017. On February 6, 2018, the board increased its authorization to repurchase shares of our common stock to $600 million.$2.0 billion. The authorizations by theour board of directors do not expire, but could be revoked at any time. In addition, we are not required by any of the board'sour board of directors' authorizations or otherwise to complete any repurchases by any specific time or at all.
We repurchased and retired 376,309 shares of our common stock at a cost of $34.8 million including commissions, or an average price of $92.51 per share, during the year ended December 31, 2017, as previously authorized; however, we did not repurchase any shares of our common stock during the quarter ended December 31, 2017.
During the quarter ended December 31, 2017, pursuant to our employee incentive plans, we withheld 81,889 shares at an average price of $96.82 in order to satisfy employees' tax withholding and payment obligations in connection with the vesting of awards of restricted stock, which we withheld at fair market value on the vesting date.
ITEM 6 - SELECTED FINANCIAL DATA[RESERVED]
You should read the selected financial data set forth below in conjunction with (i) "Item 7 ‑ Management's Discussion and Analysis of Financial Condition and Results of Operations," (ii) "Item 8 ‑ Financial Statements and Supplementary Data" and (iii) the historical consolidated financial statements of Global Payments and the related notes presented in this Annual Report on Form 10-K. The income statement data for the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015 and the balance sheet data as of December 31, 2017 and 2016 are derived from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The income statement data for the year ended May 31, 2014 and the balance sheet data as of May 31, 2016 and 2015 were derived from consolidated financial statements included in our Transition Report on Form 10-K for the fiscal transition period ended December 31, 2016. The income statement data for the year ended May 31, 2013 and the balance sheet data as of May 31, 2014 were derived from audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended May 31, 2015. The balance sheet data as of May 31, 2013 were derived from the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended May 31, 2014.
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| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 | | 2014 | | 2013 |
| | | | | | | | | | | |
| (in thousands, except per share data) |
Income statement data: | | | | | | | | | | | |
Revenues | $ | 3,975,163 |
| | $ | 2,202,896 |
| | $ | 2,898,150 |
| | $ | 2,773,718 |
| | $ | 2,554,236 |
| | $ | 2,375,923 |
|
Operating income | 558,868 |
| | 237,951 |
| | 424,944 |
| | 456,597 |
| | 405,499 |
| | 357,213 |
|
Net income | 494,070 |
| | 137,683 |
| | 290,217 |
| | 309,115 |
| | 269,952 |
| | 238,713 |
|
Net income attributable to Global Payments | 468,425 |
| | 124,931 |
| | 271,666 |
| | 278,040 |
| | 245,286 |
| | 216,125 |
|
| | | | | | | | | | | |
Per share data: | | | | | | | | | | | |
Basic earnings per share | $ | 3.03 |
| | $ | 0.81 |
| | $ | 2.05 |
| | $ | 2.07 |
| | $ | 1.70 |
| | $ | 1.39 |
|
Diluted earnings per share | 3.01 |
| | 0.81 |
| | 2.04 |
| | 2.06 |
| | 1.69 |
| | 1.38 |
|
Dividends per share | 0.04 |
| | 0.02 |
| | 0.04 |
| | 0.04 |
| | 0.04 |
| | 0.04 |
|
| | | | | | | | | | | |
Balance sheet data (at period end): | | | | | | | | | | |
Total assets | $ | 12,998,069 |
| | $ | 10,664,350 |
| | $ | 10,509,952 |
| | $ | 5,779,301 |
| | $ | 4,002,527 |
| | $ | 3,114,025 |
|
Settlement lines of credit | 635,166 |
| | 392,072 |
| | 378,436 |
| | 592,629 |
| | 440,128 |
| | 187,461 |
|
Long-term debt | 4,659,716 |
| | 4,438,612 |
| | 4,515,286 |
| | 1,740,067 |
| | 1,390,507 |
| | 960,749 |
|
Total equity | 3,965,231 |
| | 2,779,342 |
| | 2,877,404 |
| | 863,553 |
| | 1,132,799 |
| | 1,286,607 |
|
The selected financial data in the table above reflect the effects of acquisitions and borrowings to fund certain of those acquisitions. See "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of our acquisitions.
Operating income, net income, net income attributable to Global Payments and basic and diluted earnings per share in the table above reflect:
(a) acquisition and integration expenses were $94.6 million for the year ended December 31, 2017, $91.6 million for the 2016 fiscal transition period and $51.3 million for the year ended May 31, 2016; and,
(b) a credit of $7.0 million during the year ended May 31, 2014 and a charge of $36.8 million for the year ended May 31, 2013 related to a processing system intrusion that occurred in the year ended May 31, 2012.
Net income, net income attributable to Global Payments and basic and diluted earnings per share in the table above reflect:
(a) a provisional net income tax benefit of $158.7 million recorded in connection with the 2017 U.S. Tax Act. See "Note 9—Income Tax" in the notes to the accompanying consolidated financial statements for further discussion; and,
(b) a gain of $41.2 million recorded in connection with the sale of our membership interests in Visa Europe Limited ("Visa Europe") for the seven months ended December 31, 2016.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Item 8 - Financial Statements and Supplementary Data." This discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements as a result of many known and unknown factors, including but not limited to, those discussed in "Item 1A - Risk Factors." See "Cautionary Notice Regarding Forward-Looking Statements" located above in "Item 1 - Business."
You should readWe operate in two reportable segments: Merchant Solutions and Issuer Solutions. During the following discussionsecond quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment. Our consolidated financial statements include the results of our former Consumer Solutions segment for periods prior to disposition. See "Note 18—Segment Information" in the notes to the accompanying consolidated financial statements for additional information about our segments.
Discussions of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 that have been omitted under this item can be found in "Part II, Item 7 - Management's Discussion and analysisAnalysis of Financial Condition and Results of Operations" in conjunctionour Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with "Item 6 - Selected Financial Data"the United States Securities and "Item 8 - Financial Statements and Supplementary Data."Exchange Commission on February 17, 2023.
Executive Overview
We are a leading worldwide provider of paymentpayments technology services and software solutionscompany delivering innovative software and services to our customers globally. Our technologies, services and employeeteam member expertise enableallow us to provide a broad range of solutions that allowenable our customers to accept various payment types and operate their businesses more efficiently. We distribute our servicesefficiently across a variety of channels around the world.
We have grown organically, as well as through acquisitions, and we continue to invest in new and innovative technology solutions, infrastructure to support our growing business and the ongoing consolidation and enhancement of our operating platforms. These investments include new product development and innovation to further enhance and differentiate our suite of technology and cloud-based solutions available to customers, in 30 countries throughout North America, Europe, the Asia-Pacific regionalong with migration of certain underlying technology platforms to cloud environments to enhance performance, improve speed to market and Brazildrive cost efficiencies. We also continue to execute on integration and operate in three reportable segments: North America, Europeother activities, such as combining business operations, streamlining technology infrastructure, eliminating duplicative corporate and Asia-Pacific.operational support structures and realizing scale efficiencies.
We were incorporated in Georgiahave furthered our business strategy through several recent key transactions during 2023 as Globalfollows:
•We completed the acquisition of EVO Payments, Inc. in 2000 and spun-off from our former parent company in 2001. Including our time as part(“EVO”) for total purchase consideration of our former parent company, we have been in the payment technology services business since 1967. Since our spin-off, we have grown our annual revenues from $353 million for the year ended May 31, 2001 to $4.0 billion for the year ended December 31, 2017, through internal expansion of existing operations and through acquisitions.
We provide$4.3 billion. EVO is a payment technology and softwareservices provider, offering payment solutions to customers globally. Our payment solutions are similar aroundmerchants ranging from small and middle market enterprises to multinational companies and organizations across the world inAmericas and Europe. The cash portion of the purchase consideration was funded through cash on hand and borrowings from our revolving credit facility.
•We completed the sale of the consumer portion of our Netspend business for approximately $1 billion. In connection with the sale, we provided $675 million of seller financing and a five-year $50 million secured revolving facility that we enable our customers to accept card, electronic, check and digital-based payments. Our comprehensive offerings include terminal sales and deployment, authorization processing, settlement and funding processing, customer support and help-desk functions, chargeback resolution, industry compliance, payment security services, consolidated billing and statements and on-line reporting.
In addition, we offer a wide arraybecame available from the date of enterprise software solutions that streamline business operations to customers in numerous vertical markets.closing of the sale. We also provide a variety of value-added services, including analytic and engagement tools, payroll services and reporting that assist our customers with driving demand and operating their businesses more efficiently.
The majoritycompleted the sale of our revenues is generated by services pricedgaming business for approximately $400 million.
•Our capital structure initiatives during 2023 included the issuance of Euro-denominated senior notes and the launch of a commercial paper program:
◦We issued €800 million aggregate principal amount of 4.875% senior unsecured notes due March 2031 and received net proceeds of €790.6 million, or $843.6 million based on the exchange rate on the issuance date. The net proceeds from the offering were used for general corporate purposes.
◦We established a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue as a percentagecost effective means of transaction value or a specified fee per transaction, depending on the card type or the vertical. We also earn software licensing and subscription fees and other fees based on specific value-added services that may be unrelated to the number or value of transactions.satisfying our short-term liquidity needs.
Our primary business model is to actively market and provide our payment services, enterprise software solutions and other value-added services directly to our customers through a variety of distribution channels. We offer high touch services that provide our customers with reliable and secure solutions coupled with high quality and responsive support services. Through our direct sales force worldwide, as well as bank partnerships, we offer our payment technology services, software and other value-added solutions directly to customers in the markets we serve. In addition, we also provide certain of our services through a wholesale distribution channel where we do not maintain the face-to-face relationship with the customer.
We seek to leverage the continued shift to electronic payments by expanding market share in our existing markets through our distribution channels or through acquisitions in North America, Europe and the Asia-Pacific region and investing in and leveraging technology and people, thereby maximizing shareholder value. We also seek to enter new markets through acquisitions in Europe, the Asia-Pacific region and the Latin America region.
Our business has not had pronounced seasonality in which more than 30% of our revenues occurred in one fiscal quarter. However, each geographic channel has somewhat higher and lower quarters given the nature of the merchant portfolio.
In 2016, we changed our fiscal year end from May 31 to December 31. As a result, the period consisting of the seven months ended December 31, 2016 is considered the "2016 fiscal transition period." When our financial results for the year ended December 31, 2017 and the 2016 fiscal transition period are compared to our financial results for the prior-year periods, the results compare the twelve-month period from January 1, 2017 through December 31, 2017 to the twelve-month period from January 1, 2016 through December 31, 2016 and compare the seven-month period from June 1, 2016 through December 31, 2016 to the seven-month period from June 1, 2015 through December 31, 2015. The results for the twelve months ended December 31, 2016 and the seven months ended December 31, 2015 are unaudited.
Executive Overview
We experienced strong business and financial performance around the world during the year ended December 31, 2017. Highlights related to our financial condition at December 31, 2023, and results of operations as of December 31, 2017 and for the year then ended, include the following:
•Consolidated revenues increased by 17.9% to $3,975.2 million for the year ended December 31, 2017 from $3,371.02023 increased to $9,654.4 million, for 2016, reflecting growth in each of our operating segments and additional revenues from acquired businesses.
Consolidated operating income was $558.9compared to $8,975.5 million for the year ended December 31, 2017 comparedprior year. The increase in consolidated revenues was primarily due to $356.3 million for 2016. Ouran increase in transaction volumes, including from the recently acquired EVO business, partially offset by the effects on revenue of the divested businesses.
•Merchant Solutions and Issuer Solutions segment operating income and operating margin for the year ended December 31, 2017 was 14.1%2023 increased compared to 10.6% for 2016. The increase in operating income and operating margin wasthe prior year primarily due to the contributionfavorable effect of revenue growthincreases in revenues, since certain fixed costs do not vary with revenues, and a decrease in costs associated with acquisition and integration expenses of $47.5 million.continued expense management.
Net•Consolidated operating income attributable to Global Payments was $468.4 million for the year ended December 31, 20172023 included the favorable effects of the increase in revenues as compared to $201.8 million for 2016, and diluted earnings per share was $3.01the prior year, partially offset by an increase in expenses primarily related to the acquisition of EVO. Consolidated operating income for the year ended December 31, 2017 compared to $1.37 for 2016.2023 also included the effects of a loss on the sale of our consumer business, which was partially offset by a gain on the sale of our gaming business.
On December 22, 2017, the United States enacted the 2017 U.S. Tax Act. As a result, we recorded a provisional net income tax benefit
Continuing and the transition of the U.S. federal tax system to a territorial regime. As part of this transition, the 2017 U.S. Tax Act imposed a one-time mandatory "transition" tax on foreign earnings not previously subjected to U.S. income tax, payable over eight years. We expect that the reduction in the U.S. federal income tax rate and the new territorial tax regime will have a favorable effect on our earnings and cash flows in future periods. A territorial tax regime rather than a worldwide system will generally allow companies to repatriate future foreign source earnings without incurring additional U.S. income taxes by providing a 100% exemption for the foreign source portion of dividends from certain foreign subsidiaries.
Emerging Trends
The payments technology industry continues to evolve and grow worldwide and as a result, certain large payment technology companies, including us, have expanded operations globally by pursuing acquisitions and creating alliances and joint ventures. We expect to continue to expand into new markets internationally orand pursue additional acquisitions and joint ventures in existing markets to increase our scale and improve our competitivenesscompetitiveness.
The industry continues to grow globally as a result of wider merchant acceptance and increased use of credit and debit cards, advances in existing markets by pursuing further acquisitionspayment processing technology and joint ventures.migration to ecommerce, omnichannel and contactless payment solutions. The proliferation of credit and debit cards, as well as other digital payment solutions, has made the acceptance of digital payments a virtual necessity for many businesses, regardless of size, in order to remain competitive. Furthermore, the expanding digitization of the economy and availability and access to financial services increases the demand for cards and digital payment solutions, which in turn drives growth in acceptance and transaction volumes.
The use of digital payment solutions, the need for development of technologies and digital-based solutions andexpansion of ecommerce, omnichannel and contactless payment solutions has accelerated. We believe that the number of electronicdigital payment transactions will continue to grow and that an increasing percentage of these will be facilitated through emerging technologies. As a result, we expect an increasing portion of our future capital investment will be allocated to support the development of new and emerging technologies; however, we do not expect our aggregate capital spending to increase materially from our current level of spending as a result of this.technologies, including technology modernization, innovation and integration through strategic partnerships.
We also believe new markets will continue to develop and expand in areas that have been previously dominated by paper-based transactions. We expect industries such as education, government and healthcare, as well as payment types such as recurring payments and business-to-businessB2B payments, to continue to see transactions migrate to electronic-baseddigital-based solutions. We anticipate that the continued development of new services and technologies, the emergence of new vertical markets and continued expansion of technology-enabled ecommerce and omnichannel solutions, including expanded scale and market reach through new innovative cloud-based capabilities and strategic partnerships, will be a factor in the growth of our business and our revenuerevenues in the future.
Acquisitions
On September 1, 2017, Furthermore, due to its benefits and growth potential, we acquired ACTIVE Network for total purchase considerationanticipate the increased exploration of $1.2 billion, consistinguse of approximately $600 million in cash and 6.4 million shares of our common stock. ACTIVE Network delivers cloud-based enterprise software, including payment technology solutions, to event organizersartificial intelligence in the communities and health and fitness vertical markets. This acquisition aligns with our technology-enabled, software driven strategy and adds an enterprise software business operating in two additional vertical markets that we believe offer attractive growth fundamentals.payments industry.
On April 22, 2016, we merged with Heartland inFor a cash-and-stock transaction for total purchase consideration of $3.9 billion. The merger significantly expanded our small and medium-sized enterprise distribution, merchant base and vertical reach in the United States.
On June 1, 2015, we acquired certain assets of Certegy Check Services, Inc., a wholly-owned subsidiary of Fidelity National Information Services, Inc. ("FIS"). Under the purchase arrangement, we acquired substantially all of the assets of its gaming business related to licensed gaming operators (the "FIS Gaming Business"), including relationships with gaming clients in approximately 260 locations as of the acquisition date, for $237.5 million.
On March 25, 2015, we acquired Pay and Shop Limited, which does business as Realex Payments ("Realex"), for €110.2 million ($118.9 million equivalent as of the acquisition date). Realex is a leading European online payment gateway technology provider based in Dublin, Ireland. This transaction furthered our strategy to provide omnichannel solutions that combine gateway services, payment service provisioning and payment technology services across Europe.
On October 10, 2014, we completed the acquisition of Ezidebit for AUD302.6 million ($266.0 million equivalent as of the acquisition date). Ezidebit is a leading integrated payments company focused on recurring payments verticals in Australia and New Zealand. Ezidebit markets its services through a network of integrated software vendors and direct channels to numerous vertical markets. We acquired Ezidebit to establish a direct distribution channel in Australia and New Zealand and to further enhance our existing integrated solutions offerings.
See "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of thesetrends, uncertainties and other acquisitions.factors that could affect our continuing operating results, see the section entitled "Risk Factors" in Item 1A.
Visa EuropeMacroeconomic Effects and Other Global Conditions
Through certainRisks Related to Macroeconomic Conditions
We are exposed to general economic conditions, including currency fluctuations, inflation, rising interest rates and other conditions that affect the overall level of consumer, business and government spending, which could negatively affect our financial performance.
Certain of our subsidiariesoperations are conducted in Europe, we wereforeign currencies. Consequently, a memberportion of our revenues and shareholder of Visa Europe. On June 21, 2016, Visa acquired allexpenses has been and may continue to be affected by fluctuations in foreign currency exchange rates. A strengthening of the membership interestsU.S. dollar or other significant fluctuations in Visa Europe,foreign currency exchange rates could result in an adverse effect on our future financial results; however, we are unable to predict the extent of the potential effect on our financial results.
We have sought to reduce our interest rate risk through issuance of fixed rate debt in place of variable rate debt, including ours, uponthe effect of interest rate swap hedging arrangements to convert a significant portion of the eligible variable rate borrowings under our revolving credit facility to a fixed rate. However, inflationary pressure or interest rate fluctuations have affected and could continue to affect our business and financial performance as a result of higher costs and/or lower consumer spending. In addition, continued inflation or a rise in interest rates could result in an adverse effect on our future financial results and the recoverability of assets. However, as the future magnitude, duration and effects of these conditions are difficult to predict at this time, we are unable to predict the extent of the potential effect on our financial results.
In addition, failures of several financial institutions in the first quarter of 2023, including Silicon Valley Bank and Credit Suisse, have created some uncertainty in the global financial markets and a greater focus on the potential failure of other banks in the future. Although we do not have exposure to and did not experience losses as a result of these failures, we regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit or the equivalent outside the U.S. A disruption in financial markets could impair our banking partners, which could affect our ability to access our cash or cash equivalents, our ability to provide settlement services or our customers' ability to access their existing cash to fulfill their payment obligations to us. The occurrence of these events could negatively affect our business, financial condition and results of operations.
When adverse macroeconomic conditions arise, we evaluate where we may be able to implement cost-saving measures, including those related to headcount and discretionary expenses. While economic conditions have shown moderate improvement in recent months, a downturn in macroeconomic conditions could have an adverse effect on our financial condition and results of operations.
Other Global Conditions
We continue to evaluate the potential effects on our business from health and social events, including pandemics like the COVID-19 pandemic. Although the COVID-19 pandemic has subsided, it caused an economic slowdown and other macroeconomic effects in the U.S. and other markets in which we recordedoperate. The global macroeconomic effects of the pandemic may persist for an indefinite period.
We also continue to evaluate the potential effects on our business from heightened geopolitical and economic instability or increased difficulty of conducting business in a gaincountry or region due to actual or potential political or military conflict or action, such as those arising from recent global events, which have increased the level of $41.2 million includedeconomic and political uncertainty in interestvarious regions of the world. Although we have not experienced significant exposure or adverse effects on our business and financial results to date, the extent to which these events could affect the global economy and our operations is difficult to predict at this time. However, a significant escalation, expansion of the scope or continuation of the related economic disruptions could have an adverse effect on our business and financial results.
For a further discussion of trends, uncertainties and other incomefactors that could affect our continuing operating results, see the section entitled "Risk Factors" in our consolidated statement of income for the seven months ended December 31, 2016. We received up-front consideration comprised of €33.5 million ($37.7 million equivalent at June 21, 2016) in cash and Series B and C convertible preferred shares whose initial conversion rate equates to Visa common shares valued at $22.9 million as of June 21, 2016. However, the preferred shares were assigned a value of zero based on transfer restrictions, Visa's ability to adjust the conversion rate, and the estimation uncertainty associated with those factors. The fair value of the preferred shares was determined using inputs classified as Level 3 within the fair value hierarchy due to the absence of quoted market prices, lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment. The preferred shares will convert into Visa common shares at periodic intervals over a 12-year period. Based on the outcome of potential litigation involving Visa Europe in the United Kingdom and elsewhere in Europe, the conversion rate of the preferred shares could be adjusted down such that the number of Visa common shares we ultimately receive could be as low as zero, and approximately €25.6 million ($28.8 million equivalent at June 21, 2016) of the up-front cash consideration could be refundable. On the third anniversary of the closing of the acquisition by Visa, we are contractually entitled to receive €3.1 million ($3.5 million at June 21, 2016) of deferred consideration (plus compounded interest at a rate of 4.0% per annum).Item 1A.
Results of Operations
Revenues
Merchant Solutions. The majority of our Merchant Solutions segment revenues is generated by services priced as a percentage of transaction value or a specified fee per transaction, depending on card type or theindustry vertical. We also earn software subscription and licensing and subscription fees, andas well as other fees based onfor specific value-added services that may be unrelated to the number or value of transactions. These revenues depend upon a number of factors, such as demand for and price of our services, the technological competitiveness of our offerings, our reputation for providing timely and reliable service, competition within our industry and general economic conditions.
We provide payment technology services and software solutions to customers and fund settlement either directly, in markets where we have direct membership with the payment networks, or through our relationship with a member financial institution in markets where we are sponsored. Revenues are generally recognized inas billed to the amount of customer, billing net of interchange fees and payment network fees. We market our services through a variety of salesrelationship-led and technology-enabled distribution channels, including a direct sales force, trade associations, agent and enterprise software providers and referral arrangements with value-added resellers which we generally refer to as "direct distribution."("VARs"). We also sell services through ourto ISOs, payment facilitators and financial institutions. In certain of these arrangements, the ISO, channel, where the ISOfinancial institution or other external partner receives a share of the customer profitability in the form of a monthly residual payment, which is reflected as a component of selling, general and administrative expenses in the accompanying consolidated statements of income.
Issuer Solutions. Issuer Solutions segment revenues are primarily derived from long-term processing contracts with financial institutions and other financial services providers. Payment processing services revenues are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements generated and/or mailed, managed services, cards embossed and mailed, and other processing services for cardholder accounts on file. Most of these customer contracts have prescribed annual minimums, penalties for early termination, and service level agreements that may affect contractual fees if specific service levels are not achieved. Issuer Solutions revenues also include loyalty redemption services, professional services, and fees from B2B payments services and other financial service solutions marketed to businesses, including software-as-a-service (“SaaS”) offerings that automate key procurement processes, provide invoice capture, coding and approval, and enable virtual cards and integrated payments options across a variety of key vertical markets.
Consumer Solutions. During the second quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment. For the periods prior to disposition, our Consumer Solutions arrangements included a stand-ready performance obligation to provide account access and facilitate purchase transactions. Revenues principally consisted of fees collected from cardholders and fees generated by cardholder activity in connection with the programs that we managed. Customers were typically charged a fee for each purchase transaction made using their cards, unless the customer was on a monthly or annual service plan, in which case the customer was instead charged
a monthly or annual subscription fee, as applicable. Customers were also charged a monthly maintenance fee after a specified period of inactivity. We also charged fees associated with additional services offered in connection with our accounts, including the use of overdraft features, a variety of bill payment options, card replacement, foreign exchange and card-to-card transfers of funds initiated through our call centers.Revenues were recognized net of fees charged by the payment networks for services they provided in processing transactions routed through them.
Operating Expenses
Cost of Service
Service. Cost of service consists primarily of salaries, wages and related expenses paid to operations and technology-related personnel, including those who monitor our transaction processing systems and settlement functions; payment network fees; the cost of transaction processing systems, including third-party services; the cost of network telecommunications capability; depreciation and occupancy costs associated with the facilities performingsupporting these functions; amortization of intangible assets andassets; costs to fulfill customer contracts; provisions for operating losses.losses; and, when applicable, integration costs.
Selling, General and Administrative Expenses
Expenses. Selling, general and administrative expenses consist primarily of salaries, wages, commissions and related expenses paid to sales personnel, customer support functions other than those supporting revenue,revenues, administrative employees and management; commissionsshare-based compensation; costs to obtain customer contracts; residuals paid to ISOs,ISOs; fees paid to VARs, independent contractors and other third parties; other selling expenses; occupancy costs of leased space directly related to these functions; share-based compensation expenseadvertising costs; and, advertisingwhen applicable, acquisition and integration costs.
Operating Income and Operating Margin
For the purpose of discussing segment operations, we refer to "operating income," which is calculated by subtracting segment direct expenses from segment revenues. Overhead and shared expenses, including share-based compensation, are not allocated to segment operations; they are reported in the caption "Corporate." Similarly,Impairment of goodwill and gains or losses on business dispositions are also not included in determining segment operating income. In addition, in discussing segment operations we refer to "operating margin" regarding segment operations,margin," which is calculated by dividing segment operating income by segment revenues.
Equity in Income of Equity Method Investments
We have equity method investments, including a 45% interest in China UnionPay Data Co., Ltd., which we account for using the equity method of accounting. Equity in income of equity method investments reflects our proportional share of earnings from these investments.
Year Ended December 31, 20172023 Compared to Year Ended December 31, 20162022
The following table sets forth key selected financial data for the yearyears ended December 31, 20172023 and 2016,2022, this data as a percentage of total revenues, and the changes between periods in dollars and as a percentage of the prior-period amount. The income statement data for the yearyears ended December 31, 2017 are2023 and 2022 is derived from the auditedaccompanying consolidated financial statements included in Item"Item 8 - Financial Statements and Supplementary Data. The income statement data for the year ended December 31, 2016 are derived from our unaudited consolidated financial statements for that period."
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| | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Year Ended December 31, | | | | |
(dollar amounts in thousands) | 2017 | | % of Revenue(1) | | 2016 | | % of Revenue(1) | | Change | | % Change |
Revenues(2): | | | | | | | | | | | |
North America | $ | 2,929,522 |
| | 73.7 | % | | $ | 2,475,323 |
| | 73.4 | % | | $ | 454,199 |
| | 18.3 | % |
Europe | 767,524 |
| | 19.3 | % | | 655,477 |
| | 19.4 | % | | 112,047 |
| | 17.1 | % |
Asia-Pacific | 278,117 |
| | 7.0 | % | | 240,176 |
| | 7.1 | % | | 37,941 |
| | 15.8 | % |
Total revenues | $ | 3,975,163 |
| | 100.0 | % | | $ | 3,370,976 |
| | 100.0 | % | | $ | 604,187 |
| | 17.9 | % |
| | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
Cost of service | $ | 1,928,037 |
| | 48.5 | % | | $ | 1,603,532 |
| | 47.6 | % | | $ | 324,505 |
| | 20.2 | % |
Selling, general and administrative | 1,488,258 |
| | 37.4 | % | | 1,411,096 |
| | 41.9 | % | | 77,162 |
| | 5.5 | % |
Operating expenses | $ | 3,416,295 |
| | 85.9 | % | | $ | 3,014,628 |
| | 89.4 | % | | $ | 401,667 |
| | 13.3 | % |
| | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
North America | $ | 457,009 |
| | 11.5 | % | | $ | 350,291 |
| | 10.4 | % | | $ | 106,718 |
| | 30.5 | % |
Europe | 272,769 |
| | 6.9 | % | | 232,882 |
| | 6.9 | % | | 39,887 |
| | 17.1 | % |
Asia-Pacific | 81,273 |
| | 2.0 | % | | 58,709 |
| | 1.7 | % | | 22,564 |
| | 38.4 | % |
Corporate(3) | (252,183 | ) | | (6.3 | )% | | (285,534 | ) | | (8.5 | )% | | 33,351 |
| | (11.7 | )% |
Operating income | $ | 558,868 |
| | 14.1 | % | | $ | 356,348 |
| | 10.6 | % | | $ | 202,520 |
| | 56.8 | % |
| | | | | | | | | | | |
Operating margin: | | | | | | | | | | | |
North America | 15.6 | % | | | | 14.2 | % | | | | 1.4 | % | | |
Europe | 35.5 | % | | | | 35.5 | % | | | | — | % | | |
Asia-Pacific | 29.2 | % | | | | 24.4 | % | | | | 4.8 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Year Ended December 31, | | | | |
(dollar amounts in thousands) | 2023 | | % of Revenue(1) | | 2022 | | % of Revenue(1) | | Change | | % Change |
Revenues(2): | | | | | | | | | | | |
Merchant Solutions | $ | 7,151,793 | | 74.1 | % | | $ | 6,204,917 | | 69.1 | % | | $ | 946,876 | | 15.3 | % |
Issuer Solutions | 2,398,870 | | 24.8 | % | | 2,245,623 | | 25.0 | % | | 153,247 | | 6.8 | % |
Consumer Solutions | 182,740 | | 1.9 | % | | 620,482 | | 6.9 | % | | (437,742) | | (70.5) | % |
Intersegment eliminations | (78,984) | | (0.8) | % | | (95,507) | | (1.1) | % | | 16,523 | | (17.3) | % |
Consolidated revenues | $ | 9,654,419 | | 100.0 | % | | $ | 8,975,515 | | 100.0 | % | | $ | 678,904 | | 7.6 | % |
| | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
Cost of service | $ | 3,727,521 | | 38.6 | % | | $ | 3,778,617 | | 42.1 | % | | $ | (51,096) | | (1.4) | % |
Selling, general and administrative | 4,073,768 | | 42.2 | % | | 3,524,578 | | 39.3 | % | | 549,190 | | 15.6 | % |
Impairment of goodwill(3) | — | | — | % | | 833,075 | | 9.3 | % | | (833,075) | | NM |
Net loss on business dispositions | 136,744 | | 1.4 | % | | 199,094 | | 2.2 | % | | (62,350) | | (31.3) | % |
Operating expenses | $ | 7,938,033 | | 82.2 | % | | $ | 8,335,364 | | 92.9 | % | | $ | (397,331) | | (4.8) | % |
| | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
Merchant Solutions | $ | 2,345,255 | | 24.3 | % | | $ | 2,040,255 | | 22.7 | % | | $ | 305,000 | | 14.9 | % |
Issuer Solutions | 409,807 | | 4.2 | % | | 356,215 | | 4.0 | % | | 53,592 | | 15.0 | % |
Consumer Solutions | (3,908) | | — | % | | 53,594 | | 0.6 | % | | (57,502) | | (107.3) | % |
Corporate | (898,024) | | (9.3) | % | | (777,744) | | (8.7) | % | | (120,280) | | 15.5 | % |
Impairment of goodwill(3) | — | | — | % | | (833,075) | | (9.3) | % | | 833,075 | | NM |
Net loss on business dispositions | (136,744) | | (1.4) | % | | (199,094) | | (2.2) | % | | 62,350 | | (31.3) | % |
Operating income | $ | 1,716,386 | | 17.8 | % | | $ | 640,151 | | 7.1 | % | | $ | 1,076,235 | | 168.1 | % |
| | | | | | | | | | | |
Operating margin(2): | | | | | | | | | | | |
Merchant Solutions | 32.8 | % | | | | 32.9 | % | | | | (0.1) | % | | |
Issuer Solutions | 17.1 | % | | | | 15.9 | % | | | | 1.2 | % | | |
Consumer Solutions | (2.1) | % | | | | 8.6 | % | | | | (10.7) | % | | |
NM = Not meaningful
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, consolidated operating expenses, operating income and operating margin reflect the effecteffects of acquired businesses from the respective acquisition dates and the effects of acquisition. Fordivested businesses through the respective disposal dates. See “Note 2—Acquisitions” and “Note 3—Business Dispositions” for further discussion, see "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements.discussion.
(3) During the years ended December 31, 2017 and 2016, operating loss for CorporateOperating income included acquisition and integration expenses of $94.6$341.9 million and $142.1$259.2 million for the years ended December 31, 2023 and 2022, respectively, which were primarily included within Corporate expenses. For the years ended December 31, 2023 and 2022, operating loss for Corporate also included $18.5 million and $47.1 million, respectively, which are included primarily in selling, general and administrative expenses in the consolidated statements of income.other charges related to facilities exit activities.
Revenues
(3)For the year ended December 31, 2017, revenues increased by $604.22022, consolidated operating income included an $833.1 million or 17.9%, compared to the prior year, to $3,975.2 million, reflecting growth in each of our operating segments.
North America Segment. For the year ended December 31, 2017, revenues from our North America segment increased by $454.2 million, or 18.3%, compared to the prior year, to $2,929.5 million primarily duegoodwill impairment charge related to our merger with Heartland, the resultsformer Business and Consumer Solutions reporting unit. See “Note 6—Goodwill and Other Intangible Assets” for further discussion.
Revenues
approximately eight months during the year ended December 31, 2016.
Europe Segment. For the year ended December 31, 2017,Consolidated revenues from our Europe segment increased by $112.0 million, or 17.1%, compared to the prior year, to $767.5 million primarily due to organic growth.
Asia-Pacific Segment. For the year ended December 31, 2017, revenues from our Asia-Pacific segment increased by $37.9 million, or 15.8%, compared to the prior year, to $278.1 million primarily due to organic growth.
Operating Expenses
Cost of Service. For the year ended December 31, 2017, cost of service increased by $324.5 million, or 20.2%, compared to the prior year, to $1,928.0 million. As a percentage of revenues, cost of service increased to 48.5% for the year ended December 31, 2017 from 47.6%2023 increased by 7.6% to $9,654.4 million, compared to $8,975.5 million for the prior year. These increases were driven primarily by an increase in the variable costs associated with our revenue growth, including the incremental expenses associated with acquired businesses, as well as additional intangible asset amortization of $78.6 million.
Selling, General and Administrative Expenses. For the year ended December 31, 2017, selling, general and administrative expenses increased by $77.2 million, or 5.5%, compared to the prior year, to $1,488.3 million. The increase in selling, general and administrative expensesrevenues was primarily due to additional costs to supportan increase in transaction volumes, including from the growth ofEVO business acquired in 2023.
Merchant Solutions Segment. Revenues from our business, including incremental costs associated with acquired businesses. As a percentage of revenues, selling, general and administrative expenses decreased to 37.4%Merchant Solutions segment for the year ended December 31, 2017 from 41.9%2023 increased by 15.3% to $7,151.8 million, compared to $6,204.9 million for the prior year. The decreaseincrease in selling,revenues was primarily due to an increase in transaction volumes, including from the EVO business, and growth in subscription and software revenue.
Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the year ended December 31, 2023 increased by 6.8% to $2,398.9 million, compared to $2,245.6 million for the prior year. The increase in revenues was primarily due to an increase in transaction volumes.
Operating Expenses
Cost of Service. Cost of service for the year ended December 31, 2023 was $3,727.5 million, compared to $3,778.6 million for the prior year. Cost of service as a percentage of revenues decreased to 38.6% for the year ended December 31, 2023, compared to 42.1% for the prior year. Compared to the prior year, cost of service for the year ended December 31, 2023 decreased primarily due to continued prudent expense management and inclusion of costs related to the divested businesses for only a portion of the current year. These favorable effects were partially offset by the inclusion of costs for the EVO business, including the related amortization of acquired intangibles. Cost of service included amortization of acquired intangibles of $1,318.5 million and $1,263.0 million for the years ended December 31, 2023 and 2022, respectively.
Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended December 31, 2023 increased by 15.6% to $4,073.8 million, compared to $3,524.6 million for the prior year. Selling, general and administrative expenses as a percentage of revenues was due primarily to synergies achieved in general and administrative expenses from the merger with Heartland, as well as the decrease in acquisition and integration expenses during the year ended December 31, 2017 of $47.5 million.
Operating Income and Operating Margin
North America Segment. Operating income in our North America segment increased by 30.5% to $457.0 million42.2% for the year ended December 31, 20172023, compared to the prior year and operating margin increased by 1.4 percentage points. The increase in operating income was primarily due to revenue growth in our U.S. business, which during the year ended December 31, 2017 was partially offset by additional intangible asset amortization associated with acquired businesses. The increase in operating margin during the year ended December 31, 2017 was primarily due to revenue growth and a decrease in Heartland customer-related intangible asset amortization, which is calculated using an accelerated method.
Europe Segment. Operating income in our Europe segment increased by 17.1% to $272.8 million39.3% for the year ended December 31, 2017 compared to the prior year, while operating margin remained equal to the prior year. The increase in operating income was primarily due to revenue growth.
Asia-Pacific Segment. Operating income in our Asia-Pacific segment increased by 38.4% to $81.3 million for the year ended December 31, 2017 compared to the prior year and operating margin increased by 4.8 percentage points. The increase in operating income and operating margin was due to revenue growth.
Corporate. Corporate expenses decreased by 11.7% to $252.2 million for the year ended December 31, 2017 compared to the prior year primarily due to a decrease in acquisition and integration expenses.
Other Income/Expense, Net
Interest and other income decreased by $38.1 million for the year ended December 31, 2017 compared to the prior year, which included a gain of $41.2 million in connection with our sale of all of the membership interests in Visa Europe, as previously described above.
Interest and other expense increased by $28.7 million for the year ended December 31, 2017 compared to the prior year. The outstanding borrowings on our long-term debt facilities increased significantly in April 2016 as a result of incremental borrowings we made to fund a portion of the total consideration for our merger with Heartland. Since then, we have made principal repayments
that have lowered our average outstanding borrowings, and we have lowered the leverage-based margins we pay on interest rates through refinancing activities that we completed in October 2016 and May 2017. The savings in interest expense that we realized during the second half of 2017 due to these refinancing activities were partially offset by increases in London Interbank Offered Rate ("LIBOR") during the intervening time frame and additional borrowings under our Revolving Credit Facility to complete the acquisition of ACTIVE Network.
Income Tax Benefit (Provision)
We reported an income tax benefit of $101.4 million for the year ended December 31, 2017, reflecting the effect of a provisional net income tax benefit of $158.7 million recorded in connection with the 2017 U.S. Tax Act. Our effective tax rate for the year ended December 31, 2017 was a benefit of 25.8%, which differs from the federal U.S. statutory rate and the effective income tax rate for the year ended December 31, 2016 primarily due to the net tax benefit we recorded in connection with the 2017 U.S. Tax Act. See "Note 9—Income Tax" in the notes to the accompanying consolidated financial statements for more discussion about the effects of the 2017 U.S. Tax Act on our accounting for income taxes for the year ended December 31, 2017.
For the year ended December 31, 2016, we recorded an income tax provision of $36.3 million, which equated to an effective tax rate of 14.1%. The effective income tax rate for the year ended December 31, 2016 included a benefit from eliminating certain net deferred tax liabilities associated with undistributed earnings from Canada, as a result of management's plans at that time to reinvest these earnings outside the United States indefinitely.
Seven Months Ended December 31, 2016 Compared to Seven Months Ended December 31, 2015
The following table sets forth key selected financial data for the seven months ended December 31, 2016 and 2015, this data as a percentage of total revenues, and the changes between periods in dollars and as a percentage of the prior-period amount. The income statement data for the seven months ended December 31, 2016 are derived from the audited consolidated financial statements included in Item 8 - Financial Statements and Supplementary Data. The income statement data for the seven months ended December 31, 2015 are derived from our unaudited consolidated financial statements for that period.
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| Seven Months Ended December 31, | | Seven Months Ended December 31, | | | | |
(dollar amounts in thousands) | 2016 | | % of Revenue(1) | | 2015 | | % of Revenue(1) | | Change | | % Change |
Revenues(2): | | | | | | | | | | | |
North America | $ | 1,650,616 |
| | 74.9 | % | | $ | 1,227,916 |
| | 71.0 | % | | $ | 422,700 |
| | 34.4 | % |
Europe | 403,823 |
| | 18.3 | % | | 380,246 |
| | 22.0 | % | | 23,577 |
| | 6.2 | % |
Asia-Pacific | 148,457 |
| | 6.8 | % | | 121,908 |
| | 7.0 | % | | 26,549 |
| | 21.8 | % |
Total revenues | $ | 2,202,896 |
| | 100.0 | % | | $ | 1,730,070 |
| | 100.0 | % | | $ | 472,826 |
| | 27.3 | % |
| | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
Cost of service | $ | 1,094,593 |
| | 49.7 | % | | $ | 638,700 |
| | 36.9 | % | | $ | 455,893 |
| | 71.4 | % |
Selling, general and administrative | 870,352 |
| | 39.5 | % | | 784,823 |
| | 45.4 | % | | 85,529 |
| | 10.9 | % |
Operating expenses | $ | 1,964,945 |
| | 89.2 | % | | $ | 1,423,523 |
| | 82.3 | % | | $ | 541,422 |
| | 38.0 | % |
| | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
North America | $ | 233,850 |
| | | | $ | 191,185 |
| | | | $ | 42,665 |
| | 22.3 | % |
Europe | 145,767 |
| | | | 157,722 |
| | | | (11,955 | ) | | (7.6 | )% |
Asia-Pacific | 37,530 |
| | | | 29,564 |
| | | | 7,966 |
| | 26.9 | % |
Corporate(3) | (179,196 | ) | | | | (71,924 | ) | | | | (107,272 | ) | | 149.1 | % |
Operating income | $ | 237,951 |
| | 10.8 | % | | $ | 306,547 |
| | 17.7 | % | | $ | (68,596 | ) | | (22.4 | )% |
| | | | | | | | | | | |
Operating margin: | | | | | | | | | | | |
North America | 14.2 | % | | | | 15.6 | % | | | | (1.4 | )% | |
|
|
Europe | 36.1 | % | | | | 41.5 | % | | | | (5.4 | )% | |
|
|
Asia-Pacific | 25.3 | % | | | | 24.3 | % | | | | 1.0 | % | |
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(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, operating expenses, operating income and operating margin reflect the effect of acquired businesses from the respective dates of acquisition. Notably, on April 22, 2016, we merged with Heartland as further discussed in "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements.
(3) During the seven months ended December 31, 2016, operating loss for Corporate included acquisition and integration costs of $91.6 million, which are included in selling, general and administrative expenses in the consolidated statements of income.
Revenues
For the seven months ended December 31, 2016, revenues increased 27.3% to $2,202.9 million compared to the prior-year period, reflecting growth in each of our operating segments, in spite of the unfavorable effect of fluctuations in foreign currency exchange rates. For the seven months ended December 31, 2016, currency exchange rate fluctuations reduced our revenues by $35.3 million compared to the prior-year period, calculated by converting revenues for the seven months ended December 31, 2016 in local currencies using exchange rates for the seven months ended December 31, 2015.
North America Segment. For the seven months ended December 31, 2016, revenues from our North America segment increased by $422.7 million, or 34.4%, compared to the prior-year period to $1,650.6 million primarily due to our merger with Heartland.
Europe Segment. For the seven months ended December 31, 2016, revenues from our Europe segment increased by $23.6 million, or 6.2%, compared to the prior-year period to $403.8 million due to a joint venture with Erste Group Bank AG ("Erste Group") in Central and Eastern Europe that commenced in June 2016, despite the unfavorable effect of currency fluctuations in Europe of $34.3 million.
Asia-Pacific Segment. For the seven months ended December 31, 2016, revenues from our Asia-Pacific segment increased by $26.5 million, or 21.8%, compared to the prior-year period to $148.5 million, primarily due to organic growth.
Operating Expenses
Cost of Service. Cost of service increased by 71.4% to $1,094.6 million for the seven months ended December 31, 2016 compared to the prior-year period. As a percentage of revenues, cost of service increased to 49.7% for the seven months ended December 31, 2016 compared to 36.9% in the prior year. The increase in cost of service was driven primarily by an increase in the variable costs associated with our revenue growth, including those related to our merger with Heartland, and by additional intangible asset amortization associated with recently acquired businesses of $145.6 million for the seven months ended December 31, 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 10.9% to $870.4 million for the seven months ended December 31, 2016 compared to the prior-year period. As a percentage of revenues, selling, general and administrative expenses decreased to 39.5% for the seven months ended December 31, 2016 compared to 45.4% in the prior year. The increase in selling, general and administrative expenses was primarily due to additionalan increase in variable selling and other costs related to support the growthincrease in revenues and the inclusion of costs for the EVO business. In addition, the increase was driven by the effects of higher acquisition and integration expenses, related primarily to the acquisition of EVO, and higher compensation and benefits costs, including an increase in share-based compensation expense for retirement eligible executives and our business, including incremental expenses associated with the integration of Heartland. The decrease in selling,previous CEO, whose departure was announced on May 1, 2023.
Selling, general and administrative expenses as a percentageincluded acquisition and integration expenses of revenues$341.4 million and $258.0 million for the years ended December 31, 2023 and 2022, respectively. Share-based compensation expense was $209.0 million and $163.3 million for the years ended December 31, 2023 and 2022, respectively.
Corporate. Corporate expenses for the year ended December 31, 2023 were $898.0 million, compared to $777.7 million for the prior year. The increase for the year ended December 31, 2023 was primarily due to synergies achievedthe increase in generalacquisition and administrativeintegration and compensation expenses, frompartially offset by lower charges related to facilities exit activities in the merger with Heartland.current year.
Operating Income and Operating Margin
North America Segment. OperatingConsolidated operating income in our North America segment increased by 22.3%for the year ended December 31, 2023 was $1,716.4 million, compared to $233.9$640.2 million for the seven months ended December 31, 2016 compared to the prior-year period. The increase in operating income was primarily due to revenue growth in our U.S. business, partially offset by expenses associated with the integration of Heartland and additional intangible asset amortization associated with the merger. Operating margin decreased by 1.4 percentage points for the seven months ended December 31, 2016 compared to the prior-year period primarily as a result of the incremental merger-related expenses.
Europe Segment. Operating income in our Europe segment decreased by 7.6% to $145.8 million for the seven months ended December 31, 2016 compared to the prior-year period, including the effect of unfavorable currency fluctuations of $19.6 million. Operating margin decreased 5.4 percentage points for the seven months ended December 31, 2016 compared to the prior-year period. The decreases inprior year. Consolidated operating income and operating margin were primarily driven by the effect of unfavorable currency fluctuations.
Asia-Pacific Segment. Operating income in our Asia segment increased by 26.9% to $37.5 million for the seven monthsyear ended December 31, 20162023 compared to the prior-year period. Operating margin increased 1.0 percentage pointprior year included the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, prudent expense management and lower charges related to facilities exit activities as described above. These effects were partially offset by higher acquisition and integration expenses, amortization of acquired intangibles and compensation expenses as described above. Consolidated operating income for the seven monthsyear ended December 31, 2016 compared to2023 also included the prior-year period. The increases ineffects of a $106.9 million gain on the sale of our gaming business and a $243.6 million loss on the sale of our consumer business.
Consolidated operating income and operating margin were primarily due to organic revenue growth.
Corporate. Corporate expenses increased by $107.3 million for the seven monthsyear ended December 31, 20162022 included the unfavorable effects of an $833.1 million goodwill impairment charge related to our former Business and Consumer Solutions reporting unit and a $127.2 million loss related to the sale of our Merchant Solutions business in Russia. We also recognized charges within loss on business dispositions in our consolidated statement of income of $71.9 million during the year ended December 31, 2022 to reduce the consumer business disposal group to estimated fair value less costs to sell.
Segment Operating Income and Operating Margin
In our Merchant Solutions segment, operating income and operating margin for the year ended December 31, 2023 increased compared to the prior-year period,prior year primarily due to the mergerfavorable effect of the increase in revenues, since certain fixed costs do not vary with Heartlandrevenues, and continued expense management. These favorable effects were partially offset by incremental expenses related to continued investment in products, innovation and our technology environments. In addition, the inclusion of $91.6 million associatedEVO had an unfavorable effect on the Merchant Solutions operating margin for the year ended December 31, 2023 as compared to the prior year.
In our Issuer Solutions segment, operating income and operating margin for the year ended December 31, 2023 increased compared to the prior year primarily due to the favorable effect of the increase in revenues, since certain fixed costs do not vary with its integration.revenues, and continued expense management.
Other Income/Expense, Net
Interest and other income for the seven monthsyear ended December 31, 20162023 increased to $113.7 million, compared to $33.6 million for the prior year, primarily due to interest income associated with the new seller financing notes receivable of $58.3 million recognized during the year ended December 31, 2023. Other income for the year ended December 31, 2022 included a gain of $41.2$13.2 million recordedrecognized in connection with the salerelease and conversion of a portion of our membership interests in Visa Europe.
Interest and other expense increased by $76.8 million for the seven months ended December 31, 2016 compared to the prior-
year period primarily due to an increase in interest expense incurred resulting from an increase in the outstanding borrowings to fund the merger with Heartland.
Income Tax Provision
Our effective income tax rates were 20.6% and 25.3%, respectively, for the seven months ended December 31, 2016 and 2015. The decrease in our effective income tax rate was primarily due to a higher percentage of income generated in international jurisdictions with lower tax rates (primarily as a result of the merger-related expenses incurred in the United States).
Year Ended May 31, 2016 Compared to Year Ended May 31, 2015
The following table sets forth key selected financial data for the years ended May 31, 2016 and 2015, this data as a percentage of total revenues, and the changes between years in dollars and as a percentage of the prior year amount.
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| | | | | | | | | | | | | | | | | | | | |
(dollar amounts in thousands) | 2016 | | % of Revenue(1) | | 2015 | | % of Revenue(1) | | Change | | % Change |
Revenues(2): | | | | | | | | | | | |
North America | $ | 2,052,623 |
| | 70.8 | % | | $ | 1,968,890 |
| | 71.0 | % | | $ | 83,733 |
| | 4.3 | % |
Europe | 631,900 |
| | 21.8 | % | | 615,966 |
| | 22.2 | % | | 15,934 |
| | 2.6 | % |
Asia-Pacific | 213,627 |
| | 7.4 | % | | 188,862 |
| | 6.8 | % | | 24,765 |
| | 13.1 | % |
Total revenues | $ | 2,898,150 |
| | 100.0 | % | | $ | 2,773,718 |
| | 100.0 | % | | $ | 124,432 |
| | 4.5 | % |
| | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
Cost of service | $ | 1,147,639 |
| | 39.6 | % | | $ | 1,022,107 |
| | 36.8 | % | | $ | 125,532 |
| | 12.3 | % |
Selling, general and administrative | 1,325,567 |
| | 45.7 | % | | 1,295,014 |
| | 46.7 | % | | 30,553 |
| | 2.4 | % |
Operating expenses | $ | 2,473,206 |
| | 85.3 | % | | $ | 2,317,121 |
| | 83.5 | % | | $ | 156,085 |
| | 6.7 | % |
| | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
North America | $ | 307,626 |
| | | | $ | 293,139 |
| | | | $ | 14,487 |
| | 4.9 | % |
Europe | 244,837 |
| | | | 240,014 |
| | | | 4,823 |
| | 2.0 | % |
Asia-Pacific | 50,743 |
| | | | 39,697 |
| | | | 11,046 |
| | 27.8 | % |
Corporate(3) | (178,262 | ) | | | | (116,253 | ) | | | | (62,009 | ) | | 53.3 | % |
Operating income | $ | 424,944 |
| | 14.7 | % | | $ | 456,597 |
| | 16.5 | % | | $ | (31,653 | ) | | (6.9 | )% |
| | | | | | | | | | | |
Operating margin: | | | | | | | | | | | |
North America | 15.0 | % | | | | 14.9 | % |
| | | 0.1 | % | | |
Europe | 38.7 | % | | | | 39.0 | % |
| | | (0.3 | )% | | |
Asia-Pacific | 23.8 | % | | | | 21.0 | % | | | | 2.8 | % | | |
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, operating expenses, operating income and operating margin reflect the effect of acquired businesses from the respective dates of acquisition. Notably, on April 22, 2016, we merged with Heartland as further discussed inconvertible preferred shares. See "Note 2—Acquisitions"8—Other Assets" in the notes to the accompanying consolidated financial statements.statements for further discussion of this transaction.
(3) During the year ended May 31, 2016, operating loss for Corporate included costs of $51.3 million incurred in connection with our merger with Heartland. These merger-related costs are included in selling, general and administrative expenses in the consolidated statements of income.
Revenues
For the year ended May 31, 2016, revenues increased by 4.5% to $2,898.2 million compared to the prior year, reflecting growth in each of our operating segments, in spite of the unfavorable effect of fluctuations in foreign currency exchange rates. For the year ended May 31, 2016, currency exchange rate fluctuations reduced our revenues by $117.0 million compared to the prior year, calculated by converting revenues for the year ended May 31, 2016 in local currencies using exchange rates for the year ended May 31, 2015.
North America Segment. For the year ended May 31, 2016, revenues from our North America segment increased by $83.7 million, or 4.3%, compared to the prior year to $2,052.6 million. The increase was due to growth of $124.4 million, primarily in our U.S. business, partially offset by the unfavorable effect of currency fluctuations in Canada of $40.7 million. The growth in revenues was primarily due to additional revenues from our merger with Heartland and the acquisition of the FIS Gaming Business as well as organic growth in our direct distribution business.
Europe Segment. For the year ended May 31, 2016, revenues from our Europe segment increased by $15.9 million, or 2.6%, compared to the prior year to $631.9 million. The increase reflects revenue growth in local currencies, generally due to an increase in the number of card transactions and volume growth in the United Kingdom and Spain, partially offset by the unfavorable effect of currency fluctuations in Europe of $62.6 million.
Asia-Pacific Segment. For the year ended May 31, 2016, revenues from our Asia-Pacific segment increased by $24.8 million, or 13.1%, compared to the prior year to $213.6 million. The increase was primarily due to additional revenues of $29.6 million associated with recent acquisitions and organic growth, partially offset by the unfavorable effect of currency fluctuations.
Operating Expenses
Cost of Service. Cost of service increased by 12.3% to $1,147.6 million during the year ended May 31, 2016 compared to the prior year. As a percentage of revenues, cost of service increased to 39.6% for the year ended May 31, 2016 compared to 36.8% in the prior year, driven primarily by an increase in the variable costs associated with our revenue growth. The increase in cost of service as a percentage of revenues is due to additional intangible asset amortization of $41.1 million related to acquisitions.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 2.4% to $1,325.6 million during the year ended May 31, 2016 compared to the prior year. As a percentage of revenues, selling, general and administrative expenses decreased to 45.7% for the year ended May 31, 2016 from 46.7% in the prior year. The increase in selling, general and administrative expenses was due to additional costs to support the growth of our business, including expenses of $51.3 million associated with our merger with Heartland.
Operating Income and Operating Margin
North America Segment. Operating income in our North America segment increased by 4.9% to $307.6 million for the year ended May 31, 2016 compared to the prior year despite the effect of unfavorable currency fluctuations of $20.5 million. The operating margin was 15.0% and 14.9% for the years ended May 31, 2016 and 2015, respectively. The increase in operating income was primarily due to revenue growth in our U.S. business, partially offset by additional intangible asset amortization related to our acquisitions and the effect of unfavorable currency fluctuations.
Europe Segment. Operating income in our Europe segment increased by 2.0% to $244.8 million for the year ended May 31, 2016 compared to the prior year despite the effect of unfavorable currency fluctuations of $19.7 million. The operating margin was 38.7% and 39.0% for the years ended May 31, 2016 and 2015, respectively. The increase in operating income was primarily driven by revenue growth, partially offset by the effect of unfavorable currency fluctuations.
Asia-Pacific Segment. Operating income in our Asia segment increased by 27.8% to $50.7 million for the year ended May 31, 2016 compared to the prior year despite the effect of unfavorable currency fluctuations in the Asia-Pacific region of $3.4 million. The operating margin was 23.8% and 21.0% for the years ended May 31, 2016 and 2015, respectively. The increases in operating income and operating margin were due to incremental revenues from the acquisition and subsequent organic growth of Ezidebit, which generates a higher operating margin than our legacy business in the region.
Corporate. Corporate expenses increased to $178.3 million for the year ended May 31, 2016 compared to the prior year due primarily to expenses of $51.3 million associated with our merger with Heartland.
Other Income/Expense, Net
Interest and other expense increased by $24.9 million for the year ended MayDecember 31, 20162023 increased to $660.2 million, compared to $449.4 million for the prior year, primarily due tonearly equally affected by an increase in our average outstanding borrowings to fund our merger with Heartland.
Income Taxes Provision
The provisionand higher average interest rates on outstanding borrowings. In addition, during the year ended December 31, 2023, we incurred a noncash charge of $15.2 million for income taxes decreased by $37.3 millionthe estimated future credit losses on the new seller financing notes receivable. Interest expense for the year ended MayDecember 31, 20162022 included fees and charges incurred in connection with financing activities that occurred during 2022, including $17.3 million related to commitment fees associated with bridge financing for the EVO acquisition.
Income Tax Expense
Our effective income tax rates for the years ended December 31, 2023 and 2022 were 17.9% and 74.3%, respectively. The effective tax rate for the year ended December 31, 2023 reflects recognition of a gain on the dispositions of our consumer and gaming businesses for income tax reporting purposes, while an aggregate net loss on the dispositions was recognized for financial reporting purposes. This was partially offset by the favorable effect on the rate of foreign interest income not subject to tax, tax credits, the foreign-derived intangible income deduction, and the realization of built in losses on corporate restructurings.
The effective tax rate for the year ended December 31, 2022 included the unfavorable effects of the goodwill impairment charge and loss on the sale of our Merchant Solutions business in Russia, for which no tax benefit was recognized, partially offset by the remeasurement of state deferred taxes to reflect enacted tax law changes.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law, which, among other things, implemented a 15% corporate alternative minimum tax based on global adjusted financial statement income and a 1% excise tax on share repurchases effective beginning January 1, 2023. We do not expect the corporate alternative minimum tax will have a material effect on our reported results, cash flows or financial position. During the year ended December 31, 2023, we reflected excise tax of $3.9 million within equity as part of the cost of common stock repurchased, net of share issuances, during the period.
In December 2022, the EU Member States formally adopted the Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development Pillar Two Framework. The EU effective dates are January 1, 2024, and January 1, 2025, for different aspects of the directive. A significant number of other countries are expected to also implement similar legislation with varying effective dates in the future. We are continuing to evaluate the potential effect on future periods of the Pillar Two Framework, pending legislative adoption by additional individual countries.
Equity in Income of Equity Method Investments
Equity in income of equity method investments decreased to $67.9 million compared to $85.7 million for the prior year. Equity in income of equity method investments for the year ended December 31, 2022 included $18.8 million in gains on the sale of certain equity method investments that did not recur in the current year.
Net Income Attributable to Global Payments
Net income attributable to Global Payments was $986.2 million compared to $111.5 million for the prior year, duereflecting the changes noted above.
Diluted Earnings per Share
Diluted earnings per share was $3.77 compared to $0.40 for the prior year. Diluted earnings per share for the year ended December 31, 2023 reflects the changes in net income and a decrease in income before income taxes, largely due to expensesthe weighted-average number of $51.3 million in the U.S. associated with our merger with Heartland, and a lower effective income tax rate. The decrease in our effective income tax rate from 25.9% to 19.6% during the year ended May 31, 2016 was primarily due to a higher percentage of the earnings before income taxes derived from foreign operations with lower income tax rates (primarily as a result of the merger-related expenses incurred in the United States) as well as the elimination of certain net deferred tax liabilities associated with undistributed earnings from Canada as a result of management’s plans to reinvest these earnings outside of the United States indefinitely.shares outstanding.
Liquidity and Capital Resources
We have numerous sources of capital, including cash on hand and cash flows generated from operations as well as various sources of financing. In the ordinary course of our business, a significant portion of our liquidity comes from operating cash flows. Cash flow from operations is usedflows and borrowings, including the capacity under our revolving credit facility.
Our capital allocation priorities are to make planned capital investments in our business, to pursue acquisitions that meet our corporate objectives, to pay dividends, to pay downprincipal and interest on our outstanding debt and to repurchase shares of our common stock. AccumulatedOur significant contractual cash balancesrequirements also include ongoing payments for lease liabilities and contractual obligations related to service arrangements with suppliers for fixed or minimum amounts, which primarily relate to software, technology infrastructure and related services. Commitments under our borrowing arrangements are investedfurther described in high-quality, marketable short-term instruments."Note 9—Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements and below under "Long-Term Debt and Lines of Credit." For additional information regarding our other cash commitments and contractual obligations, see "Note 7—Leases" and “Note 19—Commitments and Contingencies” in the notes to the accompanying consolidated financial statements.
Our capital plan objectives are to support our operational needs and strategic plan for long-term growth while maintaining a lowoptimizing our cost of capital. Wecapital and financial position. To supplement cash from operating activities, we use a combination of bank financing, such as borrowings under our Credit Facilitycredit facilities, commercial paper program and senior note issuances, for general corporate purposes and to fund acquisitions. In addition,Our commercial paper program, established during the first quarter of 2023, provides a cost effective means of addressing our short-term liquidity needs and is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. Finally, specialized lines of credit are also used in certain of our markets to fund merchant settlement prior to receipt of funds from the card network. networks.
We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future either through the issuance of debt or equity or otherwise.by other means. Accumulated cash balances are invested in high-quality, marketable short-term instruments. We believe that our current and projected sources of liquidity will be sufficient to meet our projected liquidity requirements associated with our operations for the near and long term.
At December 31, 2017,2023, we had cash and cash equivalents totaling $1,335.9$2,088.9 million. Of this amount, we consider $658.4considered $703.3 million to be available for general purposes, of which $64.3 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States. The available cash of $703.3 million does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted;restricted in their use; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. Merchant Reserves serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchantmerchant's agreement. While this cash is not restricted in its use, we believe that designating this cash to collateralizeas a Merchant ReservesReserve strengthens our fiduciary standing with our member sponsors and is in accordance with the guidelines set by the card networks.sponsors. Funds held for customers, and the corresponding liability that we recordwhich are not restricted in "customer deposits"their use, include amounts collected priorbefore the corresponding obligation is due to remittance on our customers' behalf.
Our available cash balancebe settled to or at December 31, 2017 included $595.1 million of cash held by foreign subsidiaries whose earnings were considered indefinitely reinvested outside the United States prior to the enactment of the 2017 U.S. Tax Act. These cash balances reflected our capital investments in these subsidiaries and the accumulation of cash flows generated by their operations, net of cash flows used to service debt locally and fund acquisitions outside of the United States. Under the 2017 U.S. Tax Act, a company's foreign earnings accumulated under legacy tax laws are deemed repatriated, and the 2017 U.S. Tax Act generally eliminates U.S. federal income taxes on dividends from foreign subsidiaries. As a result, our provisional position is that we now only consider approximately $60 milliondirection of our undistributed foreign earnings to be indefinitely reinvested outside the United Statescustomers.
We also had restricted cash of $167.2 million as of December 31, 2017. In February 2018, we repatriated approximately $300 million from certain of our foreign subsidiaries2023, representing amounts deposited by customers for prepaid card transactions and used the cashfunds held as a liquidity reserve. These balances are subject to reduce outstanding borrowings under our Revolving Credit Facility.local regulatory restrictions requiring appropriate segregation and restriction in their use.
Operating activities provided net cash of $512.4$2,248.7 million duringand $2,244.0 million for the yearyears ended December 31, 2017,2023 and 2022, respectively, which was primarily attributable toreflect net income of $494.1 million adjusted for non-cashnoncash items, including depreciation, amortization and amortization expense of $451.2 million, partially offset by a decreasethe provision for credit losses, charges associated with the net loss on business dispositions and facility exit charges and changes in working capital of $358.9 million.
Fluctuationsoperating assets and liabilities. The increase in working capitalcash flows from operating activities from the prior year was due to fluctuations in operating results and related assets and liabilities that are affected primarily by timing of month-end and transaction volume, especiallyincluding changes in settlement processing assets and liabilities. Changes in settlement processing assetsobligations and liabilities decreased operating cash flows by $361.7 millionaccounts payable and $78.8 million during the years ended December 31, 2017 and May 31, 2015, respectively. Changes in settlement processing assets and liabilities increased operating cash flows by $35.6 million during the 2016 fiscal transition period and $218.1 million during the year ended May 31, 2016.other liability balances.
Operating activities provided net cash of $515.8 million during the 2016 fiscal transition period and $592.9 million and $429.9 million, respectively, during the years ended May 31, 2016 and 2015. The increase in cash flows provided by operating activities since 2015, during which time we completed the acquisitions of Heartland and ACTIVE Network, among others, was primarily due to our revenue growth and corresponding increase in operating income. The increase in operating cash flows from our growing business during this period was partially offset by investments made to integrate the acquired businesses. During the year ended December 31, 2017, the 2016 fiscal transition period and the year ended May 31, 2016, we incurred $94.6 million, $91.6 million and $51.3 million, respectively, of acquisition and integration expenses primarily related to Heartland. In addition, during that same period of time, our interest expense increased substantially as a result of long-term debt we have issued, primarily to help fund these acquisitions. During the year ended December 31, 2017, the 2016 fiscal transition period and the year ended May 31, 2016, cash paid for interest expense was $154.2 million, $93.6 million and $58.7 million, respectively.
We used net cash in investing activities of $736.0 million, $86.7$4,361.1 million and $2,127.2$675.5 million during the yearyears ended December 31, 2017, the 2016 fiscal transition period2023 and the year ended May 31, 2016,2022, respectively. Cash used for investing activities primarily represents primarily cash used to fund business acquisitions, net of cash and restricted cash acquired, and capital expenditures. During the yearyears ended December 31, 2017,2023 and 2022, we used cash of $599.5$4,225.6 million to acquire ACTIVE Network, and during the year ended May 31, 2016, we used cash of $2.0 billion to acquire Heartland. In addition to cash, we have used our common stock to fund a portion of the consideration$68.8 million, respectively, for both the Heartland and ACTIVE Network acquisitions. See "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of our business acquisitions and how we funded those acquired businesses.
We made capital expenditures of $181.9 million, $88.9$658.1 million and $91.6$615.7 million to purchase property and equipment (including internal-use capitalized software development projects) during the yearyears ended December 31, 2017, the 2016 fiscal transition period2023 and the year ended May 31, 2016,2022, respectively. These investments include software and hardware to support the development of new technologies, continuedinfrastructure to support our growing business and the consolidation and enhancement of our operating platformsplatforms. These investments also include new product development and infrastructureinnovation to supportfurther enhance and differentiate our growing business.
Duringsuite of technology and cloud-based solutions available to customers. We expect to continue to make significant capital investments in the business, and we anticipate capital expenditures to grow at a similar rate as our revenue growth during the year ending December 31, 2024. Additionally, investing cash flows for the year ended December 31, 2017, we sold our operating facility in Jeffersonville, Indiana for $37.5 million. In addition, during2023 includes the 2016 fiscal transition period we exchanged allnet effect on cash from the sale of our membership interestconsumer and gaming businesses, cash received from the sale of investments in Visa Europecommon shares of $42.1 million and the issuance and subsequent repayment of a $50.0 million secured revolving credit facility available from the date of the sale to the purchasers of the consumer business. Investing cash flows for the year ended December 31, 2022 includes the net effect on cash from the sale of our Merchant Solutions business in Russia and cash received from the sale of investments in Visa for up-front consideration, including cashcommon shares of approximately $37.7$13.2 million and equity method investments of $19.9 million.
Financing activities include borrowings and repayments made under our Credit Facilityvarious debt arrangements, as well as borrowings and repayments made under specialized lines of credit to fund daily settlement activities. Our borrowing arrangements are further described in "Note 9—Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, as well as cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests and our shareholders. Cash flows from financinginterests. Financing activities provided net cash of $352.3$2,141.1 million and $2.0 billion during the yearsyear ended December 31, 20172023, and May 31, 2016, respectively. During the 2016 fiscal transition period, we used net cash in financing activities of $278.8 million.$1,376.7 million during the year ended December 31, 2022.
Proceeds from long-term debt were $2.0 billion, $1.3 billion$10,336.9 million and $6.1 billion$9,812.3 million for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023 and the year ended May 31, 2016,2022, respectively. Repayments of long-term debt were $1.8 billion, $1.4 billion$9,099.9 million and $3.7 billion$7,895.1 million for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023 and the year ended May 31, 2016,2022, respectively. Proceeds from and repayments of long-term debt includeconsist of borrowings and repayments that we make with available cash, from time-to-time, under our Revolving Credit Facility. Proceeds from long-term debt also include incremental borrowings we have made to fund a portion of the consideration paid for acquired businesses and the effect of various refinancing activities to optimize our borrowing programs. Repayments of long-term debt include repayments that we make from time-to-time under our Revolving Credit Facilityrevolving credit facility, as well as scheduled principal repayments made underwe make on our term loans. Debt issuance costs reflect the amount we paid to complete theseloans, finance leases and other vendor financing activities.arrangements. During the year ended December 31, 2023, we also had net borrowings of $1,371.6 million under our commercial paper program. See section "Long-Term Debt and Lines of Credit" below for further discussion of our recent debt transactions.
May 31, 2016, we added incremental borrowings to the credit facility then in place of $1.8 billion to fund, in part, the cash consideration and merger-related costs associated with Heartland and to repay certain portions of Heartland's indebtedness.
Because we often receive funding from the payment networks after we fund our merchants, we have specialized lines of credit in various markets where we do business to fund settlement. Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume. During the yearyears ended December 31, 20172023 and the 2016 fiscal transition period,2022, we had net proceeds from settlement lines of credit of $221.5 million and $20.6 million. During the year ended May 31, 2016, we had net repaymentsborrowings of settlement lines of credit of $206.0 million.$220.7 million and $285.6 million, respectively.
We make repurchases ofrepurchase our common stock mainly through the use of open market purchasesrepurchase plans and, at times, through accelerated share repurchase ("ASR") programs. During the yearyears ended December 31, 2017, the 2016 fiscal transition period2023 and the year ended May 31, 2016,2022, we invested $34.8 million, $178.2used $418.3 million and $136.0$2,921.3 million, respectively, to repurchase shares of our common stock. On February 6, 2018,As of December 31, 2023, the board increased its authorizationremaining amount available under our share repurchase program was $1,090.2 million.
We paid dividends to repurchase shares of our common stockshareholders in the amounts of $260.4 million and $274.0 million during the years ended December 31, 2023 and 2022, respectively. We made distributions to $600 million.noncontrolling interests in the amount of $33.0 million and $23.0 million during the years ended December 31, 2023 and 2022, respectively.
We believe that our current level
Long-Term Debt and Lines of Credit
Senior Notes
We have $10.8 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from November 2024 to August 2052. Interest on the senior notes is payable annually or semi-annually at 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.
On March 17, 2023, we issued €800 million aggregate principal amount of 4.875% senior unsecured notes due March 2031 and received net proceeds of €790.6 million, or $843.6 million based on the exchange rate on the issuance date. We issued the senior notes at a discount of $2.8 million, and we incurred debt issuance costs of $7.2 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used for general corporate purposes.
On August 22, 2022, we issued $2.5 billion aggregate principal amount of senior unsecured notes consisting of the following: (i) $500.0 million aggregate principal amount of 4.950% senior notes due August 2027; (ii) $500.0 million aggregate principal amount of 5.300% senior notes due August 2029; (iii) $750.0 million aggregate principal amount of 5.400% senior notes due August 2032; and (iv) $750.0 million aggregate principal amount of 5.950% senior notes due August 2052. We issued the senior notes at a total discount of $5.2 million, and we incurred debt issuance costs of $24.8 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2023. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used to refinance the outstanding indebtedness under our credit facility, to make cash payments and pay transaction fees and expenses in connection with the acquisition of EVO and for general corporate purposes.
On November 22, 2021, we issued $2.0 billion aggregate principal amount of senior unsecured notes consisting of the following: (i) $500.0 million aggregate principal amount of 1.500% senior notes due November 2024; (ii) $750.0 million aggregate principal amount of 2.150% senior notes due January 2027; and (iii) $750.0 million aggregate principal amount of 2.900% senior notes due November 2031. We incurred debt issuance costs of approximately $14.4 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable semi-annually in arrears on May 15 and November 15 for the 2024 and 2031 notes and January 15 and July 15 on the 2027 note, commencing May 15, 2022 for the 2024 note and the 2031 note and July 15, 2022 for the 2027 note. 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 the outstanding indebtedness under our prior credit facility and for general corporate purposes.
On February 26, 2021, we issued $1.1 billion aggregate principal amount of 1.200% senior unsecured notes due March 2026. We incurred debt issuance costs of approximately $8.6 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 2021. 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 this offering to fund the redemption in full of the 3.800% senior unsecured notes due April 2021, to repay a portion of the outstanding indebtedness under our prior credit facility and for general corporate purposes.
We have $1.0 billion in aggregate principal amount of 2.900% senior unsecured notes due May 2030. 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 issued the senior notes at a total discount of $3.3 million and capitalized related debt issuance costs of $8.4 million.
We have $3.0 billion in aggregate principal amount of senior unsecured notes consisting of the following: (i) $1.0 billion aggregate principal amount of 2.650% senior notes due 2025; (ii) $1.25 billion aggregate principal amount of 3.200% senior notes due 2029; and (iii) $750.0 million aggregate principal amount of 4.150% senior notes due 2049. Interest on the senior notes is payable semi-annually in arrears on each February 15 and August 15, beginning on February 15, 2020. 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. We issued the senior notes at a total discount of $6.1 million and capitalized related debt issuance costs of $29.6 million.
In addition, in connection with our merger with Total System Services, Inc. ("TSYS") in September 2019 (the "TSYS Merger"), we assumed $3.0 billion aggregate principal amount of senior unsecured notes of TSYS, consisting of the following: (i) $750.0 million aggregate principal amount of 3.800% senior notes due 2021, which were redeemed in February 2021; (ii) $550.0 million aggregate principal amount of 3.750% senior notes due 2023, which were redeemed in June 2023; (iii) $550.0 million aggregate principal amount of 4.000% senior notes due 2023, which were redeemed in June 2023; (iv) $750 million aggregate principal amount of 4.800% senior notes due 2026; and (v) $450 million aggregate principal amount of 4.450% senior notes due 2028. For the 4.800% senior notes due 2026, interest is payable semi-annually each April 1 and October 1. For the 4.450% senior notes due 2028, interest is payable semi-annually each June 1 and December 1. The difference between the acquisition-date fair value and face value of senior notes assumed in the TSYS Merger is recognized over the terms of the respective notes as a reduction of interest expense. The amortization of this fair value adjustment was $15.7 million and $27.4 million for the years ended December 31, 2023 and 2022, respectively.
Convertible Notes
We have $1.5 billion in aggregate principal amount of 1.000% convertible notes due 2029, which were issued on August 8, 2022 in a private placement pursuant to an investment agreement with Silver Lake Partners. The net proceeds from this offering were approximately $1.44 billion, reflecting an issuance discount of $37.5 million and $20.4 million of debt issuance costs, which were capitalized and reflected as a reduction of the related carrying amount of the convertible notes in our consolidated balance sheet.
Interest on the notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023, to the holders of record on the preceding February 1 and August 1, respectively.
The notes are convertible at the option of the holder at any time after the date that is 18 months after issuance (or earlier, upon the occurrence of certain corporate events) until the scheduled trading day prior to the maturity date. The notes are convertible into cash and shares of our common stock based on a conversion rate of 7.1421 shares of common stock per $1,000 principal amount of the convertible notes (which is equal to a conversion price of approximately $140.01 per share), subject to customary anti-dilution and other adjustments upon the occurrence of certain events. Upon conversion, the principal amount of, and interest due on, the convertible notes are required to be settled in cash and any other amounts may be settled in shares, cash or a combination of shares and cash at our election.
The notes are not redeemable by us. If certain corporate events that constitute a fundamental change (as defined in the indenture governing the notes) occur, any holder of the notes may require that we repurchase all or any portion of their notes for cash at a purchase price of par plus accrued and unpaid interest to, but excluding, the repurchase date. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the indenture governing the notes) occur, then the conversion rate will in certain circumstances be increased for a specified period of time. The notes include customary covenants for notes of this type, as well as customary events of default, which may result in the acceleration of the maturity of the convertible notes.
On August 8, 2022, in connection with the issuance of the notes, we entered into privately negotiated capped call transactions with certain financial institutions to cover, subject to customary adjustments, the number of shares of common stock initially underlying the notes. The economic effect of the capped call transactions is to hedge the potential dilutive effect upon conversion of the notes, or offset our cash obligation if the cash settlement option is elected, up to a cap price determined based on a hedging period that commenced on August 9, 2022 and concluded on August 25, 2022. The capped call had an initial strike price of $140.67 per share and a cap price of $229.26 per share. The capped call transactions meet the accounting criteria to be reflected in stockholders’ equity and not accounted for as derivatives. The cost of $302.4 million incurred in connection with the capped call transactions was reflected as a reduction to paid-in-capital in our consolidated balance sheet at December 31, 2022, net of applicable income taxes.
Revolving Credit Facility
On August 19, 2022, we entered into a revolving credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents. The revolving credit agreement provides for an unsubordinated unsecured $5.75 billion revolving credit facility. We capitalized debt issuance costs of $12.3 million in connection with the issuance under the revolving credit facility. The revolving credit facility matures in August 2027. Borrowings under the revolving credit facility may be repaid prior to maturity without premium or penalty, subject to payment of certain customary expenses of lenders and customary notice provisions.
Borrowings under the revolving credit facility are available to be made in US dollars, euros, sterling, Canadian dollars and, subject to certain conditions, certain other currencies at our option. Borrowings under the revolving credit facility will bear interest, at our option, at a rate equal to (i) for Secured Overnight Financing Rate ("SOFR") based currencies or certain alternative currencies, a secured overnight financing rate (subject to a 0.00% floor) plus a 0.10% credit spread adjustment or an alternative currency term rate (subject to a 0.00% floor), as applicable, (ii) for US dollar borrowings, a base rate, (iii) for US dollar borrowings, a daily floating secured overnight financing rate (subject to a 0.00% floor on or after January 1, 2023) plus a 0.10% credit spread adjustment or (iv) for certain alternative currencies, a daily alternative currency rate (subject to a 0.00% floor), in each case, plus an applicable margin. The applicable margin for borrowings under the revolving credit facility will range from 1.125% to 1.875% depending on our credit rating. 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.
We may issue standby letters of credit of up to $250.0 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 a financial leverage covenant. As of December 31, 2023, there were borrowings of $1,570.0 million outstanding under the revolving credit facility with an interest rate of 6.84%, and the total available commitments under the revolving credit facility were $2.8 billion.
Commercial Paper
In January 2023, we established a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. The program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. As such, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt.
Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes.
As of December 31, 2023, we had net borrowings under our commercial paper program of $1,371.6 million outstanding with a weighted average annual interest rate of 6.06%.
Prior Credit Facility
Prior to the revolving credit facility, we were party to a prior credit facility agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents (as amended from time to time)time-to-time). This Credit Facility was most recently amended on May 2, 2017 (the "Fourth Amendment")The prior credit facility provided for a senior unsecured $2.0 billion term loan facility and as amended, provides for (i) a $1.25senior unsecured $3.0 billion revolving credit facility; (ii) a $1.5 billion term loan; (iii) a $1.3 billion term loan;facility. In August 2022, all borrowings outstanding and (iv) a $1.2 billion term loan facility. The Fourth Amendment increased the total financing capacityother amounts due under the Credit Facility on May 2, 2017 from $4.9 billion to $5.2 billion, although the outstanding debt under the Credit Facility did not change as weprior credit facility were repaid certain outstanding amounts under the Term A Loan, the Term A-2 Loan and the Revolving Creditprior credit facility was terminated.
Bridge Facility
On August 1, 2022, in connection with our entry into the Fourth Amendment. Substantially allEVO merger agreement, we obtained commitments for a $4.3 billion, 364-day senior unsecured bridge facility. Upon the execution of permanent financing, including the issuance of our senior unsecured notes and entry into the revolving credit facility described above, the aggregate commitments under the bridge facility were reduced to zero and terminated.
Compliance with Covenants
The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased to 4.50 to 1.00 as a result of the assetsacquisition of our domestic subsidiaries are pledged as collateral underEVO, and will gradually step-down over eight quarters to the Credit Facility.
The Credit Facility provides for an interest rate, at our election,original required ratio of either LIBOR or a base rate, in each case plus a leverage-based margin.3.75 to 1.00. As of December 31, 2017,2023, the interest rates on the Term A Loan, the Term A-2 Loanrequired leverage ratio is 4.50 to 1.00, and the Term B-2 Loanrequired interest coverage ratio is 3.00 to 1.00. We were 3.32%, 3.24% and 3.57%, respectively, and the interest rate on the Revolving Credit Facility was 3.24%. The Credit Facility also provides for a commitment feein compliance with respect to borrowings under the Revolving Credit Facility at anall applicable rate per annum ranging from 0.20% to 0.30% depending on our leverage ratio. Ascovenants as of December 31, 2017, the aggregate outstanding balance on the term loans was $3.9 billion, and the outstanding balance on the Revolving Credit Facility was $765.0 million.
The Term A Loan and the Term A-2 Loan mature, and the Revolving Credit Facility expires, on May 2, 2022. The Term B-2 Loan matures on April 22, 2023. The Term A Loan principal must be repaid in quarterly installments in the amount of 1.25% of principal through June 2019, increasing to 1.875% of principal through June 2021, and increasing to 2.50% of principal through March 2022, with the remaining principal balance due upon maturity in May 2022. The Term A-2 Loan principal must be repaid in quarterly installments of $1.7 million through June 2018, increasing to quarterly installments of $8.6 million through March 2022, with the remaining balance due upon maturity in May 2022. The Term B-2 Loan principal must be repaid in quarterly installments in the amount of 0.25% of principal through March 2023, with the remaining principal balance due upon maturity in April 2023.
The Credit Facility allows us to issue standby letters of credit of up to $100 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. Borrowings available to us under the Revolving Credit Facility are further limited by the covenants described below under "Compliance with Covenants." The total available commitments under the Revolving Credit Facility at December 31, 2017 were $473.3 million.
Settlement Lines of Credit
In various markets where we do business, we have specialized lines of credit, whichthat 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 linelines of credit may exceed the stated credit limit. As of December 31, 2017 and 2016,2023, a total of $59.3$88.5 million and $51.0 million, respectively, of cash on deposit was used to determine the available credit.
As of December 31, 2017 and 2016,2023, we had $635.2$981.2 million and $392.1 million, respectively, outstanding under these lines of credit with additional capacity to fund settlement of $689.4 million as of$1,852.5 million. During the year ended December 31, 2017 to fund settlement.2023, the maximum and average outstanding balances under these lines of credit were $1,506.5 million and $515.7 million, respectively. The weighted-average interest rate on these borrowings was 2.0% and 1.90%5.95% at December 31, 2017 and 2016, respectively.2023.
Compliance with Covenants
The Credit Facility contains customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios, as defined in the agreement. As of December 31, 2017, financial covenants under the Credit Facility required a leverage ratio no greater than: (i) 4.50 to 1.00 as of the end of any fiscal quarter ending during the period from July 1, 2017 through June 30, 2018; (ii) 4.25 to 1.00 as of the end of any fiscal quarter ending during the period from July 1, 2018 through June 30, 2019; and (iii) 4.00 to 1.00 as of the end of any fiscal quarter ending thereafter. The fixed charge coverage ratio is required to be no less than 2.25 to 1.00.
The Credit Facility and settlement lines of credit also include various other covenants that are customary in such borrowings. The Credit Facility includes covenants, subject in each case to exceptions and qualifications that may restrict certain payments, including, in certain circumstances, the payment of cash dividends in excess of our current rate of $0.01 per share per quarter.
The Credit Facility also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. We were in compliance with all applicable covenants as of and for the year ended December 31, 2017.
See "Note 7—9—Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements for further discussion ofinformation about our borrowing arrangements.agreements.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market, or credit risk support other than the guarantee services described under "Critical Accounting Policies" below.
BIN/ICA Agreements
We have enteredIn certain markets, we enter into sponsorship or depository and processing agreements with certain banks. These agreements allow us to use the banks' identification numbers, referred to as Bank Identification Number ("BIN") for Visa transactions and Interbank Card Association ("ICA") number for MasterCardMastercard transactions, to clear credit card transactions through Visa and MasterCard.Mastercard. Certain of such agreements contain financial covenants, and we were in compliance with all such covenants as of December 31, 2017.2023.
Commitments and Contractual Obligations
The following table summarizes our contractual obligations and commitments as of December 31, 2017:
|
| | | | | | | | | | | | | | | | | | | |
| Payments Due by Future Period |
| Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | 5+ Years |
| | | | | | | | | |
| (in thousands) |
Long-term debt | $ | 4,697,677 |
| | $ | 108,979 |
| | $ | 303,056 |
| | $ | 3,201,767 |
| | $ | 1,083,875 |
|
Interest on long-term debt(1) | 678,440 |
| | 155,324 |
| | 295,870 |
| | 215,340 |
| | 11,906 |
|
Settlement lines of credit | 635,166 |
| | 635,166 |
| | — |
| | — |
| | — |
|
Operating lease obligations | 334,284 |
| | 41,542 |
| | 64,065 |
| | 49,382 |
| | 179,295 |
|
Purchase obligations(2) | 268,951 |
| | 70,663 |
| | 110,344 |
| | 56,433 |
| | 31,511 |
|
Transition tax payable under 2017 U.S. Tax Act(3) | 63,744 |
| | 8,022 |
| | 9,691 |
| | 9,691 |
| | 36,340 |
|
(1) Interest on long-term debt is based on rates effective and amounts borrowed as of December 31, 2017. The estimated effect of interest rate swaps is included in interest on long-term debt. Since the contractual rates for our long-term debt and settlements on our interest rate swaps are variable, actual cash payments may differ from the estimates provided.
(2) Includes estimate of future payments for noncancelable contractual obligations related to service arrangements with suppliers for fixed or minimum amounts.
(3) Under the 2017 U.S. Tax Act, a company's foreign earnings accumulated under legacy tax laws are deemed repatriated with a one-time mandatory "transition" tax on foreign earnings not previously subjected to U.S. income tax. The transition tax on those deemed repatriated earnings may be paid over eight years. The total amount of the transition tax payable and the payments due by future period are estimates as of December 31, 2017 and subject to change. See "Note 9—Income Tax" in the notes to the accompanying consolidated financial statements for more discussion about the effects of the 2017 U.S. Tax Act on our accounting for income taxes for the year ended December 31, 2017.
The table above excludes other obligations that we may have, such as employee benefit obligations and other noncurrent liabilities reflected in our consolidated balance sheet, because the timing of the related payments is not determinable or because there is no contractual obligation associated with the underlying obligations.
Critical Accounting PoliciesEstimates
Our consolidated financial statements have been prepared in accordance with GAAP,accounting principles generally accepted in the United States, which often require the judgment of management in the selection and application of certain accounting principles and methods. We consider the following accounting policies and estimates to be critical to understanding our consolidated financial statements because the application of these policies requires significant judgment on the part of management, and as a result, actual future developments may be different from those expected at the time that we make these criticalimportant judgments. We have discussed these critical accounting policies and estimates with the audit committee of the board of directors.
Accounting estimates necessarily require subjective determinations about future events and conditions. Therefore, the following descriptions of our critical accounting policiesestimates are forward-looking statements, and actual results could differ materially from the results anticipated by these forward-looking statements. You should read the following in conjunction with "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the accompanying consolidated financial statements and the risk factors contained in "Item 1A - Risk Factors" ofin this Annual ReportReport.
Business Combinations
From time-to-time, we make strategic acquisitions that may have a material effect on Form 10-K.
Goodwill
We have historically performed our annual goodwill impairment testconsolidated results of operations and financial position. The measurement principle for the assets acquired and the liabilities assumed in a business combination is at estimated fair value as of January 1.the acquisition date, with certain exceptions. The excess of the total consideration transferred over the amount of the net identifiable assets acquired determined in accordance with the measurement guidance for such items is recognized as goodwill.
The estimates we use to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments. We use information available to us to make fair value determinations, and we engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired long-lived assets. The estimated fair values of customer-related and contract-based intangible assets are generally determined using the income approach, which is based on projected cash flows discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. The discount rates used represent a risk adjusted market participant weighted-average cost of capital, derived using customary market metrics. These measures of fair value also require considerable judgments about future events, including forecasted revenue growth rates, forecasted customer attrition rates, contract renewal estimates and technology changes. Acquired technologies are generally valued using the replacement cost method, which requires us to estimate the costs to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Trademarks and trade names are generally valued using the "relief-from-royalty" approach. This method assumes that trademarks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenues for the related asset, the appropriate royalty rate and the weighted-average cost of capital. This measure of fair value requires considerable judgment about the value a market participant would be willing to pay in order to achieve the benefits associated with the trademark or trade name.
While we use our best estimates and assumptions to determine the fair values of the assets acquired and the liabilities assumed, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we make adjustments to the assets acquired and liabilities assumed. Upon the conclusion of the measurement period, any subsequent adjustments are recognized in our consolidated statements of income. We are also required to estimate the useful lives of intangible assets to determine the period over which to recognize the amount of acquisition-related intangible assets as an expense. We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.
Goodwill, intangibles and other long-lived assets are also regularly evaluated for impairment, which requires the use of significant estimates and assumptions as further described below. Achange in estimated fair value could result in an impairment charge, which could be material to our fiscal year end from May 31 to December 31, we elected to change our annual goodwill impairment test date from January 1 to October 1 to give us sufficient time to complete our assessment in conjunction with our year-end reporting. We performed an annual goodwill impairment test on January 1, 2017 and on October 1, 2017.consolidated financial statements.
Goodwill
We test goodwill for impairment at the reporting unit level annually (in the fourth quarter) and more often if an event occurs or circumstances change that indicate the fair value of a reporting unit is below its carrying amount. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testingassessment for impairment is necessary. The optionelection of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit.
Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.
When applying the quantitative assessment, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach. The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, risk-adjusted discount rates and future economic and market conditions.
During the firstsecond quarter of 2017,2022, the sustained decline in our share price and increases in discount rates, primarily resulting from increased economic uncertainty, indicated a potential decline in fair value and triggered a requirement to evaluate our Issuer Solutions and former Business and Consumer Solutions reporting units for potential impairment as of June 30, 2022. Furthermore, the estimated sales price for the consumer business portion of our former Business and Consumer Solutions reporting unit also indicated a potential decline in fair value as of June 30, 2022. We determined on the basis of the quantitative assessment that the fair value of our Issuer Solutions reporting unit was still greater than its carrying amount, indicating no impairment. Based on the quantitative assessment of our former Business and Consumer Solutions reporting unit, including consideration of the consumer business disposal group and the remaining assets of the reporting unit, we revisedrecognized a goodwill impairment charge of $833.1 million in our consolidated statement of income during the three months ended June 30, 2022.
We regularly monitor any changes in the business and evaluate whether such changes affect the determination of our reporting unit structure within our North America segment to reflect changes made in connection withunits. During the integrationthird quarter of Heartland. Under the revised reporting unit structure, we operate two reporting units in our North America segment: (i) Payments and (ii) Integrated Solutions and Vertical Markets. We reassigned the goodwill previously allocated to North America merchant services and Heartland to the two new reporting units using a relative fair value approach. As2022, as a result of the pending divestiture of our consumer business and changes in how our business is managed, we realigned the businesses previously comprising our former Business and Consumer Solutions segment to include the B2B portion within our Issuer Solutions segment and the consumer portion forming our Consumer Solutions segment. In connection with the change in presentation of segment information, the B2B portion of our former Business and Consumer Solutions reporting unit was realigned into the Issuer Solutions reporting unit, including a reallocation of goodwill. During the second quarter of 2023, we completed the sale of our consumer business. In addition, during 2023, we realigned our reporting units we performedbased on organizational changes and the acquired operations of EVO. There were no significant changes in the methodology used to assess goodwill for potential impairment tests immediately before and after this change in reporting units and determined that there was no impairment.during the year ended December 31, 2023.
Following the revision described above, we now have seven reporting units: North America Payments, North America Integrated Solutions and Vertical Markets, U.K. merchant services, Asia-Pacific merchant services, Central and Eastern Europe merchant services, Russia merchant services and Spain merchant services. As of October 1, 2017,2023, our reporting units consisted of the following: North America Payments Solutions, Vertical Market Software Solutions, Europe Merchant Solutions, Spain Merchant Solutions, Asia-Pacific Merchant Solutions, Latin America Merchant Solutions and Issuer Solutions. As of October 1, 2023, we elected to performperformed a qualitativequantitative assessment of impairment for each of our Issuer Solutions, Asia-Pacific Merchant Solutions and Latin America Merchant Solutions reporting units and a qualitative assessment for all other reporting units. We determined on the basis of qualitative factorsthe quantitative assessments of our Issuer Solutions, Asia-Pacific Merchant Solutions and Latin America Merchant Solutions reporting units that the fair value of each reporting unit was greater than its respective carrying amount, indicating no impairment. Additionally, we determined on the basis of the qualitative factors that the fair value of other reporting units was not more likely than not less than the respective carrying amounts. We believe that the fair value of each of our reporting units is substantially in excess of its carrying amount.amount, except for our Latin America Merchant Solutions reporting unit, which has smaller excess compared to the other reporting units since it was recently acquired in connection with the EVO acquisition, and our Issuer Solutions reporting unit, whose fair value exceeded its carrying amount by approximately 4% as of October 1, 2023.
We continue to closely monitor developments related to global events and macroeconomic conditions. The future magnitude, duration and effects of these events and conditions are difficult to predict at this time, and it is reasonably possible that future developments could have a negative effect on the estimates and assumptions utilized in our goodwill impairment assessments and could result in material impairment charges in future periods.
Intangible and Long-lived Assets
Other intangible assets include customer-related intangible assets (such as customer lists and merchant contracts), contract-based intangible assets (such as non-compete agreements, referral agreements and processing rights), acquired technology and trademarks associated with acquisitions. These assets are amortized over their estimated useful lives. The useful lives for customer-related intangible assets are determined based primarily on forecasted cash flows, which include estimates for the revenues, expenses, and customer attrition associated with the assets. The useful lives of contract-based intangible assets are equal to the terms of the agreements. The useful lives of amortizable trademarks and trade names are based on our plans to phase out the trademarks and trade names in the applicable markets. Acquired technology is amortized on a straight-line basis over its estimated useful life.
Amortization for most of our customer-related intangible assets is calculated using an accelerated method. In determining amortization expense under our accelerated method for any given period, we calculate the expected cash flows for that period that were used in determining the acquired value of the asset and divide that amount by the expected total cash flows over the estimated life of the asset. We multiply that percentage by the initial carrying amount of the asset to arrive at the amortization expense for that period. If the cash flow patterns that we experience differ significantly from our initial estimates, we adjust the amortization schedule prospectively. These cash flow patterns are derived using certain assumptions and cost allocations due to a significant amount of asset interdependencies that exist in our business. We did not make any significant adjustments to the amortization schedules of our intangible assets during the year ended December 31, 2017.
We believe that our accelerated method better approximates the expected distribution of cash flows generated by our acquired customer relationships. We use the straight-line method of amortization for our contract-based intangibles and amortizable trademarks.
We regularly evaluate whether events and circumstances have occurred that indicate the carrying amount of property and equipment, lease right-of-use assets and finite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, we assess the potential impairment by determining whether the carrying amount of such long-lived assets will be recovered through the future undiscounted cash flows expected from use of the asset and its eventual disposition. The evaluation is performed at the asset group level, which is the lowest level of identifiable cash flows. If the carrying amount of the asset group is determined not to be not recoverable and exceeds its fair value, an impairment loss is recorded,recognized, measured as the difference between the fair value and the carrying amount. Fair values are determined based on quoted market prices
or discounted cash flow analysis as applicable. We regularly evaluate whether events
As a result of actions taken during the years ended December 31, 2023 and circumstances have occurred that indicate2022 to reduce our facility footprint in certain markets around the useful livesworld, we recognized charges of property$6.0 million and $30.4 million, respectively, primarily related to certain lease right-of-use assets, leasehold improvements, furniture and fixtures and equipment to reduce the carrying amount of each asset group to estimated fair value.
We classify an asset or business as a held for sale disposal group if we have committed to a plan to sell the asset or business within one year and finite-life intangible assets may warrant revision.are actively marketing the asset or business in its current condition for a price that is reasonable in comparison to its estimated fair value. Disposal groups held for sale are reported at the lower of carrying amount or fair value less costs to sell. Subsequent changes to the estimated selling price of an asset or disposal group held for sale are recognized as gains or losses in our consolidated statement of income and any subsequent gains are limited to the cumulative losses previously recognized. During the years ended December 31, 2023 and 2022, we recognized net losses of $243.6 million and $71.9 million, respectively, on the consumer business disposition to reduce the carrying amount of the consumer disposal group to estimated fair value less costs to sell, including the effects of incremental negotiated closing adjustments, changes in the estimated fair value of the seller financing and the effects of the final tax structure of the transaction. In addition, we recognized a $106.9 million gain on the sale of the gaming business in our consolidated statement of income during the year ended December 31, 2023.
Capitalization of Internal-Use Software Costs
We develop software that is used in providing services to customers. Capitalization of internal-use software costs, primarily associated with operating platforms, occurs when we have completed the preliminary project stage, management authorizes the project, management commits to funding the project, it is probable the project will be completed and the project will be used to perform the function intended. The preliminary project stage consists of the conceptual formulation of alternatives, the evaluation of alternatives, the determination of existence of needed technology and the final selection of alternatives. Costs incurred during the preliminary project stage are expensedrecognized as expense as incurred. Currently unforeseen circumstances in software development, such as a significant change in the manner in which the software is intended to be used, obsolescence or a significant reduction in revenues due to merchantcustomer attrition, could require us to implement alternative plans with respect to a particular effort, which could result, and from time-to-time has resulted, in thean impairment ofcharge related to previously capitalized software development costs. The carrying amount of internal-use software, including work in progress,work-in-progress, at December 31, 20172023 was $327.2$1,080.7 million. Costs capitalized during the year ended December 31, 2017,2023 totaled $337.8 million.
In addition, we capitalize implementation costs associated with cloud computing arrangements that are service contracts following the 2016 fiscal transition period andsame internal-use software capitalization criteria. Our cloud computing arrangements involve services we use to support certain internal corporate functions as well as technology associated with revenue-generating activities. We regularly evaluate whether events or circumstances have occurred that indicate the years ended Maycarrying amount of the capitalized implementation costs may not be recoverable. As of December 31, 2016 and 2015 totaled $79.3 million, $37.7 million, $36.52023, capitalized implementation costs, net of accumulated amortization, were $206.5 million and $35.1 million, respectively. Internal-useare presented within other noncurrent assets in the consolidated balance sheets. Costs capitalized during the year ended December 31, 2023 totaled $66.2 million.
There were no significant changes in the accounting methodology used for capitalization of internal-use software is amortized over its estimated useful life, which is typically 2during the year ended December 31, 2023.
Revenue Recognition
In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), we apply judgment in the determination of performance obligations, in particular related to 10 years,large customer contracts within the Issuer Solutions segment. Performance obligations in a mannercontract are identified based on the goods or services that best reflectswill be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, we must apply judgment to determine whether promised services are capable of being distinct and are distinct in the context of the contract. If these criteria are not met, the promised services are combined and accounted for as a single performance obligation. In addition, a single performance obligation may comprise a series of distinct goods or services that are substantially the same and that have the same pattern of economic use oftransfer to the assets.customer.
Income Taxes
We determine our provision for income taxes using management's judgments, estimates and the interpretation and application of complex tax laws in each of the jurisdictions in which we operate. Judgment is also required in assessing the timing and amounts of deductible and taxable items. TheseSuch differences in timing result in deferred tax assets and liabilities in our consolidated balance sheet.
Accounting Standards Codification ("ASC") Topic 740, "Income Taxes" ("ASC 740") requires companies to recognize the effect of tax law changes in the period of enactment. To address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the 2017 U.S. Tax Act, which was enacted on December 22, 2017, the SEC staff issued SAB 118. SAB 118 provides guidance for registrants regarding the application of ASC Topic 740 in the reporting period that includes December 22, 2017, including reporting provisional amounts for those specific income tax effects of the 2017 U.S. Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. In addition, SAB 118 requires provisional amounts or adjustments to provisional amounts identified in the measurement period, as defined, to be included as an adjustment to tax expense or benefit from continuing operations in the period the amounts are determined.
As a result of the enactment of the 2017 U.S. Tax Act, our income tax benefit for the year ended December 31, 2017 included a net benefit of $158.7 million, reflecting provisional amounts for specific income tax effects as a result of the enactment of the 2017 U.S. Tax Act for which our accounting is incomplete but could be reasonably estimated as of December 31, 2017. We are in the process of determining the actual effect of the 2017 U.S. Tax Act. Our reasonable estimates are based on provisional amounts that may be adjusted upon obtaining, preparing or analyzing additional information. We could make adjustments to the provisional amounts of the tax effects during subsequent periods in 2018.
SAB 118 provides that the measurement period is complete when a company's accounting is complete and in no circumstances should the measurement period extend beyond one year from the enactment date. Due to the timing of enactment of this new tax legislation, certain details of the 2017 U.S. Tax Act may not be fully understood or operationalized by the time we issue this Annual Report on Form 10-K. Further guidance could be forthcoming from the U.S. Treasury, the SEC or the accounting profession that could give rise to further effects of the 2017 U.S. Tax Act on our consolidated financial statements in future periods. The effect of the 2017 U.S. Tax Act on our consolidated financial statements and the status of our accounting for its effects is further described along with other disclosures required by SAB 118 in "Note 9—Income Taxes" of the notes to the accompanying consolidated financial statements.
We believe our tax return positions are fully supportable; however, we recognize the benefit for tax positions only when it is more likely than not that the position will be sustained based on its technical merits. Issues raised by a tax authority may be resolved at an amount different than the related benefit recognized. When facts and circumstances change (including an effective settlement
of an issue or statute of limitations expiration), the effect is recognized in the period of change. A portion of theThe unrecognized tax benefits that exist at December 31, 20172023 would affect our provision for income taxes in the future, if recognized.
Judgment is required to determine whether or not some portion or all of our deferred tax assets will not be realized. To the extent that we determine that we will not realize the benefit of some or all of our deferred tax assets, then these deferred tax assets are adjusted via a valuation allowance through our provision for income taxes in the period in which this determination is made.
See "Note 12—Income Tax" in the notes to the accompanying consolidated financial statements for further information regarding the changes in the amount of unrecognized tax benefits and deferred tax valuation allowances during the year ended December 31, 2023.
Redeemable noncontrolling interests
Redeemable noncontrolling interests in our subsidiaries in Poland, Greece, and Chile relate to the portion of equity in each of those subsidiaries not attributable, directly or indirectly, to us, which is redeemable upon the occurrence of an event that is not solely within our control. The redeemable noncontrolling interest for each subsidiary is reflected at the higher of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of comprehensive income (loss), capital contributions and distributions or (ii) the redemption price. Estimates of redemption price are based on projected operating performance of each subsidiary, including key assumptions - revenue growth rates, current and expected market conditions and weighted-average cost of capital. Refer to “Note 16—Noncontrolling Interests” in the notes to the accompanying consolidated financial statements for further information.
Effect of New Accounting Pronouncements -and Recently Issued Accounting Pronouncements Not Yet Adopted
As more fully described inFrom time-to-time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standards setting bodies that may affect our current and/or future financial statements. See "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying consolidated financial statements effective January 1, 2018, we will adoptfor a new revenuediscussion of recently adopted accounting standard that will change the presentation of certain fees that we pay to third partiespronouncements and currently present as an operating expense. Effective January 1, 2018, our revenues will be presented net of such payments, including payment network fees, which represented approximately 23% of our total consolidated revenues in 2017. We expect a similar amount of payment network fees in 2018. This change in presentation of fees paid to third parties will reduce our reported revenues and operating expenses by the same amount and will have no effect on operating income.
The application of the new standard will also change the amount and timing of revenue and expenses to be recognized under certain of our customer arrangements for periods after December 31, 2017. Further, we will also be required to capitalize additional costs to obtain contracts with customers, as well as certain implementation and set-up costs, and in some cases, will be required to amortize these costs and costs that we currently capitalize (such as capitalized customer acquisition costs) over a longer time period. We currently estimate that the net effect of applying the provision of the new accounting standard will be an increase of less than 1% of our operating income in 2018.
Refer to "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the accompanying consolidated financial statements for information on other recently issued accounting pronouncements not yet adopted.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
Certain of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses may be affected by fluctuations in foreign currency exchange rates. We have not historically hedged our translation risk on foreign currency exposure, but we may do so in the future. For the year ended December 31, 2017,2023, currency exchange rate fluctuations increased our consolidated revenues by approximately $6.1 million and increased our operating income by approximately $8.6 million compared to the prior year, calculated by converting revenues and expensesoperating income, respectively, for the current year, ended December 31, 2017 in local currency using prior-year period rates had an immaterial effect on ourexcluding revenues and operating income. For the 2016 fiscal transition period, currency rate fluctuations reduced our revenues by $35.3 million and our operating income by $19.8 million as compared to the prior-year period, calculated by convertingfrom current period revenues and expensesyear acquisitions, in local currencycurrencies using the prior-year period rates. For the year ended May 31, 2016, currency rate fluctuations reduced our revenues by $117.0 million and our operating income by $43.6 million as compared to the prior-year period, calculated by converting revenues and expensesexchange rates for the year ended May 31, 2016 in local currency using prior-year period rates.prior year.
Generally, the functional currency of our various subsidiaries is their local currency. We are exposed to currency fluctuations on transactions that are not denominated in the functional currency. Gains and losses on such transactions are included in determining net income for the period. We seek to mitigate our foreign currency risk through timely settlement of transactions and cash flow matching, when possible. For the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015,2023, our transaction gains and losses were insignificant.
Additionally, we are affected by currency fluctuations in our funds settlement process on merchant payment, chargeback and card network settlement transactions that are not denominated in the currency of the underlying credit or debit card transaction. Gains and losses on these transactions are included in revenues for the period.
We are also affected by fluctuations in exchange rates on our investments in foreign operations. Relative to our net investment in foreign operations, the assets and liabilities of subsidiaries whose functional currency is a foreign currency are translated at the period-end rate of exchange. The resulting translation adjustment is recordedrecognized as a component of other comprehensive income and
is included in shareholders' equity. We have designated our aggregate €800 million Euro-denominated senior notes due March 2031 as a hedge of our net investment in our Euro-denominated operations. The purpose of the net investment hedge is to offset the volatility of our net investment in our Euro-denominated operations due to changes in foreign currency exchange rates, and the foreign currency remeasurement gains and losses associated with the Euro-denominated senior notes are presented within the same components of other comprehensive income and accumulated comprehensive income.
Transaction gains and losses on intercompany balances of a long-term investment nature are also recordedrecognized as a component of other comprehensive income. When a foreign subsidiary is divested in its entirety, the associated accumulated foreign currency translation gains or losses are reclassified from the separate component of equity into our consolidated statement of income.
Interest Rate Risk
We are exposed to market risk related to changes in interest rates on certain of our long-term debtborrowings and cash investments. We invest our excess cash in securities that we believe are highly liquid and marketable in the short term. These investments earn a floating rate of interest and are not held for trading or other speculative purposes.
We have a Credit Facility for general corporate purposes,an unsubordinated unsecured $5.75 billion revolving credit facility, as well as a $2.0 billion commercial paper program and various lines of credit that we use to fund settlement in certain of our markets. Interestmarkets, each of which bears interest at rates on these debt instruments and settlement lines of creditthat are based on market rates and fluctuate accordingly. As of December 31, 2017, $4.7 billion was2023, the amount outstanding under these variable-rate debt arrangements and settlement lines of credit.credit was$3,922.4 million.
The interest earned on our invested cash and the interest paid on a portion of our debt are based on variable interest rates; therefore, the exposure of our net income to a change in interest rates is partially mitigated as an increase in rates would increase both interest income and interest expense, and a reduction in rates would decrease both interest income and interest expense. Under our current policies, we may selectively use derivative instruments, such as interest rate swaps or forward rate agreements, to manage all or a portion of our exposure to interest rate changes. We have entered into interest rate swaps that reduce a portion of our exposure to market interest rate risk on certain of our LIBOR-basedvariable-rate debt as discussed in "Note 7—Long-Term Debt10—Derivatives and Lines of Credit"Hedging Instruments" in the notes to our accompanying consolidated financial statements.
Based on balances outstanding under variable-rate debt agreements and invested cash balances at December 31, 2017,2023, a hypothetical increase of 50 basis points in applicable interest rates as of December 31, 20172023 would increase our annual interest expense by approximately $20.2$11.6 million and increase our annual interest income by approximately $3.5$4.8 million.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Global Payments Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Global Payments Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition - Issuer Solutions - Refer to Notes 1 and 4 to the financial statements.
Critical Audit Matter Description
The Company enters into long-term revenue contracts with its Issuer Solutions customers. Issuer Solutions customer contracts may include multiple promises, including processing services, loyalty redemption services and professional services to financial institutions and other financial services providers. The Company has determined that the processing services and loyalty redemption services represent stand-ready performance obligations comprising a series of distinct days of services that are substantially the same and have the same pattern of transfer to the customer. Professional services representing performance obligations are satisfied over time.
We identified the determination of performance obligations for Issuer Solutions revenue contracts as a critical audit matter, given the judgment required to determine whether any unusual and/or complex terms within the contract are identified and
evaluated appropriately. A high degree of auditor judgment was required to evaluate the Company's identification of the performance obligations in the contract.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's Issuer Solutions revenue transactions, specifically its identification of the performance obligations in contracts with its customers, included the following, among others:
•We evaluated the effectiveness of controls over Issuer Solutions contract revenues, including controls over the identification of performance obligations.
•We selected a sample of Issuer Solutions contracts and evaluated whether the performance obligations were appropriately identified in each of the selected contracts, including whether the promised services are capable of being distinct and are distinct in the context of the contract.
Revenues - Payment processing solutions and services - Refer to Note 1 to the financial statements.
Critical Audit Matter Description
The Company's revenues from its payment processing solutions and services consist of activity-based fees made up of a significant volume of low-dollar transactions, sourced from multiple systems and applications. The processing of transactions and recording of revenues is highly automated and is based on contractual terms with merchants, financial institutions, financial service providers, payment networks, and other parties.
We identified payment processing solutions and services revenues as a critical audit matter given the increased extent of effort, including the need for us to involve professionals with expertise in information technology (IT), to identify, test, and evaluate the Company's systems, software applications, and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company's systems to process payment services revenues included the following, among others:
•With the assistance of our IT specialists, we:
◦Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls.
◦Tested system interface controls and automated controls within the relevant revenue streams, as well as the controls designed to ensure the accuracy and completeness of revenues.
•We tested controls within the relevant revenue business processes, including those in place to reconcile the various reports extracted from the IT systems to the Company’s general ledger.
•We evaluated trends in recorded revenues, including interchange fees and payment network fees.
•For a sample of revenue transactions, we tested selected transactions by agreeing the amounts of revenue recognized to source documents and tested the mathematical accuracy of the recorded revenues.
•We developed independent expectations of certain revenue streams and compared these to amounts recorded by the Company.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 14, 2024
We have served as the Company's auditor since 2002.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Global Payments Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Global Payments Inc. and subsidiaries (the "Company") as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2017,2023, of the Company and our report dated February 22, 2018,14, 2024, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company changing its fiscal year end from May 31 to December 31 in 2016.statements.
As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment a portion of the internal control over financial reporting at Athlaction Topco, LLC ("ACTIVE Network"), which was acquired on September 1, 2017, and whose financial statements constitute less than 1.5% of consolidated revenues, and 4.3% of consolidated assets (excluding goodwill related to the ACTIVE Network transaction which was integrated into the Company's systems and control environment), as of and for the year ended December 31, 2017. ACTIVE Network did not contribute to net income for the year ended December 31, 2017. Accordingly, our audit did not include the internal control over financial reporting at ACTIVE Network that is excluded from management’s assessment.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTEDeloitte & TOUCHETouche LLP
Atlanta, Georgia
February 22, 201814, 2024
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Global Payments Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the year ended December 31, 2017, the seven months ended December 31, 2016, and the years ended May 31, 2016 and 2015, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the year ended December 31, 2017, the seven months ended December 31, 2016, and the years ended May 31, 2016 and 2015, in conformity with the applicable accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018 expressed an unqualified opinion on the Company's internal control over financial reporting.
Emphasis of Matter
As discussed in Note 1 to the consolidated financial statements, the Company changed its fiscal year end from May 31 to December 31 in 2016.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 22, 2018
We have served as the Company’s auditors since 2002.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
Revenues | $ | 3,975,163 |
| | $ | 2,202,896 |
| | $ | 2,898,150 |
| | $ | 2,773,718 |
|
Operating expenses: | | | | | | | |
Cost of service | 1,928,037 |
| | 1,094,593 |
| | 1,147,639 |
| | 1,022,107 |
|
Selling, general and administrative | 1,488,258 |
| | 870,352 |
| | 1,325,567 |
| | 1,295,014 |
|
| 3,416,295 |
| | 1,964,945 |
| | 2,473,206 |
| | 2,317,121 |
|
| | | | | | | |
Operating income | 558,868 |
| | 237,951 |
| | 424,944 |
| | 456,597 |
|
| | | | | | | |
Interest and other income | 8,662 |
| | 44,382 |
| | 5,284 |
| | 4,949 |
|
Interest and other expense | (174,847 | ) | | (108,989 | ) | | (69,316 | ) | | (44,436 | ) |
| (166,185 | ) | | (64,607 | ) | | (64,032 | ) | | (39,487 | ) |
| | | | | | | |
Income before income taxes | 392,683 |
| | 173,344 |
| | 360,912 |
| | 417,110 |
|
Income tax benefit (provision) | 101,387 |
| | (35,661 | ) | | (70,695 | ) | | (107,995 | ) |
Net income | 494,070 |
| | 137,683 |
| | 290,217 |
| | 309,115 |
|
Less: Net income attributable to noncontrolling interests | (25,645 | ) | | (12,752 | ) | | (18,551 | ) | | (31,075 | ) |
Net income attributable to Global Payments | $ | 468,425 |
| | $ | 124,931 |
| | $ | 271,666 |
| | $ | 278,040 |
|
| | | | | | | |
Earnings per share attributable to Global Payments: | | | | | | | |
Basic earnings per share | $ | 3.03 |
| | $ | 0.81 |
| | $ | 2.05 |
| | $ | 2.07 |
|
Diluted earnings per share | $ | 3.01 |
| | $ | 0.81 |
| | $ | 2.04 |
| | $ | 2.06 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Revenues | $ | 9,654,419 | | | $ | 8,975,515 | | | $ | 8,523,762 | |
Operating expenses: | | | | | |
Cost of service | 3,727,521 | | | 3,778,617 | | | 3,773,725 | |
Selling, general and administrative | 4,073,768 | | | 3,524,578 | | | 3,391,161 | |
Impairment of goodwill | — | | | 833,075 | | | — | |
Net loss on business dispositions | 136,744 | | | 199,094 | | | — | |
| 7,938,033 | | | 8,335,364 | | | 7,164,886 | |
| | | | | |
Operating income | 1,716,386 | | | 640,151 | | | 1,358,876 | |
| | | | | |
Interest and other income | 113,711 | | | 33,604 | | | 19,320 | |
Interest and other expense | (660,150) | | | (449,433) | | | (333,651) | |
| (546,439) | | | (415,829) | | | (314,331) | |
| | | | | |
Income before income taxes and equity in income of equity method investments | 1,169,947 | | | 224,322 | | | 1,044,545 | |
Income tax expense | 209,020 | | | 166,694 | | | 169,034 | |
Income before equity in income of equity method investments | 960,927 | | | 57,628 | | | 875,511 | |
Equity in income of equity method investments, net of tax | 67,896 | | | 85,685 | | | 112,353 | |
Net income | 1,028,823 | | | 143,313 | | | 987,864 | |
Net income attributable to noncontrolling interests | (42,590) | | | (31,820) | | | (22,404) | |
Net income attributable to Global Payments | $ | 986,233 | | | $ | 111,493 | | | $ | 965,460 | |
| | | | | |
Earnings per share attributable to Global Payments: | | | | | |
Basic earnings per share | $ | 3.78 | | | $ | 0.41 | | | $ | 3.30 | |
Diluted earnings per share | $ | 3.77 | | | $ | 0.40 | | | $ | 3.29 | |
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Net income | $ | 1,028,823 | | | $ | 143,313 | | | $ | 987,864 | |
Other comprehensive income (loss): | | | | | |
Foreign currency translation adjustments | 211,310 | | | (276,559) | | | (79,550) | |
Reclassification of accumulated foreign currency translation losses to net loss as a result of the sale of a foreign entity | — | | | 62,925 | | | — | |
Income tax benefit related to foreign currency translation adjustments | 4,131 | | | 2,698 | | | 455 | |
Net unrealized gains (losses) on hedging activities | (19,683) | | | 12,915 | | | 3,425 | |
Reclassification of net unrealized (gains) losses on hedging activities to interest expense | (4,609) | | | 21,327 | | | 40,094 | |
Income tax benefit (expense) related to hedging activities | 5,853 | | | (8,172) | | | (10,466) | |
Other, net of tax | 439 | | | (222) | | | 3,760 | |
Other comprehensive income (loss) | 197,441 | | | (185,088) | | | (42,282) | |
Comprehensive income (loss) | 1,226,264 | | | (41,775) | | | 945,582 | |
Comprehensive income attributable to noncontrolling interests | 92,987 | | | 18,519 | | | 12,123 | |
Comprehensive income (loss) attributable to Global Payments | $ | 1,133,277 | | | $ | (60,294) | | | $ | 933,459 | |
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
Net income | $ | 494,070 |
| | $ | 137,683 |
| | $ | 290,217 |
| | $ | 309,115 |
|
Other comprehensive income (loss): | | | | | | | |
Foreign currency translation adjustments | 146,401 |
| | (92,229 | ) | | (55,858 | ) | | (220,641 | ) |
Income tax benefit related to foreign currency translation adjustments | — |
| | — |
| | — |
| | 12,152 |
|
Net unrealized gains (losses) on hedging activities | 4,549 |
| | 5,532 |
| | (12,859 | ) | | (10,116 | ) |
Reclassification of net unrealized losses on hedging activities to interest expense | 5,673 |
| | 4,222 |
| | 8,240 |
| | 3,958 |
|
Income tax (provision) benefit related to hedging activities | (2,583 | ) | | (3,639 | ) | | 1,738 |
| | 2,284 |
|
Other comprehensive income (loss), net of tax | (660 | ) | | 1,030 |
| | (848 | ) | | (450 | ) |
Other comprehensive income (loss) | 153,380 |
| | (85,084 | ) | | (59,587 | ) | | (212,813 | ) |
Comprehensive income | 647,450 |
| | 52,599 |
| | 230,630 |
| | 96,302 |
|
Less: comprehensive income attributable to noncontrolling interests | (39,452 | ) | | (4,335 | ) | | (19,022 | ) | | (2,478 | ) |
Comprehensive income attributable to Global Payments | $ | 607,998 |
| | $ | 48,264 |
| | $ | 211,608 |
| | $ | 93,824 |
|
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 2,088,887 | | | $ | 1,997,566 | |
Accounts receivable, net | 1,120,078 | | | 998,332 | |
Settlement processing assets | 4,097,417 | | | 2,519,114 | |
Current assets held for sale | 6,451 | | | 138,815 | |
Prepaid expenses and other current assets | 760,926 | | | 660,321 | |
Total current assets | 8,073,759 | | | 6,314,148 | |
Goodwill | 26,743,523 | | | 23,320,736 | |
Other intangible assets, net | 10,168,046 | | | 9,658,374 | |
Property and equipment, net | 2,190,005 | | | 1,838,809 | |
Deferred income taxes | 111,712 | | | 37,907 | |
Noncurrent assets held for sale | 327 | | | 1,295,799 | |
Notes receivable | 713,123 | | | — | |
Other noncurrent assets | 2,569,691 | | | 2,343,241 | |
Total assets | $ | 50,570,186 | | | $ | 44,809,014 | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Settlement lines of credit | $ | 981,244 | | | $ | 747,111 | |
Current portion of long-term debt | 620,585 | | | 1,169,330 | |
Accounts payable and accrued liabilities | 2,823,638 | | | 2,442,560 | |
Settlement processing obligations | 3,698,921 | | | 2,413,799 | |
Current liabilities held for sale | 1,341 | | | 125,891 | |
Total current liabilities | 8,125,729 | | | 6,898,691 | |
Long-term debt | 15,692,297 | | | 12,289,248 | |
Deferred income taxes | 2,242,105 | | | 2,428,412 | |
Noncurrent liabilities held for sale | — | | | 4,478 | |
Other noncurrent liabilities | 722,540 | | | 647,975 | |
Total liabilities | 26,782,671 | | | 22,268,804 | |
Commitments and contingencies | | | |
Redeemable noncontrolling interests | 507,965 | | | — | |
Equity: | | | |
Preferred stock, no par value; 5,000,000 shares authorized and none issued | — | | | — | |
Common stock, no par value; 400,000,000 shares authorized at December 31, 2023 and 2022; 260,382,746 shares issued and outstanding at December 31, 2023 and 263,081,872 shares issued and outstanding at December 31, 2022 | — | | | — | |
Paid-in capital | 19,800,953 | | | 19,978,095 | |
Retained earnings | 3,457,182 | | | 2,731,380 | |
Accumulated other comprehensive loss | (258,925) | | | (405,969) | |
Total Global Payments shareholders’ equity | 22,999,210 | | | 22,303,506 | |
Nonredeemable noncontrolling interests | 280,340 | | | 236,704 | |
Total equity | 23,279,550 | | | 22,540,210 | |
Total liabilities, redeemable noncontrolling interests and equity | $ | 50,570,186 | | | $ | 44,809,014 | |
|
| | | | | | | |
| December 31, 2017 | | December 31, 2016 |
| | | |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,335,855 |
| | $ | 1,162,779 |
|
Accounts receivable, net of allowances for doubtful accounts of $1,827 and $1,092, respectively | 301,887 |
| | 275,032 |
|
Settlement processing assets | 2,459,292 |
| | 1,546,854 |
|
Prepaid expenses and other current assets | 206,545 |
| | 131,341 |
|
Total current assets | 4,303,579 |
| | 3,116,006 |
|
Goodwill | 5,703,992 |
| | 4,807,594 |
|
Other intangible assets, net | 2,181,707 |
| | 2,085,292 |
|
Property and equipment, net | 588,348 |
| | 526,370 |
|
Deferred income taxes | 13,146 |
| | 15,789 |
|
Other noncurrent assets | 207,297 |
| | 113,299 |
|
Total assets | $ | 12,998,069 |
| | $ | 10,664,350 |
|
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Settlement lines of credit | $ | 635,166 |
| | $ | 392,072 |
|
Current portion of long-term debt | 100,308 |
| | 177,785 |
|
Accounts payable and accrued liabilities | 1,039,607 |
| | 804,887 |
|
Settlement processing obligations | 2,040,509 |
| | 1,477,212 |
|
Total current liabilities | 3,815,590 |
| | 2,851,956 |
|
Long-term debt | 4,559,408 |
| | 4,260,827 |
|
Deferred income taxes | 436,879 |
| | 676,472 |
|
Other noncurrent liabilities | 220,961 |
| | 95,753 |
|
Total liabilities | 9,032,838 |
| | 7,885,008 |
|
Commitments and contingencies |
|
| |
|
|
Equity: | | | |
Preferred stock, no par value; 5,000,000 shares authorized and none issued | — |
| | — |
|
Common stock, no par value; 200,000,000 shares authorized; 159,180,317 issued and outstanding at December 31, 2017 and 152,185,616 issued and outstanding at December 31, 2016 | — |
| | — |
|
Paid-in capital | 2,379,774 |
| | 1,816,278 |
|
Retained earnings | 1,597,897 |
| | 1,137,230 |
|
Accumulated other comprehensive loss | (183,144 | ) | | (322,717 | ) |
Total Global Payments shareholders’ equity | 3,794,527 |
| | 2,630,791 |
|
Noncontrolling interests | 170,704 |
| | 148,551 |
|
Total equity | 3,965,231 |
| | 2,779,342 |
|
Total liabilities and equity | $ | 12,998,069 |
| | $ | 10,664,350 |
|
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
Cash flows from operating activities: | | | | | | | |
Net income | $ | 494,070 |
| | $ | 137,683 |
| | $ | 290,217 |
| | $ | 309,115 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
|
| |
|
|
Depreciation and amortization of property and equipment | 113,273 |
| | 53,242 |
| | 74,192 |
| | 64,918 |
|
Amortization of acquired intangibles | 337,878 |
| | 194,329 |
| | 113,689 |
| | 72,587 |
|
Share-based compensation expense | 39,095 |
| | 18,707 |
| | 30,809 |
| | 21,056 |
|
Provision for operating losses and bad debts | 48,443 |
| | 24,074 |
| | 27,202 |
| | 14,506 |
|
Amortization of capitalized customer acquisition costs | 45,098 |
| | 14,982 |
| | 1,776 |
| | — |
|
Deferred income taxes | (250,670 | ) | | (33,523 | ) | | (18,162 | ) | | 81,079 |
|
Gain on sale of investments | — |
| | (41,150 | ) | | — |
| | — |
|
Other, net | 44,070 |
| | 32,718 |
| | 15,370 |
| | 8,249 |
|
Changes in operating assets and liabilities, net of the effects of acquisitions: | | | | |
|
| |
|
|
Accounts receivable | (14,096 | ) | | 2,189 |
| | (14,542 | ) | | 1,248 |
|
Settlement processing assets and obligations, net | (361,673 | ) | | 35,599 |
| | 218,061 |
| | (78,794 | ) |
Prepaid expenses and other assets | (46,439 | ) | | 13,997 |
| | (52,254 | ) | | 5,426 |
|
Capitalized customer acquisition costs | (82,988 | ) | | (58,161 | ) | | (11,962 | ) | | — |
|
Accounts payable and other liabilities | 146,327 |
| | 121,140 |
| | (81,506 | ) | | (69,513 | ) |
Net cash provided by operating activities | 512,388 |
| | 515,826 |
| | 592,890 |
| | 429,877 |
|
Cash flows from investing activities: | | | | | | | |
Acquisitions, net of cash acquired | (562,688 | ) | | (33,865 | ) | | (2,034,406 | ) | | (355,971 | ) |
Capital expenditures | (181,905 | ) | | (88,913 | ) | | (91,591 | ) | | (92,550 | ) |
Net proceeds from sale of investments | — |
| | 37,717 |
| | — |
| | — |
|
Net proceeds from sales of property and equipment | 37,565 |
| | — |
| | — |
| | 10,597 |
|
Other, net | (28,997 | ) | | (1,622 | ) | | (1,251 | ) | | (2,997 | ) |
Net cash used in investing activities | (736,025 | ) | | (86,683 | ) | | (2,127,248 | ) | | (440,921 | ) |
Cash flows from financing activities: | | | | | | | |
Net proceeds from (repayments of) settlement lines of credit | 221,532 |
| | 20,582 |
| | (206,009 | ) | | 198,884 |
|
Proceeds from long-term debt | 1,994,324 |
| | 1,299,000 |
| | 6,078,230 |
| | 2,496,842 |
|
Repayments of long-term debt | (1,781,541 | ) | | (1,381,161 | ) | | (3,691,608 | ) | | (2,148,907 | ) |
Payment of debt issuance costs | (9,520 | ) | | (9,279 | ) | | (63,382 | ) | | — |
|
Repurchase of common stock | (34,811 | ) | | (178,165 | ) | | (135,954 | ) | | (372,387 | ) |
Proceeds from stock issued under share-based compensation plans | 10,115 |
| | 6,093 |
| | 8,480 |
| | 22,550 |
|
Common stock repurchased - share-based compensation plans | (31,761 | ) | | (20,390 | ) | | (12,236 | ) | | (15,690 | ) |
Purchase of subsidiary shares from noncontrolling interest | — |
| | — |
| | (7,550 | ) | | — |
|
Proceeds from sale of subsidiary shares to noncontrolling interest | — |
| | — |
| | 16,374 |
| | — |
|
Distributions to noncontrolling interests | (9,301 | ) | | (12,365 | ) | | (23,308 | ) | | (39,753 | ) |
Dividends paid | (6,732 | ) | | (3,069 | ) | | (5,439 | ) | | (5,340 | ) |
Net cash provided by (used in) financing activities | 352,305 |
| | (278,754 | ) | | 1,957,598 |
| | 136,199 |
|
Effect of exchange rate changes on cash | 44,408 |
| | (32,338 | ) | | (29,251 | ) | | (56,288 | ) |
Increase in cash and cash equivalents | 173,076 |
| | 118,051 |
| | 393,989 |
| | 68,867 |
|
Cash and cash equivalents, beginning of the period | 1,162,779 |
| | 1,044,728 |
| | 650,739 |
| | 581,872 |
|
Cash and cash equivalents, end of the period | $ | 1,335,855 |
| | $ | 1,162,779 |
| | $ | 1,044,728 |
| | $ | 650,739 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Cash flows from operating activities: | | | | | |
Net income | $ | 1,028,823 | | | $ | 143,313 | | | $ | 987,864 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization of property and equipment | 458,157 | | | 399,486 | | | 396,342 | |
Amortization of acquired intangibles | 1,318,535 | | | 1,262,969 | | | 1,295,042 | |
Amortization of capitalized contract costs | 123,405 | | | 109,701 | | | 93,328 | |
Share-based compensation expense | 208,994 | | | 163,261 | | | 180,779 | |
Provision for operating losses and credit losses | 97,103 | | | 116,879 | | | 90,208 | |
Noncash lease expense | 65,307 | | | 78,935 | | | 107,775 | |
Deferred income taxes | (499,974) | | | (315,495) | | | (189,050) | |
Equity in income of equity method investments, net of tax | (67,896) | | | (85,685) | | | (112,353) | |
Facilities exit charges | 5,994 | | | 30,437 | | | 51,349 | |
Distributions received on investments | 18,267 | | | 45,521 | | | 36,914 | |
Impairment of goodwill | — | | | 833,075 | | | — | |
Net loss on business dispositions | 136,744 | | | 199,094 | | | — | |
Other, net | 18,545 | | | 993 | | | 10,810 | |
Changes in operating assets and liabilities, net of the effects of business combinations: | | | | | |
Accounts receivable | (78,647) | | | (111,974) | | | (165,543) | |
Settlement processing assets and obligations, net | (345,898) | | | (313,333) | | | 128,584 | |
Prepaid expenses and other assets | (289,826) | | | (295,980) | | | (264,009) | |
Accounts payable and other liabilities | 51,108 | | | (17,157) | | | 132,785 | |
Net cash provided by operating activities | 2,248,741 | | | 2,244,040 | | | 2,780,825 | |
Cash flows from investing activities: | | | | | |
Business combinations and other acquisitions, net of cash and restricted cash acquired | (4,225,610) | | | (65,672) | | | (1,811,432) | |
Capital expenditures | (658,142) | | | (615,652) | | | (493,216) | |
Issuance of notes receivable | (50,000) | | | — | | | — | |
Repayment of notes receivable | 50,000 | | | — | | | — | |
Net cash from sales of businesses | 479,067 | | | (29,755) | | | — | |
Proceeds from sale of investments | 42,135 | | | 33,046 | | | — | |
Other, net | 1,438 | | | 2,496 | | | 10,822 | |
Net cash used in investing activities | (4,361,112) | | | (675,537) | | | (2,293,826) | |
Cash flows from financing activities: | | | | | |
Net borrowings from settlement lines of credit | 220,682 | | | 285,644 | | | 149,528 | |
Net borrowings from commercial paper notes | 1,367,859 | | | — | | | — | |
Proceeds from long-term debt | 10,336,850 | | | 9,812,289 | | | 7,057,668 | |
Repayments of long-term debt | (9,099,938) | | | (7,895,131) | | | (4,826,769) | |
Payments of debt issuance costs | (12,735) | | | (48,635) | | | (21,320) | |
Repurchases of common stock | (418,272) | | | (2,921,307) | | | (2,533,629) | |
Proceeds from stock issued under share-based compensation plans | 60,345 | | | 44,127 | | | 49,545 | |
Common stock repurchased - share-based compensation plans | (41,225) | | | (38,601) | | | (90,649) | |
Distributions to noncontrolling interests | (32,997) | | | (23,031) | | | — | |
Proceeds and contributions from noncontrolling interests | 26,205 | | | — | | | 69,987 | |
Payment of contingent consideration in business combination | (5,222) | | | (15,726) | | | — | |
Purchase of capped calls related to issuance of convertible notes | — | | | (302,375) | | | — | |
Dividends paid | (260,431) | | | (273,955) | | | (259,726) | |
Net cash provided by (used in) financing activities | 2,141,121 | | | (1,376,701) | | | (405,365) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | 12,519 | | | (99,219) | | | (48,382) | |
Increase in cash, cash equivalents and restricted cash | 41,269 | | | 92,583 | | | 33,252 | |
Cash, cash equivalents and restricted cash, beginning of the period | 2,215,606 | | | 2,123,023 | | | 2,089,771 | |
Cash, cash equivalents and restricted cash, end of the period | $ | 2,256,875 | | | $ | 2,215,606 | | | $ | 2,123,023 | |
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
| | | | | | | | | | | | | | | |
Balance at December 31, 2022 | 263,082 | | | $ | 19,978,095 | | | $ | 2,731,380 | | | $ | (405,969) | | | $ | 22,303,506 | | | $ | 236,704 | | | $ | 22,540,210 | | | $ | — | |
Net income | | | | | 986,233 | | | | | 986,233 | | | 41,104 | | | 1,027,337 | | | 1,486 | |
Other comprehensive income | | | | | | | 147,044 | | | 147,044 | | | 8,745 | | | 155,789 | | | 41,652 | |
Stock issued under share-based compensation plans | 1,733 | | | 60,345 | | | | | | | 60,345 | | | | | 60,345 | | | |
Common stock repurchased - share-based compensation plans | (367) | | | (41,011) | | | | | | | (41,011) | | | | | (41,011) | | | |
Share-based compensation expense | | | 208,994 | | | | | | | 208,994 | | | | | 208,994 | | | |
Redeemable noncontrolling interests acquired in a business combination | | | | | | | | | — | | | | | — | | | 471,119 | |
Share-based awards granted in connection with a business combination | | | 2,484 | | | | | | | 2,484 | | | | | 2,484 | | | |
Repurchases of common stock | (4,065) | | | (413,667) | | | | | | | (413,667) | | | | | (413,667) | | | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (26,705) | | | (26,705) | | | (6,292) | |
Sale of subsidiary shares to noncontrolling interest | | | 5,713 | | | | | | | 5,713 | | | 20,492 | | | 26,205 | | | |
Cash dividends declared ($1.00 per common share) | | | | | (260,431) | | | | | (260,431) | | | | | (260,431) | | | |
Balance at December 31, 2023 | 260,383 | | | $ | 19,800,953 | | | $ | 3,457,182 | | | $ | (258,925) | | | $ | 22,999,210 | | | $ | 280,340 | | | $ | 23,279,550 | | | $ | 507,965 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity |
| | | | | | | | | | | | | |
Balance at December 31, 2021 | 284,750 | | | $ | 22,880,261 | | | $ | 2,982,122 | | | $ | (234,182) | | | $ | 25,628,201 | | | $ | 241,216 | | | $ | 25,869,417 | |
Net income | | | | | 111,493 | | | | | 111,493 | | | 31,820 | | | 143,313 | |
Other comprehensive loss | | | | | | | (171,787) | | | (171,787) | | | (13,301) | | | (185,088) | |
Stock issued under share-based compensation plans | 1,883 | | | 44,127 | | | | | | | 44,127 | | | | | 44,127 | |
Common stock repurchased - share-based compensation plans | (285) | | | (38,423) | | | | | | | (38,423) | | | | | (38,423) | |
Share-based compensation expense | | | 163,261 | | | | | | | 163,261 | | | | | 163,261 | |
Repurchases of common stock | (23,266) | | | (2,841,534) | | | (88,280) | | | | | (2,929,814) | | | | | (2,929,814) | |
Distributions to noncontrolling interests | | | | | | | | | — | | | (23,031) | | | (23,031) | |
Purchase of capped calls related to issuance of convertible notes, net of taxes of $72,778 | | | (229,597) | | | | | | | (229,597) | | | | | (229,597) | |
Cash dividends declared ($1.00 per common share) | | | | | (273,955) | | | | | (273,955) | | | | | (273,955) | |
Balance at December 31, 2022 | 263,082 | | | $ | 19,978,095 | | | $ | 2,731,380 | | | $ | (405,969) | | | $ | 22,303,506 | | | $ | 236,704 | | | $ | 22,540,210 | |
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at December 31, 2016 | 152,186 |
| | $ | 1,816,278 |
| | $ | 1,137,230 |
| | $ | (322,717 | ) | | $ | 2,630,791 |
| | $ | 148,551 |
| | $ | 2,779,342 |
|
Net income | | | | | 468,425 |
| | | | 468,425 |
| | 25,645 |
| | 494,070 |
|
Other comprehensive income, net of tax | | | | | | | 139,573 |
| | 139,573 |
| | 13,807 |
| | 153,380 |
|
Stock issued under share-based compensation plans | 1,350 |
| | 10,115 |
| | | | | | 10,115 |
| | | | 10,115 |
|
Common stock repurchased - share-based compensation plans | (338 | ) | | (32,006 | ) | | | | | | (32,006 | ) | | | | (32,006 | ) |
Share-based compensation expense | | | 39,095 |
| | | | | | 39,095 |
| | | | 39,095 |
|
Issuance of common stock in connection with a business combination | 6,358 |
| | 572,079 |
| | | | | | 572,079 |
| | | | 572,079 |
|
Dissolution of a subsidiary | | | | | 7,998 |
| | | | 7,998 |
| | (7,998 | ) | | — |
|
Distributions to noncontrolling interest | | | | | | | | |
|
| | (9,301 | ) | | (9,301 | ) |
Repurchase of common stock | (376 | ) | | (25,787 | ) | | (9,024 | ) | | | | (34,811 | ) | | | | (34,811 | ) |
Dividends paid ($0.04 per share) | | | | | (6,732 | ) | | | | (6,732 | ) | | | | (6,732 | ) |
Balance at December 31, 2017 | 159,180 |
| | $ | 2,379,774 |
| | $ | 1,597,897 |
| | $ | (183,144 | ) | | $ | 3,794,527 |
| | $ | 170,704 |
| | $ | 3,965,231 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at May 31, 2016 | 154,422 |
| | $ | 1,976,715 |
| | $ | 1,015,811 |
| | $ | (246,050 | ) | | $ | 2,746,476 |
| | $ | 130,928 |
| | $ | 2,877,404 |
|
Net income | | | | | 124,931 |
| | | | 124,931 |
| | 12,752 |
| | 137,683 |
|
Other comprehensive loss, net of tax | | | | | | | (76,667 | ) | | (76,667 | ) | | (8,417 | ) | | (85,084 | ) |
Stock issued under share-based compensation plans | 549 |
| | 6,093 |
| | | | | | 6,093 |
| | | | 6,093 |
|
Common stock repurchased - share-based compensation plans | (267 | ) | | (20,532 | ) | | | | | | (20,532 | ) | | | | (20,532 | ) |
Tax benefit from employee share-based compensation | | | 13,017 |
| | | | | | 13,017 |
| | | | 13,017 |
|
Share-based compensation expense | | | 18,707 |
| | | | | | 18,707 |
| | | | 18,707 |
|
Contribution of subsidiary shares to noncontrolling interest related to a business combination | | |
|
| | | | | |
|
| | 25,653 |
| | 25,653 |
|
Distributions to noncontrolling interests | | | | | | | | |
|
| | (12,365 | ) | | (12,365 | ) |
Repurchase of common stock | (2,518 | ) | | (177,722 | ) | | (443 | ) | | | | (178,165 | ) | | | | (178,165 | ) |
Dividends paid ($0.02 per share) | | | | | (3,069 | ) | | | | (3,069 | ) | | | | (3,069 | ) |
Balance at December 31, 2016 | 152,186 |
| | $ | 1,816,278 |
| | $ | 1,137,230 |
| | $ | (322,717 | ) | | $ | 2,630,791 |
| | $ | 148,551 |
| | $ | 2,779,342 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Nonredeemable Noncontrolling Interests | | Total Equity |
| | | | | | | | | | | | | |
Balance at December 31, 2020 | 298,332 | | | $ | 24,963,769 | | | $ | 2,570,874 | | | $ | (202,273) | | | $ | 27,332,370 | | | $ | 154,674 | | | $ | 27,487,044 | |
Net income | | | | | 965,460 | | | | | 965,460 | | | 22,404 | | | 987,864 | |
Other comprehensive loss | | | | | | | (32,001) | | | (32,001) | | | (10,281) | | | (42,282) | |
Stock issued under share-based compensation plans | 2,085 | | | 49,545 | | | | | | | 49,545 | | | | | 49,545 | |
Common stock repurchased - share-based compensation plans | (498) | | | (90,165) | | | | | | | (90,165) | | | | | (90,165) | |
Share-based compensation expense | | | 180,779 | | | | | | | 180,779 | | | | | 180,779 | |
Contributions from noncontrolling interests | | | | | | | | | — | | | 69,987 | | | 69,987 | |
Change in ownership attributable to a noncontrolling interest | | | (4,524) | | | | | 92 | | | (4,432) | | | 4,432 | | | — | |
Repurchases of common stock | (15,169) | | | (2,219,143) | | | (294,486) | | | | | (2,513,629) | | | | | (2,513,629) | |
Cash dividends declared ($0.89 per common share) | | | | | (259,726) | | | | | (259,726) | | | | | (259,726) | |
Balance at December 31, 2021 | 284,750 | | | $ | 22,880,261 | | | $ | 2,982,122 | | | $ | (234,182) | | | $ | 25,628,201 | | | $ | 241,216 | | | $ | 25,869,417 | |
See Notes to Consolidated Financial Statements.
GLOBAL PAYMENTS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at May 31, 2015 | 130,558 |
| | $ | 148,742 |
| | $ | 795,226 |
| | $ | (185,992 | ) | | $ | 757,976 |
| | $ | 105,577 |
| | $ | 863,553 |
|
Net income |
|
| |
|
| | 271,666 |
| |
|
| | 271,666 |
| | 18,551 |
| | 290,217 |
|
Other comprehensive (loss) income |
|
| |
|
| |
|
| | (60,058 | ) | | (60,058 | ) | | 471 |
| | (59,587 | ) |
Stock issued under share-based compensation plans | 591 |
| | 8,480 |
| |
|
| |
|
| | 8,480 |
| |
|
| | 8,480 |
|
Common stock repurchased - share-based compensation plans | (220 | ) | | (12,193 | ) | |
|
| |
|
| | (12,193 | ) | |
|
| | (12,193 | ) |
Tax benefit from share-based compensation plans | | | 7,889 |
| |
|
| |
|
| | 7,889 |
| |
|
| | 7,889 |
|
Share-based compensation expense | | | 30,809 |
| |
|
| |
|
| | 30,809 |
| |
|
| | 30,809 |
|
Issuance of common stock in connection with a business combination | 25,645 |
| | 1,879,458 |
| | | | | | 1,879,458 |
| | | | 1,879,458 |
|
Purchase of subsidiary shares from noncontrolling interest | | | (11 | ) | | | | | | (11 | ) | | (7,539 | ) | | (7,550 | ) |
Sale of subsidiary shares to noncontrolling interest | | |
|
| | | | | |
|
| | 16,374 |
| | 16,374 |
|
Distributions to noncontrolling interests |
|
| |
|
| |
|
| |
|
| |
|
| | (23,308 | ) | | (23,308 | ) |
Contribution of subsidiary shares to noncontrolling interest related to a business combination |
|
| | 3,853 |
| |
|
| |
|
| | 3,853 |
| | 20,802 |
| | 24,655 |
|
Repurchase of common stock | (2,152 | ) | | (90,312 | ) | | (45,642 | ) | |
|
| | (135,954 | ) | |
|
| | (135,954 | ) |
Dividends paid ($0.04 per share) |
|
| |
|
| | (5,439 | ) | |
|
| | (5,439 | ) | |
|
| | (5,439 | ) |
Balance at May 31, 2016 | 154,422 |
| | $ | 1,976,715 |
| | $ | 1,015,811 |
| | $ | (246,050 | ) | | $ | 2,746,476 |
| | $ | 130,928 |
| | $ | 2,877,404 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Global Payments Shareholders’ Equity | | Noncontrolling Interests | | Total Equity |
Balance at May 31, 2014 | 137,692 |
| | $ | 183,023 |
| | $ | 815,980 |
| | $ | (1,776 | ) | | $ | 997,227 |
| | $ | 135,572 |
| | $ | 1,132,799 |
|
Net income | | | | | 278,040 |
| | | | 278,040 |
| | 31,075 |
| | 309,115 |
|
Other comprehensive loss | | | | | | | (184,216 | ) | | (184,216 | ) | | (28,597 | ) | | (212,813 | ) |
Stock issued under share-based compensation plans | 2,065 |
| | 22,550 |
| | | | | | 22,550 |
| | | | 22,550 |
|
Common stock repurchased - share-based compensation plans | (197 | ) | | (7,435 | ) | | | | | | (7,435 | ) | | | | (7,435 | ) |
Tax benefit from share-based compensation plans | | | 5,176 |
| | | | | | 5,176 |
| | | | 5,176 |
|
Share-based compensation expense | | | 21,056 |
| | | | | | 21,056 |
| | | | 21,056 |
|
Distributions to noncontrolling interest | | | | | | | | |
| | (39,753 | ) | | (39,753 | ) |
Noncontrolling interest from business combination | | | | | | | | |
|
| | 7,280 |
| | 7,280 |
|
Repurchase of common stock | (9,002 | ) | | (75,628 | ) | | (293,454 | ) | | | | (369,082 | ) | | | | (369,082 | ) |
Dividends paid ($0.04 per share) | | |
|
| | (5,340 | ) | | | | (5,340 | ) | | | | (5,340 | ) |
Balance at May 31, 2015 | 130,558 |
| | $ | 148,742 |
| | $ | 795,226 |
| | $ | (185,992 | ) | | $ | 757,976 |
| | $ | 105,577 |
| | $ | 863,553 |
|
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business, consolidation and presentation— We are a leading worldwide provider of paymentpayments technology andcompany delivering innovative software solutions delivering innovativeand services to our customers globally. Our technologies, services and employeeteam member expertise enableallow us to provide a broad range of solutions that allowenable our customers to accept various payment types and operate their businesses more efficiently. We distribute our servicesefficiently across a variety of channels to customers in 30 countries throughout North America, Europe,around the Asia-Pacific region and Brazil and operate in three reportable segments: North America, Europe and Asia-Pacific.
We were incorporated in Georgia as Global Payments Inc. in 2000 and spun-off from our former parent company in 2001. Including our time as part of our former parent company, we have been in the payment technology services business since 1967.world. 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.
We operate in two reportable segments: Merchant Solutions and Issuer Solutions. As described in "Note 3—Business Dispositions," during the second quarter of 2023, we completed the sale of the consumer portion of our Netspend business, which comprised our former Consumer Solutions segment. Our consolidated financial statements include the results of our former Consumer Solutions segment for periods prior to disposition. See "Note 18—Segment Information" in the notes to the accompanying consolidated financial statements for additional information about our segments.
These consolidated financial statements include our accounts and those of our majority-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. Investments in entities that we do not control are accounted for using the equity or cost method, based on whether or not we have the ability to exercise significant influence over operating and financial policies. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and present our financial position, results of operations and cash flows. On July 27, 2016, the board of directors authorized a change in our fiscal year end from May 31 to December 31. As a result, we refer to the period consisting of the seven months ended December 31, 2016 as the "2016 fiscal transition period.".
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, uncertainty resulting from global events and other macroeconomic conditions 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 consolidated financial statements reflect the financial statement effects based upon management’s estimates and assumptions utilizing the most currently available information.
Recently adopted accounting pronouncements
Accounting Standards Update ("ASU") 2021-08— In October 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." We elected to early adopt ASU 2021-08 during the year ended December 31, 2022, with application to any business combinations for which the acquisition date occurred after January 1, 2022.Prior to the adoption of this update, an acquirer generally recognized assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606" or "ASC 606"), at fair value on the acquisition date. ASU 2021-08 requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts, which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. This update also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination.
ASU 2020-04— In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," 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 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, as further updated by ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848,”may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2024. We elected to apply the expedients under ASU 2020-04 to a debt facility amendment completed in December 2021, the application of which did not result in any effect on our consolidated financial statements. As a result of changes in our debt structure during 2022, which did not qualify for the optional expedients under ASU 2020-04, we no longer have any significant indebtedness or borrowings that bear interest at a variable rate based on LIBOR. Therefore, we do not expect the discontinuance of LIBOR or the related effects of ASU 2020-04 will have a material effect on our consolidated financial statements. See "Note 9—Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements for further information about our borrowing agreements.
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. The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our consolidated financial statements.
Revenue recognition— WeAt contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good or service that is distinct. In accordance with ASC 606, we recognize revenue when a customer obtains control of promised services. The amount of revenue recognized reflects the consideration to which we expect to be entitled to receive in exchange for these services.
Merchant Solutions. Our customers in the Merchant Solutions segment contract with us for payment services, which we provide in exchange for consideration for completed transactions. Our payment technologysolutions are similar around the world in that we enable our customers to accept card, check and digital-based payments. Our comprehensive offerings include, but are not limited to, authorization, settlement and funding services, customer support, chargeback resolution, payment security services, consolidated billing and reporting. In addition, we may sell or lease point-of-sale terminals or other equipment to customers.
For our payment services, the nature of our promise to the customer is that we stand ready to process transactions the customer requests on a daily basis over the contract term. Since the timing and quantity of transactions to be processed by us is not determinable, we view payment services to comprise an obligation to stand ready to process as many transactions as the customer requests. Under a stand-ready obligation, the evaluation of the nature of our performance obligation is focused on each time increment rather than the underlying activities. Therefore, we view payment services to comprise a series of distinct days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to stand ready is accounted for credit cards, debit cards, electronic payments and check-related services. Revenue is recognized when such services are performed. Revenue for services provided directly to merchants is recorded net of interchange fees charged by card issuing banks. Our primary business model isas a single series performance obligation.
In order to provide our payment services, enterprise software solutionswe route and other value-addedclear each transaction through the applicable payment network. We obtain authorization for the transaction and request funds settlement from the card issuing financial institution through the payment network. When third parties are involved in the transfer of goods or services directly to our customers.customer, we consider the nature of each specific promised good or service and apply judgment to determine whether we control the good or service before it is transferred to the customer or whether we are acting as an agent of the third party. To determine whether or not we control the good or service before it is transferred to the customer, we assess indicators including which party is primarily responsible for fulfillment and which party has discretion in determining pricing for the good or service, as well as other considerations. Based on our assessment of these indicators, we have concluded that our promise to our customer to provide our payment services is distinct from the services provided by the card issuing financial institutions and payment networks in connection with payment transactions. We also provide certaindo not have the ability to direct the use of and obtain substantially all of the benefits of the services provided by the card issuing financial institutions and payment networks before those services are transferred to our customer, and on that basis, we do not control those services prior to being transferred to our customer. As a result, we present our revenues net of the interchange fees retained by the card issuing financial institutions and the fees charged by the payment networks.
The majority of our payment services through a wholesale distribution channel comprised of independent sales organizations ("ISOs"). The majority of our revenues is generated by servicesare priced as a percentage of transaction value or a specified fee per transaction, depending on the card type or the vertical.type. We also charge software licensing and subscriptionother per occurrence fees and other fees based onfor specific services that aremay be unrelated to the number of transactions or the transaction value. Revenue from credit cards
Given the nature of the promise and signature debit cards is generallythe underlying fees based on unknown quantities or outcomes of services to be performed over the contract term, the total consideration is determined to be variable consideration. The variable consideration for our payment service is usage-based and, therefore, it specifically relates to our efforts to satisfy our payment services performance obligation. The variability is satisfied each day the service is provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure revenues for our payment service on a percentage of transaction value along with other related fees, while revenue from PIN-based debit cards is typicallydaily basis based on a fee per transaction.the services that are performed on that day.
Certain of our integrated and vertical market solutionstechnology-enabled customer arrangements contain multiple elements,promises, such as equipment,payment services, perpetual software licenses, software-as-a-service ("SaaS"), maintenance, installation services, training and training. Weequipment, each of which is evaluated to determine whether it represents a separate performance obligation. SaaS arrangements are generally offered on a subscription basis, providing the customers with access to the SaaS platform along with general support and maintenance services. Because these promised services within our SaaS arrangements are delivered concurrently over the contract term, we account for these promises as if they are a single performance obligation that includes a series of distinct services with the same pattern of transfer to the customer. In addition, certain implementation services are not considered distinct from the SaaS and are recognized over the expected period of benefit.
Once we determine the performance obligations and the transaction price, including an estimate of any variable consideration, we then allocate considerationthe transaction price to each elementperformance obligation in the contract using a relative standalone selling price method. We determine standalone selling price based on the relative-selling-price method.price at which the good or service is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price by considering all reasonably available information, including market conditions, trends or other company- or customer-specific factors.
Substantially all of the performance obligations within our SaaS arrangements described above are satisfied over time. We satisfy the combined SaaS performance obligation by standing ready to provide access to the SaaS. Consideration for SaaS arrangements may consist of fixed or usage-based fees. Revenue is recognized over the period for which the services are provided or by directly ascribing any variable fees to the distinct day of service based on the services that are performed on that day. The performance obligations associated with equipment sales, perpetual software licenses and certain professional services are generally satisfied at a point in time when they are transferred to the customer. For certain other professional services that represent separate performance obligations, we generally use the input method and recognize revenue based on the number of hours incurred or services performed to date in relation to the total services expected to be required to satisfy the performance obligation.
Issuer Solutions. Issuer Solutions segment revenues are primarily derived from long-term contracts with financial institutions and other financial service providers. Issuer Solutions customer contracts typically include an obligation to provide processing services to financial institutions and other financial services providers. Payment processing services revenues are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements generated and/or mailed, managed services, cards embossed and mailed, and other processing services for cardholder accounts on file. Most of the customer contracts have prescribed annual minimums, penalties for early termination, and service level agreements that may affect contractual fees if specific service levels are not achieved. We have determined that these processing services represent a stand-ready obligation comprising a series of distinct days of services that are substantially the same and have the same pattern of transfer to the customer.
Issuer Solutions contracts may also include additional performance obligations relating to loyalty redemption services and other professional services. Similar to processing services, we have determined that loyalty redemption services represent a stand-ready obligation comprising a series of distinct days of service that are substantially the same and have the same pattern of transfer to the customer.
To the extent a contract includes multiple promised services, we must apply judgment to determine whether promised services are capable of being distinct and are distinct in the context of the contract. If these criteria for being distinct are not met, the promised services are combined and accounted for as a single performance obligation.
The performance obligations to provide processing services and loyalty redemption services include variable consideration. The variable consideration for our services is usage-based and, therefore, it specifically relates to our efforts to satisfy our services performance obligation. The variability is satisfied each day the service is provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure revenues for our services on a daily basis based on the services that are performed on that day.
Professional services performance obligations are satisfied over time. For professional services, we recognize revenue based on the labor hours incurred for time and materials projects or on a straight-line basis for fixed-fee projects.
In some cases, we pay certain of our customers a signing incentive at contract inception or renewal. Consideration paid to customers is accounted for as a reduction of the transaction price and recognized as a reduction in revenues as the related services are provided to the customer, typically over the contract term. The deferred portion of consideration paid to customers is classified within other assets in our consolidated balance sheets.
Other Issuer Solutions customer arrangements customers pay in advance, butprovide business-to-business ("B2B") payment services, consisting of a stand-ready obligation to process financial transactions for which revenue is recognized on a daily basis based on the services that are performed on that day. Customer contracts may also include subscription based SaaS arrangements that automate key procurement processes and enable virtual cards and integrated payments options, for which revenue is recognized over time on a ratable basis over the service period. In multiple element arrangements where more-than-incidental software elementscontract term beginning on the date that the services are included,first made available to the entire amountcustomer.
Consumer Solutions. During the second quarter of revenue under2023, we completed the arrangement is deferred until all elements have been delivered or objective evidencesale of the fair valueconsumer portion of our Netspend business, which comprised our former Consumer Solutions segment. For the undelivered items can be established. The amounts paidperiods prior to disposition, our Consumer Solutions arrangements included a stand-ready performance obligation to provide account access and facilitate purchase transactions. Revenues principally consisted of fees collected from cardholders and fees generated by cardholder activity in advance by customersconnection with the programs that we managed. Customers were typically charged a fee for each purchase transaction made using their cards, unless the customer was on a monthly or annual service plan, in which case the customer was instead charged a monthly or annual subscription fee, as applicable. Customers were also charged a monthly maintenance fee after a specified period of inactivity. We also charged fees associated with additional services offered in connection with our accounts, including the use of overdraft features, a variety of bill payment options, card replacement, foreign exchange and amounts deferred for software arrangements are reflected as unearnedcard-to-card transfers of funds initiated through our call centers.
We determined that we had a right to consideration from a customer in an amount that corresponded directly with our performance completed to date. As a result, we recognized revenue in the consolidated balance sheets withamount to which we had a right to invoice. Revenues were recognized net of fees charged by the portion estimated to be recognized as revenue within the next twelve months reflectedpayment networks for services they provided in current liabilitiesprocessing transactions routed through them.
Cash, cash equivalents and the remainder reflected in other noncurrent liabilities.
Cash andrestricted cash equivalents— Cash and cash equivalents include cash on hand and all liquid investments with a maturity of three months or less when purchased. We consider certain portions of our cash and cash equivalents to be unrestricted but not available for general purposes. The amount of cash that we consider to be available for general purposes, $703.3 million and $713.0 million as of December 31, 2023 and 2022, respectively, does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted;restricted in their use; however, these funds are generally paid out in satisfaction of settlementa processing obligationsobligation the following day. Merchant Reserves serve as collateral
to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. We recordrecognize a corresponding liability in settlement processing assets and settlement processing obligations in our consolidated balance sheet.sheets. While this cash is not restricted in its use, we believe that designating this cash as Merchant Reserves strengthens our fiduciary standing with financial institutions that sponsor us and is in accordance with guidelines set by the card networks. See "Note 3—Settlement Processing Assets and Obligations" and discussion below for further information.us. Funds held for customers, which are not restricted in their use, include amounts collected before the corresponding obligation is due to be settled to or at the direction of our customers.
Restricted cash includes amounts that cannot be withdrawn or used for general operating activities under legal or regulatory restrictions. Restricted cash consists of amounts deposited by customers for prepaid card transactions and funds held as a liquidity reserve that are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use. Restricted cash is included in prepaid expenses and other current assets in the consolidated balance sheets with a corresponding liability in accounts payable and accrued liabilities.
We regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit or the equivalent outside the U.S. As of December 31, 2023, approximately 75% of our total balance of cash and cash equivalents was held within a small group of financial institutions, primarily large money center banks. Although we currently believe that the financial institutions with whom we do business will be able to fulfill their commitments to us, there is no assurance that those institutions will be able to continue to do so. We have not experienced any losses associated with our balances in such accounts for the year ended December 31, 2023, 2022 or 2021.
A reconciliation of the amounts of cash and cash equivalents and restricted cash in the consolidated balance sheets to the amount in the consolidated statements of cash flows is as follows:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
| (in thousands) |
| | | |
Cash and cash equivalents | $ | 2,088,887 | | | $ | 1,997,566 | |
Restricted cash | 167,190 | | | 147,422 | |
Cash included in assets held for sale | 798 | | | 70,618 | |
Cash, cash equivalents and restricted cash shown in the statement of cash flows | $ | 2,256,875 | | | $ | 2,215,606 | |
Accounts receivable, contract assets and contract liabilities— A contract with a customer creates legal rights and obligations. As we perform under customer contracts, our right to consideration that is unconditional is considered to be accounts receivable. If our right to consideration for such performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues we have recognized in excess of the amount we have billed to the customer is recognized as a contract asset. Contract liabilities represent consideration received from customers in excess of revenues recognized. Contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheet and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.
Allowance for credit losses on accounts receivable— We are exposed to credit losses on accounts receivable balances. We utilize a combination of aging and 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. Accounts receivable is presented net of an allowance for credit losses of $19.0 million and $21.0 million as of December 31, 2023 and 2022, respectively, including $3.3 million presented within assets held for sale in the consolidated balance sheet as of December 31, 2022 as further discussed in "Note 3—Business Dispositions."
The measurement of the allowance for credit losses on accounts receivable is recognized through credit loss expense and is included as a component of selling, general and administrative expense in our consolidated statements of income. We recognized credit loss expense of $23.3 million, $15.0 million and $12.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. Write-offs are recognized in the period in which the asset is deemed to be uncollectible. Recoveries are recognized when received as a direct credit to the credit loss expense.
Revenues are recognized net of estimated billing adjustments. Adjustments to customer invoices are charged against the allowance for billing adjustments.
Contract costs— We capitalize certain costs to obtain contracts with customers, including employee sales commissions and fees to business partners. At contract inception, we capitalize costs incurred that we expect to recover and that would not have been incurred if the contract had not been obtained. In certain instances in which costs related to obtaining customers are incurred after the inception of the customer contract, such costs are capitalized as the corresponding liability is recognized. We also capitalize certain costs incurred to fulfill our contracts with customers that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract and (iii) are expected to be recovered through revenues generated under the contract. Capitalized costs to obtain and to fulfill contracts are included in other noncurrent assets.
Contract costs are amortized to operating expense in our consolidated statements of income on a systematic basis consistent with the transfer to the customer of the goods or services to which the asset relates. Amortization of capitalized costs to obtain customer contracts is included in selling, general and administrative expenses in the consolidated statements of income, while amortization of capitalized costs to fulfill customer contracts is included in cost of services. We utilize a straight-line or proportional amortization method depending upon which method best depicts the pattern of transfer of the goods or services to the customer. We amortize these assets over the expected period of benefit, which, based on the factors noted above, is typically three to seven years. In order to determine the appropriate amortization period for capitalized contract costs, we recordconsider a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology we use to provide goods and services to our customers, whether future contract renewals are expected and if there is any incremental commission expected to be paid associated with a contract renewal. Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred. We evaluate contract costs for impairment by comparing, on a pooled basis, the expected future net cash flows from underlying customer relationships to the carrying amount of the capitalized contract costs.
Up-front distributor and partner payments— We capitalize certain up-front contractual payments to third-party distributors and partners and recognize the capitalized amount as expense ratably over the period of benefit, which is generally the contract period. If the contract requires the distributor or partner to perform specific acts and no other conditions exist for the distributor or partner to earn or retain the up-front payment, then we recognize the capitalized amount as an expense when the performance conditions have been met. Up-front distributor and partner payments are classified in "customer deposits" include amounts collected prior to remittance on our customers' behalf.consolidated balance sheets within prepaid expenses and other current assets and other noncurrent assets and the related expense is reported within selling, general and administrative expenses in our consolidated statements of income.
Settlement processing assets and obligations—Settlement processing assets Funds settlement refers to the process in our Merchant Solutions segment of transferring funds between card issuers and obligations representmerchants for merchant sales and credits processed on our systems. We use our internal network to provide funding instructions to financial institutions that in turn fund the merchants. We process funds settlement under two models, a sponsorship model and a direct membership model.
Under the sponsorship model, we are designated as an independent sales organization by Mastercard and Visa, which means that member clearing banks ("Member") sponsor us and require our adherence to the standards of the payment networks. In certain markets, we have sponsorship or depository and clearing agreements with financial institution sponsors. These agreements allow us to route transactions under the Members' control and identification numbers to clear credit card transactions through Mastercard and Visa. In this model, the standards of the payment networks restrict us from performing funds settlement or accessing merchant settlement funds, and, instead, require that these funds be in the possession of the Member until the merchant is funded.
Under the direct membership model, we are members in various payment networks, allowing us to process and fund transactions without third-party sponsorship. In this model, we route and clear transactions directly through the card brand’s network and are not restricted from performing funds settlement. Otherwise, we process these transactions similarly to how we process transactions in the sponsorship model. We are required to adhere to the standards of the payment networks in which we are direct members. We maintain relationships with financial institutions, which may also serve as our Member sponsors for other card brands or in other markets, to assist with funds settlement.
Timing differences, interchange fees, merchant reserves and exception items cause differences between the amount received from the payment networks and the amount funded to the merchants. These intermediary balances arising in our settlement process are reflected as settlement processing assets and obligations in our consolidated balance sheets.
Settlement processing assets and obligations include the following components:
•Interchange reimbursement. Our receivable from merchants for the portion of the discount fee related to reimbursement of the interchange fee.
•Receivable from Members. Our receivable from the Members for transactions in which we have advanced funding to the Members to fund merchants in advance of receipt of funding from payment networks.
•Receivable from networks. Our receivable from a payment network for transactions processed on behalf of merchants where we are a direct member of that particular network.
•Exception items. Items such as customer chargeback amounts received from merchants. In accordance
•Merchant Reserves. Reserves held to minimize contingent liabilities associated with Accounting Standards Codification ("ASC") Subtopic 210-20, Offsetting,losses that may occur under the merchant agreement.
•Liability to Members. Our liability to the Members for transactions that have not yet been funded to the merchants.
•Liability to merchants. Our liability to merchants for transactions that have been processed but not yet funded where we are a direct member of a particular payment network.
•Allowance for credit and other merchant losses on settlement assets. Allowances, charges or expected credit losses on chargebacks, merchant fraud or other merchant-related reason.
We apply offsetting to our settlement processing assets and obligations where a right of setoff exists. See "Note 3—Settlement Processing AssetsIn the sponsorship model, we apply offsetting by Member agreement because the Member is ultimately responsible for funds settlement. With these Member transactions, we do not have access to the gross proceeds of the receivable from the payment networks and, Obligations"thus, do not have a direct obligation or any ability to satisfy the payable to fund the merchant. In these situations, we apply offsetting to determine a net position for further information.each Member agreement. If that net position is an asset, we reflect the net amount in settlement processing assets in our consolidated balance sheet. If that net position is a liability, we reflect the net amount in settlement processing obligations in our consolidated balance sheet. In the direct membership model, offsetting is not applied, and the individual components are presented as an asset or obligation based on the nature of that component.
ReserveAllowance for operatingcredit and other merchant losses on settlement assets— Our merchant customers are liable for any charges or losses that occur under the merchant agreement. We experience losseshave a risk of loss in our card processing services when we are unableassociated with the liability to collect amounts from merchant customers for any charges properly reversed by the card issuing financial institutions. WhenWe are therefore exposed to credit losses on these settlement processing assets. We utilize a combination of aging and 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. We require cash deposits, guarantees, letters of credit and other types of collateral from certain merchants to minimize the risk of loss, and we also utilize a number of systems and procedures to manage merchant risk. The allowance for credit losses on settlement processing assets was $9.7 million and $2.3 million as of December 31, 2023 and 2022, respectively.
The measurement of the allowance for credit losses on settlement assets is recognized through credit loss expense and is included as a component of cost of service in our consolidated statements of income. We recognized credit loss expense of $19.2 million, $13.0 million and $3.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. Write-offs
are recognized in the period in which the asset is deemed to be uncollectible. Recoveries are recognized when received as a direct credit to the credit loss expense.
Additionally, when we are not able to collect these amounts from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, we may be liable for the reversed charges. We require cash deposits, guarantees, letters of credit and other types of collateral from certain merchants to minimize any such contingent liability, and we also utilize a number of systems and procedures to manage merchant risk. We experience check guarantee losses when we are unable to collect the full amount of a guaranteed check from the checkwriter. We refer to both merchant credit losses and check guarantee losses as "operating losses." We recordrecognize an estimated liability for operatingmerchant losses comprised of estimated known losses and estimated incurred but not reported losses.losses, which is included in accrued liabilities in our consolidated balance sheet. The provision for merchant losses is included as a component of cost of service in our consolidated statements of income.
CapitalizedReserve for contract contingencies and processing errors— A significant number of our customer acquisition costs— Capitalized customer acquisition costs, whichcontracts in our Issuer Solutions segment contain service level agreements that can result in performance penalties payable by us if we do not meet contractually required service levels. We recognize an accrual for estimated performance penalties and processing errors. When providing for these accruals, we consider such factors as our history of incurring performance penalties and processing errors, actual contractual penalty charge rates in our contracts, progress towards milestones and known processing errors. These accruals are included in accrued liabilities in our consolidated balance sheets. Depending on the nature of item, transaction processing provisions are either included as a reduction of the transaction price and recognized as a reduction in revenues as the related services are provided to the customer, or recognized as a component of cost of service, in our consolidated statements of income.
Reserve for cardholder losses— Through services offered in our former Consumer Solutions segment, we were exposed to losses due to cardholder fraud, payment defaults and other noncurrent assets, consistforms of (1) up-front signing bonus payments madecardholder activity as well as losses due to certain salespersonsnonperformance of third parties who received cardholder funds for transmittal to the establishmentissuing financial institutions. We established a reserve for losses we estimated would arise from processing customer transactions, debit card overdrafts, chargebacks for unauthorized card use and merchant-related chargebacks due to nondelivery of certaingoods and services. These reserves were established based upon historical loss and recovery rates and cardholder activity for which specific losses could be identified. Prior to the disposition of our new merchant relationships and (2)consumer business, the provision for cardholder losses was included as a deferred acquisition cost representing the estimatedcomponent of cost of buying out the residual commissionsservice in our consolidated statements of certain vested salespersons. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through merchant profitability. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial term of the related merchant contract.income.
Up-front signing bonuses paid for certain new accounts are based on the estimated profitability for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization are adjusted after the first year to reflect the actual profitability generated by the merchant contract during that year. The deferred customer acquisition cost asset is accrued over the first year of merchant processing, consistent with the build-up in the accrued buyout liability, as described below.
We evaluate the capitalized customer acquisition costs for impairment on an annual basis by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss would be charged to operations. Based on our evaluation, we determined that no impairment of capitalized customer acquisition costs had occurred as of December 31, 2017.
Property and equipment— Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are generally calculated using the straight-line method, except for certain technology assets discussed below.method. Leasehold improvements are amortized over the lesser of the remaining term of the lease and the useful life of the asset.
We develop software that is used to provide services to customers. Capitalization of internal-use software costs, primarily associated with operating platforms, occurs when we have completed the preliminary project stage, management authorizes the project, management commits to funding the project, and it is probable the project will be completed and the project will be used to perform the function intended. The preliminary project stage consists of the conceptual formulation of alternatives, the evaluation of alternatives, the determination of existence of needed technology and the final selection of alternatives. Costs incurred during the preliminary project stage are expensedrecognized as expense as incurred. Internal-useCapitalized internal-use software is amortized over its estimated useful life, which is typically 2five to 10ten years, in a manner that best reflects the pattern of economic use of the assets.
Goodwill— We have historically performed our annual goodwill impairment test as of January 1. As a result of the change in our fiscal year end from May 31 to December 31, we elected to change our annual goodwill impairment test date from January 1 to October 1 to give us sufficient time to complete our assessment in conjunction with our year-end reporting. We performed an annual goodwill impairment test on January 1, 2017 and on October 1, 2017.
We test goodwill for impairment at the reporting unit level annually (in the fourth quarter) and more often if an event occurs or circumstances change that indicate the fair value of a reporting unit is below its carrying amount. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testingassessment for impairment is necessary. The optionelection of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit.
Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required. The quantitative assessment compares the estimated fair value of the reporting unit to its carrying amount, and recognizes an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its estimated fair value, without exceeding the total amount of goodwill allocated to that reporting unit.
During the firstsecond quarter of 2017, we revised2022, a sustained decline in our share price and increases in discount rates, primarily resulting from increased economic uncertainty, indicated a potential decline in fair value and triggered a requirement to evaluate our Issuer Solutions and former Business and Consumer Solutions reporting units for potential impairment as of June 30, 2022. Furthermore, the estimated sales price for the consumer business portion of our former Business and Consumer Solutions reporting unit structure withinalso indicated a potential decline in fair value as of June 30, 2022. We determined on the basis of the quantitative assessment that the fair value of our North America segment to reflect changes made in connection with the integration of Heartland Payment Systems, Inc. ("Heartland"). Under the revisedIssuer Solutions reporting unit structure,was still greater than its carrying amount as of June 30, 2022, indicating no impairment. Based on the quantitative assessment of our former Business and Consumer Solutions reporting unit, including consideration of the consumer business disposal group and the remaining assets of the reporting unit, we operate two reporting unitsrecognized a goodwill impairment charge of $833.1 million in our North America segment: (i) Payments and (ii) Integrated Solutions and Vertical Markets. We reassignedconsolidated statement of income during the three months ended June 30, 2022. The estimated fair value used in the goodwill previously allocatedimpairment assessment was considered to North America merchant services and Heartland tobe a nonrecurring Level 3 measurement of the two new reporting units using a relative fair value approach. Asvaluation hierarchy.
During the third quarter of 2022, as a result of the pending divestiture of our consumer business and changes in how our business is managed, we realigned the businesses previously comprising our former Business and Consumer Solutions segment to include the B2B portion within our Issuer Solutions segment and the consumer portion forming our Consumer Solutions segment. In connection with the change in presentation of segment information, the B2B portion of our former Business and Consumer Solutions reporting unit was realigned into the Issuer Solutions reporting unit, including a reallocation of goodwill. During the second quarter of 2023, we completed the sale of our consumer business. In addition, during 2023, we realigned our reporting units we performed goodwill impairment tests immediately beforebased on organizational changes and after this change in reporting units and determined that there was no impairment.the acquired operations of EVO.
Following the revision described above, we now have seven reporting units: North America Payments, North America Integrated Solutions and Vertical Markets, U.K. merchant services, Asia-Pacific merchant services, Central and Eastern Europe merchant services, Russia merchant services and Spain merchant services. As of October 1, 2017,2023, our reporting units consisted of the following: North America Payments Solutions, Vertical Market Software Solutions, Europe Merchant Solutions, Spain Merchant Solutions, Asia-Pacific Merchant Solutions, Latin America Merchant Solutions and Issuer Solutions. As of October 1, 2023, we elected to performperformed a qualitativequantitative assessment of impairment for each of our Issuer Solutions, Asia-Pacific Merchant Solutions and Latin America Merchant Solutions reporting units and a qualitative assessment for all other reporting units. We determined on the basis of qualitative factorsthe quantitative assessments of our Issuer Solutions, Asia-Pacific Merchant Solutions and Latin America Merchant Solutions reporting units that the fair value of each reporting unit was greater than its respective carrying amount, indicating no impairment. Additionally, we determined on the basis of the qualitative factors that the fair value of other reporting units was not more likely than not less than the respective carrying amount. We believe that the fair value of each of our reporting units is substantially in excess of its carrying amount.amounts.
Other intangible assets— Other intangible assets include customer-related intangible assets (such as customer lists, merchant contracts and merchant contracts)referral agreements), contract-based intangible assets (such as noncompete agreements, referraldistributor agreements and processing rights), acquired technologies, trademarks and trade names associated with acquisitions.business combinations. These assets are amortized over their estimated useful lives. The useful lives for customer-related intangible assets are determined based primarily on forecasted cash flows, which include estimates for the revenues, expenses, and customer attrition associated with the assets. The useful lives of contract-based intangible assets are equal to the terms of the agreements. The useful lives of acquired technologies are based on an estimate of the period over which we expect to receive economic benefit. The useful lives of amortizable trademarks and trade names are based on ouran estimate of the period over which we will earn revenues for the related assets, including contemplation of any future plans to use the trademarks and trade names in the applicable markets. Acquired technology is amortized on a
We use the straight-line basis over its estimated useful life.
method of amortization for our amortizable acquired technologies, trademarks and trade names and certain contract-based intangible assets. Amortization for most of our customer-related intangible assets and certain contract-based intangible assets is calculateddetermined using an accelerated method. InUnder this accelerated method, the first step in determining the amortization expense under our accelerated method for any given period is that we calculatedivide the expected cash flows for that period that were used in determining the acquisition-date fair value of the asset and divide that amount by the expected total cash flows over the estimated life of the asset. We then multiply that percentageratio by the initial carrying amount of the asset to arrive at the amortization expense for that period. If the cash flow patterns that we experience differ significantly from our initial estimates, we adjust the amortization schedule prospectively. These cash flow patterns are derived using certain assumptions and cost allocations due to a significant number of asset interdependencies that exist in our business. We believe that our accelerated method reflects the expected pattern of the benefit to be derivedderived.
Implementation costs incurred in a cloud computing arrangement— We capitalize implementation costs associated with cloud computing arrangements that are service contracts, and we amortize these capitalized implementation costs to expense on a straight-line basis over the term of the applicable hosting arrangement. Our cloud computing arrangements involve services we use to support certain internal corporate functions as well as technology associated with revenue-generating activities. As of December 31, 2023 and 2022, capitalized implementation costs, net of accumulated amortization, were $206.5 million and $142.9 million, respectively, and are presented within other noncurrent assets in the consolidated balance sheets. Amortization expense for the years ended December 31, 2023, 2022 and 2021 was $3.8 million, $3.1 million and $3.0 million, respectively, and is presented in the same line item in the consolidated statements of income as the expense for the associated cloud services arrangement.
Leases— We evaluate each of our lease and service arrangements at inception to determine if the arrangement is, or contains, a lease and the appropriate classification of each identified lease. A lease exists if we obtain substantially all of the economic benefits of, and have the right to control the use of, an asset for a period of time. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the acquired customer relationships.lease agreement. We recognize right-of-use assets and lease liabilities at the lease commencement date based on the present values of fixed lease payments over the term of the lease. Right-of-use assets may also be adjusted to reflect any prepayments made or any incentive payments received. Operating lease costs and depreciation expense for finance leases are recognized as expense on a straight-line basis over the lease term. We consider a termination or renewal option in the determination of the lease term when it is reasonably certain that we will exercise that option. Because our leases generally do not provide a readily determinable implicit interest rate, we use an incremental borrowing rate to measure the lease liability and associated right-of-use asset at the lease commencement date. The incremental borrowing rate used is a fully collateralized rate that considers our credit rating, market conditions and the term of the lease at the lease commencement date. We have made an accounting policy election to not recognize assets or liabilities for leases with a term of less than 12 months and to account for all components in a lease arrangement as a single combined lease component for all asset classes with the exception of computer equipment, for which we account for lease and nonlease components separately.
We use the straight-line method of amortization for our contract-based intangibles, amortizable trademarks and trade names and acquired technologies.
Impairment of long-lived assets— We regularly evaluate whether events and circumstances have occurred that indicate the carrying amount of property and equipment, capitalized software, lease right-of-use assets and finite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, we assess the potential impairment by determining whether the carrying amount of such long-lived assets will be recovered through the future undiscounted cash flows expected from use of
the asset and its eventual disposition. The evaluation is performed at the asset group level, which is the lowest level of identifiable cash flows. If the carrying amount of the asset group is determined not to be not recoverable, a write-down to fair value is recorded.recognized. Fair values are determined based on quoted market prices or discounted cash flow analysis as applicable. We regularly evaluate whether events and circumstances have occurred that indicate the useful lives of property and equipment and finite-life intangible assets may warrant revision. The
Assets held for sale— We classify an asset or business as a held for sale disposal group if we have committed to a plan to sell the asset or business within one year and are actively marketing the asset or business in its current condition for a price that is reasonable in comparison to its estimated fair value. Disposal groups held for sale are reported at the lower of carrying amountsamount or fair value less costs to sell. Long-lived assets classified as held for sale are not subject to depreciation or amortization, and both the assets and any liabilities directly associated with the disposal group are presented net within separate current and noncurrent held for sale line items in our consolidated balance sheet. Subsequent changes to the estimated selling price of an asset or disposal group held for sale are recognized as gains or losses in our consolidated statement of income and any subsequent gains are limited to the cumulative losses previously recognized.
Notes receivable and allowance for credit losses— During 2023, we provided seller financing in connection with the sale of our long-lived assets,former consumer and gaming businesses. We classify notes receivable as held for investment based on the intent and ability to hold for the foreseeable future or until maturity or payoff, and the notes are presented at amortized cost within notes receivable in our consolidated balance sheet. Interest income is recognized using the effective interest method, which includes the accretion of the difference between the fair value at inception and the face value of the notes.
We are exposed to credit losses on the notes. We utilize a probability-of-default and loss given default method to develop an estimate of current expected credit losses applied at the loan level. A variety of factors are considered to estimate the expected credit loss, including propertythe probability of default (representing the probability the asset will default within a given time
frame), the loss given default (representing the percentage of the asset that is not expected to be collected due to default), leverage ratios, interest rates, market and equipmentindustry data, and finite-life intangible assets, were not impaired atforecasts that affect the collectibility of the reported amount. The estimation process also includes consideration of qualitative and quantitative risk factors associated with expected timing of payment, industry trends and current and anticipated future economic conditions. Expected credit losses are estimated over the life of the loans, adjusted for expected prepayments when appropriate. Notes receivable are presented net of an allowance for credit losses of $15.2 million as of December 31, 20172023. We recognized a noncash credit loss of $15.2 million for the year ended December 31, 2023, which is included as a component of interest and 2016.other expenses in our consolidated statements of income.
Equity method investments— We have certain investments, including a 45% interest in China UnionPay Data Co., Ltd. that we account for using the equity method of accounting. Equity method investments are recognized initially at cost and subsequently adjusted for our portion of equity in earnings, cash contributions and distributions, and foreign currency translation adjustments. As of December 31, 2023 and 2022, we had total equity method investments of $989.6 million and $957.2 million, respectively, presented within other noncurrent assets in the consolidated balance sheets.
Accrued buyout liability— Certain of our Merchant Solutions salespersons in the United States are paid residual commissions based on the profitability generated by certain merchants.merchant customers. We have the right, but not the obligation, to buy out some or all of these commissions and intend to do so periodically. Such purchases of the commissions are at a fixed multiple of the last 12 months'months of commissions. Because of our intent and ability to execute purchases of the residual commissions, and the mutual understanding between us and our salespersons, we have accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. We therefore recordTherefore, we recognize a liability for the amount that we would have to pay (the "settlement cost") to buy out non-servicing related commissions in their entirety from vested salespersons, and an estimated amount for unvested salespersons based on their progress towards vesting and the expected percentage that will become vested. As noted above, as the liability increases over the first year of the related merchant contract, we recordrecognize a related asset for currently vested salespersons.asset. Subsequent changes in the estimated accrued buyout liability due to merchant attrition, same-store sales growth or contraction and changes in profitability are included in the selling, general and administrative expense in the consolidated statementstatements of income.
The accrued buyout liability is based on merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior 12 months, and the contractual buyout multiple. The liability related to a new merchant is therefore zero when the merchant is installed, and increases over the 12 months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect our estimate of the percentage of unvested salespersons that will become vested.
The classification of the accrued buyout liability between current and noncurrent onin the consolidated balance sheet is based upon our estimate of the amount of the accrued buyout liability that we reasonably expect to pay over the next 12 months.
Income taxes— Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Accounting Standards Codification ("ASC") Topic 740, "Income Taxes" ("ASC 740") requires companies to recognize the effect of tax law changes in the period of enactment. To address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 U.S. Tax Act"), which was enacted on December 22, 2017, the U.S. Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance for registrants regarding the application of ASC Topic 740 in the reporting period that includes December 22, 2017 under three scenarios:
Measurement of certain income tax effects is complete. Registrants must reflect the tax effects of the 2017 U.S. Tax Act for which the accounting is complete.
Measurement of certain income tax effects can be reasonably estimated. Registrants must report provisional amounts for those specific income tax effects of the 2017 U.S. Tax Act for which the accounting is incomplete but a reasonable estimate can be determined. Provisional amounts or adjustments to provisional amounts identified in the measurement period, as defined, should be included as an adjustment to tax expense or benefit from continuing operations in the period the amounts are determined.
Measurement of certain income tax effects cannot be reasonably estimated. Registrants are not required to report provisional amounts for any specific income tax effects of the 2017 U.S. Tax Act for which a reasonable estimate cannot be determined, and would continue to apply ASC 740 based on the provisions of the tax laws that were in effect immediately prior to the enactment of the 2017 U.S. Tax Act. Registrants would report the provisional amounts of the tax effects of the 2017 U.S. Tax Act in the first reporting period in which a reasonable estimate can be determined.
SAB 118 provides that the measurement period is complete when a company's accounting is complete and in no circumstances should the measurement period extend beyond one year from the enactment date. Due to the timing of enactment of this new tax legislation, certain details of the 2017 U.S. Tax Act were not fully understood or operationalized by the time we issued this Annual Report on Form 10-K.
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02 "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 U.S. Tax Act and require certain disclosures about stranded tax effects. This update is effective January 1, 2019, and we are still evaluating the effect of the update on our consolidated financial statements. Further guidance could be forthcoming from the FASB, the U.S. Treasury or the SEC that could give rise to further effects of the 2017 U.S. Tax Act on our consolidated financial statements in future periods.
We periodically assess our tax exposures related to periods that are open to examination. Based on the latest available information, we evaluate our tax positions to determine whether the position will more likely than not be sustained upon examination by the U.S. Internal Revenue Service or other taxing authorities. If we cannotdo not reach a more-likely-than-not determination, no benefit is recorded.recognized. If we determine that the tax position is more likely than not to be sustained, we recordrecognize the largest amount of benefit that is more likely than not to be realized when the tax position is settled. We recordpresent interest and penalties related to unrecognized income tax benefits in interest and other expense and selling, general and administrative expenses, respectively, in our consolidated statements of income.
Derivative instruments— We may use interest rate swaps or other derivative instruments to manage a portion of our exposure to the variability in interest rates. Our objective in managing our exposure to fluctuation in interest rates is to better control this element of cost and to mitigate the earnings and cash flow volatility associated with changes in applicable rates. We have established policies and procedures that encompass risk-management philosophy and objectives, guidelines for derivative instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity. We do not enter intouse derivative instruments for the purpose of speculation.
WeAt inception, we formally designate and document instruments at inception that qualify for hedge accounting of underlying exposures. When qualified for hedge accounting, these financial instruments are recognized at fair value in our consolidated balance sheets, and changes in fair value are recognized as a component of other comprehensive income (loss) and included in accumulated other comprehensive incomeloss within equity in our consolidated balance sheets. Cash flows resulting from settlements are presented as a component of cash flows from operating activities within our consolidated statements of cash flows.
We formally assess, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure. Fluctuations in the value of these instruments generally are offset by changes in the forecasted cash flows of the underlying exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument. We designated each of our active interest rate swap agreements as a cash flow hedge of interest payments on variable rate borrowings. Any ineffective portion
In addition, we designated our Euro-denominated senior notes as a hedge of a changeour net investment in our Euro-denominated operations. The purpose of the fair valuenet investment hedge is to offset the volatility of a qualifying instrument would be immediately recognizedour net investment in earnings. our Euro-denominated operations due to changes in foreign currency exchange rates. The foreign currency remeasurement gains and losses associated with the Euro-denominated senior notes and our Euro-denominated operations are presented within the same components of other comprehensive income and accumulated comprehensive income.
See "Note 710—Long-Term DebtDerivatives and Lines of Credit"Hedging Instruments" for more information about our interest rate swaps.derivative instruments.
Fair value measurements— Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. GAAP establishes a fair value hierarchy that categorizes the inputs to valuation techniques into three broad levels. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that are observable such as interest rates and yield curves. Level 3 inputs are developed from unobservable data reflecting our assumptions and include situations where there is little or no market activity for the asset or liability.
Fair value of financial instruments— The carrying amounts of cash and cash equivalents, restricted cash, receivables, settlement lines of credit, accounts payable and accrued liabilities approximate their fair value given the short-term nature of these items. Our long-term debt includes variable interest rates
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 London Interbank Offered Rate ("LIBOR"), the Federal Funds Effective Rate (as defined in the debt agreements) or the prime rate, plus a marginvaluation hierarchy. The estimated fair value of our convertible notes was based on our leverage position. At December 31, 2017,a lattice pricing model and is considered to be a Level 3 measurement of the carrying amountvaluation hierarchy. Certain of our long-term debt arrangements include variable interest rates. The fair value of long-term debt with variable interest rates was determined using Level 2 inputs, and approximated carrying amount, exclusive of debt issuance costs approximated fair value, which is calculated using
Level 2 inputs.costs. The fair values of our swap agreements 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 and classified within Level 2 of the valuation hierarchy. See "Note 79—Long-Term Debt and Lines of Credit" and "Note 10—Derivatives and Hedging Instruments" for further information.
The estimated fair value of our notes receivable was based on a discounted cash flow approach and is considered to be a Level 3 measurement of the valuation hierarchy. See "Note 3—Business Dispositions" for further information.
We also have investments in equity instruments without readily determinable fair values. As permitted, we have elected a measurement alternative for equity instruments that do not have readily determinable fair values. Under such alternative, these instruments are measured at cost plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer less any impairments. Any resulting change in carrying amount would be reflected in net income.
Redeemable Noncontrolling Interests— Redeemable noncontrolling interests refers to noncontrolling interests that are redeemable upon the occurrence of an event that is not solely within our control and is reported in the mezzanine section between total liabilities and shareholders' equity, as temporary equity in our consolidated balance sheets. The redeemable noncontrolling interests for each subsidiary are adjusted each reporting period to the higher of: (i) the initial carrying amount, increased or decreased for the noncontrolling interest's share of comprehensive income (loss), capital contributions and distributions or (ii) the redemption price. Certain of our redeemable noncontrolling interests are redeemable at fair value and are considered to be a Level 3 measurement of the valuation hierarchy. Refer to "Note 16—Noncontrolling Interests," for further information.
Foreign currencies— We have significant operations in a number of foreign subsidiaries whose functional currency is the local currency. The assets and liabilities of subsidiaries whose functional currency is a foreign currency are translated into the reporting currency at the period-end rate of exchange. Income statement items are translated at the weighted-average rates prevailing during the period. The resulting translation adjustment is recordedpresented as a component of other comprehensive income and is included in accumulated comprehensive income within equity in our consolidated balance sheets.
Gains and losses on transactions denominated in currencies other than the functional currency are generally included in determining net income for the period. For the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 2015,2021, our transaction gains and losses were insignificant. Transaction gains and losses on intercompany balances of a long-term investment nature are recordedpresented as a component of other comprehensive income (loss) and included in accumulated comprehensive income (loss) within equity in our consolidated balance sheets. When a foreign subsidiary is divested in its entirety, the associated accumulated foreign currency translation gains or losses are reclassified from the separate component of equity into our consolidated statement of income.
Earnings per share— Basic earnings per share ("EPS") is computed by dividing reported net income attributable to Global Payments by the weighted-average number of shares outstanding during the period. Earnings available to common shareholders is 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, convertible notes or other potential securities that would have a dilutive effect on earnings per share.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. There were noThe dilutive share base for the years ended December 31, 2023, 2022 and 2021 excluded approximately 191,353, 700,119 and 234,813, respectively, shares related to stock options that would have an antidilutive effect on the computation of diluted earnings per share.
The effect of the potential shares needed to settle the conversion spread on our convertible notes is included in diluted EPS if the effect is dilutive. The effect depends on the market share price of our common stock at the time of conversion and would be dilutive if the average market share price of our common stock for the yearperiod exceeds the conversion price. For the years ended December 31, 2017,2023 and 2022, the 2016 fiscal transition period or forconvertible notes were not included in the years ended May 31, 2016 and 2015.computation of diluted EPS as the effect would have been anti-dilutive. Furthermore, the effect of the related capped call transactions is not included in the computation of diluted EPS as it is always anti-dilutive.
The following table sets forth the computation of the diluted weighted-average number of shares outstanding for all periods presented:
| | Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| | (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Years Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
| (in thousands) |
Basic weighted-average number of shares outstanding | |
Basic weighted-average number of shares outstanding | |
Basic weighted-average number of shares outstanding | 154,652 |
| | 153,342 |
| | 132,284 |
| | 134,072 |
|
Plus: Dilutive effect of stock options and other share-based awards | 876 |
| | 889 |
| | 883 |
| | 850 |
|
Diluted weighted-average number of shares outstanding | 155,528 |
| | 154,231 |
| | 133,167 |
| | 134,922 |
|
Repurchased shares— We account for the retirement of repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original issue proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. We use a last-in, first-out cost flow assumption to identify the original issue proceeds of the shares repurchased.
Reclassifications— To conform to the presentation as
Recently Adopted Accounting Pronouncementsissued accounting pronouncement not yet adopted
ASU 2023-07 - In March 2016,November 2023, the FASB issued ASU 2016-09, "Compensation - Stock Compensation2023-07, "Segment Reporting (Topic 718)280): Improvements to Employee Share-Based Payment Accounting.Reportable Segment Disclosures," which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, inclusion of all annual disclosures in interim periods and disclosure of the title and position of the chief operating decision maker. The amendments in this update changed how companies accountare effective for certain aspects of share-based payments to employees. We adopted the various amendments in ASU 2016-09 in our consolidated financial statements effective January 1, 2017 with no material effect at the date of adoption. On a prospective basis, as required, we recognize the income tax effects of the excess benefits or deduction deficiencies of share-based awards in the statement of income when the awards vest or are settled. Previously, these amounts were recorded as an adjustment to additional paid-in capital. In addition, these excess tax benefits or deduction deficiencies from share-based compensation plans, which were previously presented as a financing activity in our consolidated statement of cash flows, are now presented as an operating activity using a retrospective transition method for all periods presented. Finally, we elected to account for forfeitures of share-based awards with service conditions as they occur, which had no material effect on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which makes clarifications to how cash receipts and cash payments in certain transactions are presented and classified in the statement of cash flows. We adopted ASU 2016-15 on a retrospective basis effective January 1, 2017 with no effect on our consolidated statements of cash flows for any period presented.
In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." The ASU eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. We adopted ASU 2017-04 on a prospective basis effective January 1, 2017 with no effect on our consolidated financial statements.
Recently Issued Pronouncements Not Yet Adopted
ASC 606 - New Revenue Accounting Standard
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP and permits the use of either the retrospective or modified retrospective transition method. The update requires significant additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09, as amended by ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," is effective forfiscal years beginning after December 15, 2017, including2023, and for interim periods with early adoption permitted forwithin fiscal years beginning after December 15, 2016. Since2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the issuancefinancial statements. We are evaluating how the enhanced disclosure requirements of ASU 2014-09, the FASB has issued additional interpretive guidance, including new accounting standards updates, that clarifies certain points of the standard2023-07 will affect our presentation, and modifies certain requirements.
We have performed a review of the requirements of the new revenue standard and have monitored the activity of the FASB and the transition resource group as it relates to specific interpretive guidance. We established a cross-functional implementation team to assess the effects of the new revenue standard in a multi-phase approach. In the first phase, we analyzed customer contracts for our most significant contract categories, applied the five-step model of the new standard to each contract category and compared the results to our current accounting practices. In the second phase, we quantified the potential effects, assessed additional contract categories and principal agent considerations, revised accounting policies and considered the effects on related disclosures and/or internal control over financial reporting. The third phase, which will complete our adoption and implementation of the new revenue standard, includes activities such as implementing parallel accounting and reporting for areas affected by the new standard, quantifying the cumulative-effect adjustment (including tax effects), evaluating and testing modified and newly implemented internal controls and revising financial statement disclosures.
The new standard will change the amount and timing of revenue and expenses to be recognized under certain of our arrangement types. In addition, it could increase the administrative burden on our operations to properly account for customer contracts and provide the more expansive required disclosures. More judgment and estimates will be required when applying the requirements of the new standard than are required under existing GAAP, such as identifying performance obligations in contracts, estimating the amount of variable consideration to include in transaction price, allocating transaction price to each separate performance obligation and estimating expected periods of benefit for certain costs. We expect the timing of revenue to be recognized under ASU 2014-09 for our most significant contract category, core payment services, will be similar to the timing of revenue recognized under our current accounting practices. However, under the new standard, we will reflect revenue net of certain fees that we pay to third parties, including payment network fees, that we currently recognize as a component of operating expense under existing standards. This change in presentation will have no effect oninclude the reported amount of operating income. We will also capitalize additional costs to obtain contracts with customers, as well as certain implementation and set-up costs, and, in some cases, may be required to amortize these costs and costs that we currently capitalize (such as capitalized customer acquisition costs) over a longer period. Finally,incremental disclosures upon the new standard requires additional disclosures regarding our revenues and related capitalized contract costs.effective date.
We plan to adopt ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, effective as of January 1, 2018 applying the modified retrospective transition method, which will result in an adjustment to equity for the cumulative-effect of applying the standard to active customer contracts for which certain performance obligations were not completed at the date of initial application. Under this transition method, we would not recast the prior financial statements presented, therefore the new standard requires us to provide additional disclosures of the amount by which each financial statement line item is affected in the current reporting period during 2018, as compared to the guidance that was in effect before the change, and an explanation of the reasons for significant changes, if any.
Our preliminary estimate is that we will record a net increase to retained earnings of approximately $50 million as of January 1, 2018, primarily due to the requirement to utilize longer amortization periods for signing bonuses and other sales commissions that are capitalized in connection with obtaining customer contracts. Previously, we amortized these capitalized costs over the term of the related contract. Under ASU 2014-09, we now expect to amortize these capitalized costs over the expected period of benefit, which is generally longer. The expected increase in retained earnings also reflects the capitalization of sales commissions and certain implementation and setup costs for new customers that were not previously capitalized. The expected adjustment to retained earnings is net of the estimated effect of income taxes related to the adjustments described above.
ASC 8422023-09 - New Lease Accounting Standard
In February 2016,December 2023, the FASB issued ASU 2016-02, "Leases.2023-09, "Income Taxes (Topic 740): Improvement to Income Tax Disclosures," which is intended to enhance the transparency and decision usefulness of income tax information through improvements to income tax disclosures, primarily related to the rate reconciliation and income taxes paid information. The amendments in this update require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. In addition, several new disclosures will be required. In September 2017, the FASB issued ASU 2017-13, "Revenue Recognition" (Topic 605), "Revenue from Contracts with Customers" (Topic 606), "Leases" (Topic 840) and "Leases" (Topic 842), which provides additional implementation guidance on the previously issued ASU 2016-02.
Although early adoption is permitted, we expect to adopt ASU 2016-02 when it becomesare effective for us on January 1, 2019. As written, the standard would require a modified retrospective transition under which lessees must recognize and measure leases at thefiscal years beginning of the earliest period presented. The FASB is currently considering an option to allow these entities to choose that transition method or to recognize the effects of applying the new standard as a cumulative-effect adjustment to retained earnings as of the adoption date, which would not require a recast of comparative periods. We have not completed our evaluation of the effect of ASU 2016-02 or ASU 2017-13 on our consolidated financial statements; however, we expect to recognize right of use assets and liabilities for our operating leases in the balance sheet upon adoption.
To evaluate the potential effects of this new accounting standard on our consolidated financial statements, we are currently gathering information about our existing leases, which primarily include real estate leases for office space throughout the various global markets in which we conduct business. We expect that we will have to implement new accounting processes and internal controls to meet the requirements for financial reporting and disclosures of our leases and are coordinating with various internal stakeholders to evaluate, design and implement these new processes and controls. We are also evaluating the process by which we will maintain the necessary information about our leases and make the required calculations to support the requirements of the new accounting standard. We further expect these evaluation and implementation activities will continue throughout most of 2018 prior to the effective date of adoption on January 1, 2019.
Other Accounting Standards Updates
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The ASU expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. In addition, the amendments in this update modify disclosure requirements for presentation of hedging activities. Those modifications include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments, if any. We will adopt ASU 2017-12 effective January 1, 2018 with no expected effect on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The ASU clarifies the definition of a business, which affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, with the expectation that fewer will qualify as acquisitions (or disposals) of businesses. The ASU became effective for us on January 1, 2018. These amendments will be applied prospectively from the date of adoption. The effect of ASU 2017-01 will be dependent upon the nature of future acquisitions or dispositions that we make, if any.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." The amendments in this update state that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, such as intellectual property and property and equipment, when the transfer occurs. We will adopt ASU 2016-16 effective January 1, 2018 with no expected effect on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this update change how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of the update. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The guidance will become effective for us on January 1, 2020.after December 15, 2024. Early adoption is permitted for periods beginningpermitted. The amendments should be applied on or after January 1, 2019.a prospective basis with the option to apply the standard retrospectively. We are evaluating how the effectenhanced disclosure requirements of ASU 2016-13 on2023-09 will affect our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersedewe will include the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures and limited liability companies) to be measured at fair value with changes in the fair value recognized through earnings. Equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this update. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value eitherincremental disclosures upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. We will adopt ASU 2016-01 effective January 1, 2018 with no expected effect on our consolidated financial statements.date.
NOTE 2— ACQUISITIONS
ACTIVE NetworkEVO Payments, Inc.
WeOn March 24, 2023, we acquired all of the communities and sports divisionsoutstanding common stock of Athlaction Topco, LLC ("ACTIVE Network"EVO Payments, Inc. (“EVO”) on September 1, 2017, for total purchase consideration of $1.2 billion. ACTIVE Network delivers cloud-based enterprise software, including. EVO is a payment technology and services provider, offering payment solutions to event organizers inmerchants ranging from small and middle market enterprises to multinational companies and organizations across the communitiesAmericas and health and fitness markets. ThisEurope. The acquisition aligns with our technology-enabled payments strategy, expands our geographic presence in attractive markets and augments our business-to-business software driven strategy and adds an enterprise software business operating in two additional vertical markets that we believe offer attractive growth fundamentals.payment solutions business.
The following table summarizes the cash and non-cash componentsTotal purchase consideration was $4.3 billion, which consisted of the consideration transferred on September 1, 2017following (in thousands):
| | | | | |
Cash paid to EVO shareholders (1) | $ | 3,273,951 | |
Cash paid for equity awards attributable to purchase consideration (2) | 58,510 | |
Value of replacement awards attributable to purchase consideration (3) | 2,484 | |
Total purchase consideration transferred to EVO shareholders | 3,334,945 | |
Repayment of EVO's unsecured revolving credit facility (including accrued interest and fees) | 665,557 | |
Payment of certain acquiree transaction costs and other liabilities on behalf of EVO (4) | 269,118 | |
Total purchase consideration | $ | 4,269,620 | |
(1) Holders of EVO common stock, convertible preferred stock and common units received $34 for each share of EVO common stock held at the effective time of the transaction.
(2) Pursuant to the merger agreement, we cash settled vested options and certain unvested equity awards of EVO equity award holders.
(3) Pursuant to the merger agreement, we granted equity awards for approximately 0.3 million shares of Global Payments common stock to certain EVO equity award holders. Each such replacement award is subject to the same terms and conditions (including vesting and exercisability) that applied to the corresponding EVO equity award. We apportioned the fair value of the replacement awards between purchase consideration (the portion attributable to pre-acquisition services in relation to the total vesting term of the award) and amounts to be recognized in periods following the acquisition as share-based compensation expense over the requisite service period of the replacement awards.
(4) Certain acquiree transaction costs and liabilities, including amounts outstanding under EVO’s tax receivable agreement, were required to be repaid by us upon consummation of the acquisition.
|
| | | | |
Cash consideration paid to ACTIVE Network stockholders | | $ | 599,497 |
|
Fair value of Global Payments common stock issued to ACTIVE Network stockholders | | 572,079 |
|
Total purchase consideration | | $ | 1,171,576 |
|
We funded theThe cash portion of the total purchase consideration primarily by drawingwas funded through cash on hand and borrowings under our Revolving Credit Facility (described in "Note 7—Long-term Debt and Lines of Credit"). The acquisition-date fair value of 6,357,509 shares of our common stock issued to the sellers was determined based on the share price of our common stock as of the acquisition date and the effect of certain transfer restrictions.revolving credit facility.
This transaction wasWe accounted for the EVO acquisition as a business combination, which generally requires that we recordrecognize the assets acquired and liabilities assumed at fair value as of the acquisition date. The accounting for this acquisition was not complete as of December 31, 2017. The fair values of the assets acquired and the liabilities assumed have been determined provisionally and are subject to adjustment as we obtain additional information. In particular, additional time is needed to refine and review the results of the valuation of assets and liabilities and to evaluate the basis differences for assets and liabilities for financial reporting and tax purposes.
The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, provisionally determined as of September 30, 2017 and as subsequently revised for measurement-period adjustments, including a reconciliation to the total purchase consideration, arewere as follows:
| | Provisional Amounts at Acquisition Date | | | Provisional Amounts at Acquisition Date | | Measurement-period Adjustments | | Provisional Amounts at December 31, 2023 |
| | Provisional at September 30, 2017 | | Measurement- Period Adjustments | | Provisional at December 31, 2017 |
| | | | | |
| (in thousands) |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
Cash and cash equivalents | $ | 42,866 |
| | $ | 47 |
| | $ | 42,913 |
|
Accounts receivable | |
Settlement processing assets | |
Deferred income tax assets | |
Property and equipment | 22,889 |
| | (904 | ) | | 21,985 |
|
Identified intangible assets | 471,120 |
| | (60,575 | ) | | 410,545 |
|
Identifiable intangible assets | |
Other assets | 80,485 |
| | 6,755 |
| | 87,240 |
|
Deferred income taxes | (26,757 | ) | | (4,886 | ) | | (31,643 | ) |
Accounts payable and accrued liabilities | |
Settlement lines of credit | |
Settlement processing obligations | |
Deferred income tax liabilities | |
Other liabilities | (123,047 | ) | | (21,085 | ) | | (144,132 | ) |
Total identifiable net assets | 467,556 |
| | (80,648 | ) | | 386,908 |
|
Redeemable noncontrolling interests | |
Goodwill | 704,020 |
| | 80,648 |
| | 784,668 |
|
Total purchase consideration | $ | 1,171,576 |
| | $ | — |
| | $ | 1,171,576 |
|
The measurement-period adjustments were the result of continued refinement of certain estimates, particularly regarding the valuation of identified intangible assets, certain tax positions and deferred income taxes. As of December 31, 2017,2023, we still considerconsidered these balancesamounts to be provisional because we arewere still in the process of gathering and reviewing information to support the valuationvaluations of the assets acquired, liabilities assumed and related tax positions. During the year ended December 31, 2023, we made measurement-period adjustments as shown in the table above, and the effects of the measurement-period adjustments on our consolidated statements of income for the year ended December 31, 2023 were not material.
Goodwill arising from the acquisition was included in the Merchant Solutions segment as of December 31, 2023 and was attributable to expected growth opportunities, potential synergies from combining the acquired business into our existing businesses and an assembled workforce. We expect that approximately $1.1 billion of the goodwill from this acquisition will be deductible for income tax purposes.
The following table reflects the provisional estimated acquisition-date fair values of the identified intangible assets certain tax positionsof EVO and deferred income taxes.their respective weighted-average estimated amortization periods:
| | | | | | | | | | | |
| Estimated Fair Value | | Weighted-Average Estimated Amortization Periods |
| (in thousands) | | (years) |
Customer-related intangible assets | $ | 916,000 | | | 11 |
Contract-based intangible assets | 470,000 | | | 12 |
Acquired technologies | 86,995 | | | 7 |
Trademarks and trade names | 6,000 | | | 2 |
Total estimated identifiable intangible assets | $ | 1,478,995 | | | 11 |
From the acquisition date through December 31, 2023, the acquired operations of EVO contributed less than 10% to our consolidated revenues and operating income. The historical revenue and earnings of EVO were not material for the purpose of presenting pro forma information. In addition, transaction costs associated with this business combination were not material.
Zego
On June 10, 2021, we acquired Zego, a real estate technology company that provides comprehensive resident experience management software and digital commerce solutions to property managers, primarily in the United States, for cash consideration of approximately $933 million, which we funded with cash on hand and by drawing on our revolving credit facility. We accounted for this transaction as a business combination, which generally requires that we recognize the assets acquired and liabilities assumed at fair value as of the acquisition date. The final estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, were as follows (in thousands):
| | | | | |
Cash and cash equivalents | $ | 67,374 | |
Accounts receivable | 1,017 | |
Identifiable intangible assets | 473,000 | |
Property and equipment | 575 | |
Other assets | 9,051 | |
Accounts payable and accrued liabilities | (71,006) | |
Deferred income tax liabilities | (10,749) | |
Other liabilities | (8,010) | |
Total identifiable net assets | 461,252 | |
Goodwill | 471,994 | |
Total purchase consideration | $ | 933,246 | |
Goodwill of $784.7$472.0 million arising from the acquisition, included in the North America operatingMerchant Solutions segment, wasis attributable to expected growth opportunities, potential synergies from combining our existing businesses and an assembled workforce. We expect that approximately 80%Substantially all of the goodwill will beis deductible for income tax purposes.
The following table reflects the provisional estimated fair values of the identified intangible assets of Zego and thetheir respective weighted-average estimated amortization periods:
|
| | | | | |
| Provisional Estimated Fair Values | | Weighted-Average Estimated Amortization Periods |
| | | |
| (in thousands) | | (years) |
Customer-related intangible assets | $ | 189,000 |
| | 17 |
Acquired technology | 153,300 |
| | 9 |
Trademarks and trade names | 59,400 |
| | 15 |
Covenants-not-to-compete | 8,845 |
| | 3 |
Total estimated acquired intangible assets | $ | 410,545 |
| | 13 |
| | | | | | | | | | | |
| Estimated Fair Value | | Weighted-Average Estimated Amortization Periods |
| (in thousands) | | (years) |
Customer-related intangible assets | $ | 208,000 | | | 13 |
Contract-based intangible assets | 119,000 | | | 20 |
Acquired technologies | 124,000 | | | 6 |
Trademarks and trade names | 22,000 | | | 15 |
Total estimated identifiable intangible assets | $ | 473,000 | | | 14 |
Other Business Acquisitions
During the years ended December 31, 2023, 2022 and 2021, we completed other business acquisitions that were insignificant, individually and in the aggregate, to the consolidated financial statements. During the year ended December 31, 2021, we paid an aggregate purchase price of $963 million for such business acquisitions. The assets acquired and liabilities assumed in the 2021 acquisitions were recognized based on the estimated fair valuevalues, including intangible assets of $438 million and goodwill of $514 million. See "Note 6—Goodwill and Other Intangible Assets" for the aggregate allocation of goodwill to the respective segments. The operating results of each acquisition have been included in the consolidated financial statements since the respective acquisition dates.
Valuation of Identified Intangible Assets
For the acquisitions discussed above, the estimated fair values of customer-related and contract-based intangible assets waswere generally determined using the income approach, which iswas based on projected cash flows discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. The discount raterates used is the average estimated value ofrepresented a risk adjusted market participant’sparticipant weighted-average cost of capital, and debt, derived using customary market metrics. Acquired technology wastechnologies were valued using the replacement cost method, which required us to estimate the costcosts to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Trademarks and trade names were valued using the relief-from-royalty"relief-from-royalty" approach. This method assumes that trademarks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method required us to estimate the future revenuerevenues for the related brands,assets, the appropriate royalty rate and the weighted-average cost of capital.
NOTE 3—BUSINESS DISPOSITIONS
Gaming Business - On April 1, 2023, we completed the sale of our gaming business for approximately $400 million, subject to certain closing adjustments. The discount rate used isgaming business was included in our Merchant Solutions segment prior to disposition, and had been presented as held for sale in our consolidated balance sheet since December 31, 2022. In connection with the average estimated valuesale, we provided $32 million of seller financing as described below. We recognized a market participant’s costgain on sale of capital and debt, derived using customary market metrics.
Heartland
We merged with Heartland$106.9 million during the year ended December 31, 2023 presented within net loss on April 22, 2016 for total purchase consideration of $3.9 billion. The merger significantly expanded our small and medium-sized enterprise distribution, customer base and vertical reachbusiness dispositions in the United States. The following table summarizesconsolidated statements of income.
Consumer Business - On April 26, 2023, we completed the cash and non-cash componentssale of the consideration transferredconsumer portion of our Netspend business for approximately $1 billion, subject to certain closing adjustments. The consumer business comprised our former Consumer Solutions segment prior to disposition, and had been presented as held for sale with certain adjustments to report the disposal group at fair value less costs to sell in our consolidated balance sheet since June 30, 2022. In connection with the sale, we provided $675 million of seller financing as described below. As further discussed in "Note 1—Summary of Significant Accounting Policies," we recognized a goodwill impairment charge of $833.1 million during the year ended December 31, 2022 related to our former Business and Consumer Solutions reporting unit. We also recognized charges within net loss on April 22, 2016 (in thousands):business dispositions in our consolidated statements of income of $71.9 million during the year ended December 31, 2022 to reduce the
|
| | | | |
Cash consideration paid to Heartland stockholders | | $ | 2,043,362 |
|
Fair value of Global Payments common stock issued to Heartland stockholders | | 1,879,458 |
|
Total purchase consideration | | $ | 3,922,820 |
|
The merger datedisposal group to estimated fair value less costs to sell, which related primarily to estimated costs to sell and changes in the estimated fair value of common stock issuedthe fixed rate seller financing commitment. We recognized an incremental loss on business dispositions in our consolidated statement of income of $243.6 million during the year ended December 31, 2023, which included the effects of incremental negotiated closing adjustments, changes in the estimated fair value of the seller financing and the effects of the final tax structure of the transaction.
Notes Receivable and Allowance for Credit Losses
In connection with the sale of our consumer business, we provided seller financing consisting of the following: (1) a first lien seven-year secured term loan facility with an aggregate principal amount of $350 million bearing interest at a fixed annual rate of 9.0%, including 3.5% payable quarterly in cash and 5.5% settled quarterly via the issuance of additional paid-in-kind ("PIK") notes with the same terms as the original notes until December 2024, after which interest will be payable quarterly in cash along with quarterly principal payments of $4.375 million with the remaining balance due at maturity; and (2) a second lien twenty-five year secured term loan facility with an aggregate principal amount of $325 million bearing interest at a fixed annual rate of 13.0% PIK due at maturity. The aggregate fair value of the first and second lien term loans upon the closing of the transaction was $653.9 million, calculated using a discounted cash flow approach. In addition, we provided the purchasers a five-year $50 million secured revolving facility available from the date of closing of the sale, bearing interest at a fixed annual rate of 9.0% payable quarterly in cash. There was no outstanding balance on the revolving facility as of December 31, 2023. In connection with the sale of our gaming business, we also provided seller financing consisting of an unsecured promissory note due April 1, 2030 with an aggregate principal amount of $32 million bearing interest at a fixed annual rate of 11.0%.
We recognized interest income related to Heartland stockholdersthese notes of $58.3 million during the year ended December 31, 2023, as a component of interest and equity award holdersother income in the consolidated statement of income. The issuance of the notes in connection with the sale transactions was determineda noncash investing activity in our consolidated statement of cash flows for the year ended December 31, 2023.
As of December 31, 2023, there was an aggregate principal amount of $753.5 million outstanding on the notes, including PIK, and the notes are presented net of the allowance for credit losses of $15.2 million within notes receivable in our consolidated balance sheet. The estimated fair value of the notes receivable was $735.6 million as of December 31, 2023. The estimated fair value of notes receivable was based on 38.4 million sharesa discounted cash flow approach and is considered to be a Level 3 measurement of Heartland common stock, including common stock outstandingthe valuation hierarchy.
Assets and equity awardsLiabilities Held for which vesting acceleratedSale - The assets and liabilities of our consumer and gaming businesses were classified as held for sale in accordance with the Merger Agreement, multiplied by the exchange ratio of 0.6687 and the closing share price of Global Payments common stockour consolidated balance sheets as of April 22, 2016 of $73.29 per share.
This transaction was accounted for as a business combination, which requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date.December 31, 2022. The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed provisionally determinedpresented as held for sale in the consolidated balance sheet as of December 31, 20162022, included cash of $70.6 million, accounts receivable of $18.4 million, other current assets of $42.3 million, goodwill of $529.5 million, other intangible assets of $717.9 million, property and equipment of $82.9 million, other noncurrent assets of $44.9 million and an asset group valuation allowance of $71.9 million. The major classes of liabilities presented as subsequently revisedheld for measurement-period adjustments, including a reconciliation to the total purchase consideration, are as follows:
|
| | | | | | | | | | | |
| Provisional at December 31, 2016 | | Measurement- Period Adjustments | | Final |
| | | | | |
| (in thousands) |
Cash and cash equivalents | $ | 304,747 |
| | $ | — |
| | $ | 304,747 |
|
Accounts receivable | 70,385 |
| | — |
| | 70,385 |
|
Prepaid expenses and other assets | 103,090 |
| | (5,131 | ) | | 97,959 |
|
Identified intangible assets | 1,639,040 |
| | — |
| | 1,639,040 |
|
Property and equipment | 106,583 |
| | — |
| | 106,583 |
|
Debt | (437,933 | ) | | — |
| | (437,933 | ) |
Accounts payable and accrued liabilities | (457,763 | ) | | (65 | ) | | (457,828 | ) |
Settlement processing obligations | (36,578 | ) | | (3,727 | ) | | (40,305 | ) |
Deferred income taxes | (518,794 | ) | | 18,907 |
| | (499,887 | ) |
Other liabilities | (64,938 | ) | | (33,495 | ) | | (98,433 | ) |
Total identifiable net assets | 707,839 |
| | (23,511 | ) | | 684,328 |
|
Goodwill | 3,214,981 |
| | 23,511 |
| | 3,238,492 |
|
Total purchase consideration | $ | 3,922,820 |
| | $ | — |
| | $ | 3,922,820 |
|
The measurement-period adjustments were the result of continued refinement of certain estimates, particularly regarding certain tax positions and deferred income taxes.
Goodwill of $3.2 billion arising from the merger, includedsale in the North America segment, was attributable to expected growth opportunities, potential synergies from combiningconsolidated balance sheet as of December 31, 2022 included accounts payable and accrued liabilities of $125.9 million and other noncurrent liabilities of $4.5 million.
Sale of Merchant Solutions Business in Russia - We sold our existing businesses and an assembled workforce, and is not deductibleMerchant Solutions business in Russia effective April 29, 2022 for income tax purposes.cash proceeds of $9 million. During the year ended December 31, 2016,2022, we incurred transaction costs in connectionrecognized a loss of $127.2 million associated with the mergersale, comprised of $24.7the difference between the consideration received and the net carrying amount of the business and the reclassification of $62.9 million which were recordedof associated accumulated foreign currency translation losses from the separate component of equity. The loss was presented within net loss on business dispositions in selling, general and administrative expenses in theour consolidated statementsstatement of income.
NOTE 4—REVENUES
The following reflectstables present a disaggregation of our revenues from contracts with customers by geography for each of our reportable segments for the estimated fair valuesyears ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Merchant Solutions | | Issuer Solutions | | Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 5,867,308 | | | $ | 1,849,638 | | | $ | 182,740 | | | $ | (37,094) | | | $ | 7,862,592 | |
Europe | 1,023,546 | | | 507,342 | | | — | | | — | | | 1,530,888 | |
Asia Pacific | 260,939 | | | 41,890 | | | — | | | (41,890) | | | 260,939 | |
| $ | 7,151,793 | | | $ | 2,398,870 | | | $ | 182,740 | | | $ | (78,984) | | | $ | 9,654,419 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Merchant Solutions | | Issuer Solutions | | Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 5,236,728 | | | $ | 1,739,620 | | | $ | 620,482 | | | $ | (58,916) | | | $ | 7,537,914 | |
Europe | 720,660 | | | 469,412 | | | — | | | — | | | 1,190,072 | |
Asia Pacific | 247,529 | | | 36,591 | | | — | | | (36,591) | | | 247,529 | |
| $ | 6,204,917 | | | $ | 2,245,623 | | | $ | 620,482 | | | $ | (95,507) | | | $ | 8,975,515 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Merchant Solutions | | Issuer Solutions | | Consumer Solutions | | Intersegment Eliminations | | Total |
| | | | | | | | | |
| (in thousands) |
| | | | | | | | | |
Americas | $ | 4,735,505 | | | $ | 1,644,765 | | | $ | 783,625 | | | $ | (65,781) | | | $ | 7,098,114 | |
Europe | 684,760 | | | 495,597 | | | — | | | — | | | 1,180,357 | |
Asia Pacific | 245,292 | | | 25,385 | | | — | | | (25,386) | | | 245,291 | |
| $ | 5,665,557 | | | $ | 2,165,747 | | | $ | 783,625 | | | $ | (91,167) | | | $ | 8,523,762 | |
The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the identified intangible assetsyears ended December 31, 2023, 2022 and 2021: | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| | | | | |
| (in thousands) |
| | | | | |
Relationship-led | $ | 3,738,536 | | | $ | 3,189,046 | | | $ | 3,031,873 | |
Technology-enabled | 3,413,257 | | | 3,015,871 | | | 2,633,684 | |
| $ | 7,151,793 | | | $ | 6,204,917 | | | $ | 5,665,557 | |
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 respective weighted-average estimated amortization periods:
|
| | | | | |
| Estimated Fair Values | | Weighted-Average Estimated Amortization Periods |
| | | |
| (in thousands) | | (years) |
Customer-related intangible assets | $ | 977,400 |
| | 15 |
Acquired technology | 457,000 |
| | 5 |
Trademarks and trade names | 176,000 |
| | 7 |
Covenants-not-to-compete | 28,640 |
| | 1 |
Total estimated acquired intangible assets | $ | 1,639,040 |
| | 11 |
FIS Gaming Business
On June 1, 2015, we acquired certain assets of Certegy Check Services, Inc., a wholly-owned subsidiary of Fidelity National Information Services, Inc. ("FIS"). Under the purchase arrangement, we acquiredyears ended December 31, 2023, 2022 and 2021, substantially all of the assetsour revenues were recognized over time.
Supplemental balance sheet information related to licensed gaming operators (the "FIS Gaming Business"), including relationships with gaming clients in approximately 260 locationscontracts from customers as of December 31, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | December 31, 2023 | | December 31, 2022 |
| | | | | |
| | | (in thousands) |
| | | | | |
Assets: | | | | | |
Capitalized costs to obtain customer contracts, net | Other noncurrent assets | | $ | 360,684 | | | $ | 329,785 | |
Capitalized costs to fulfill customer contracts, net | Other noncurrent assets | | 197,355 | | | 152,520 | |
| | | | | |
Liabilities: | | | | | |
Contract liabilities, net (current) | Accounts payable and accrued liabilities | | 229,686 | | | 226,254 | |
Contract liabilities, net (noncurrent) | Other noncurrent liabilities | | 54,246 | | | 45,613 | |
Net contract assets were not material at December 31, 2023 or December 31, 2022. Revenue recognized for the acquisition date, for $237.5years ended December 31, 2023 and 2022 from contract liability balances at the beginning of each period was $199.7 million fundedand $209.4 million, respectively.
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 borrowings onthe remaining performance obligations in our revolving credit facility and cash on hand. We acquired the FIS Gaming Businessexisting contracts. The following table includes estimated revenue expected to expand our direct distribution and service offeringsbe recognized in the gaming market.
This transaction was accounted forfuture related to performance obligations that are unsatisfied or partially unsatisfied at December 31, 2023. However, as a business combination. The estimated acquisition-date fair valuespermitted, we have elected to exclude from this disclosure any contracts with an original duration of major classes of assets acquiredone year or less and liabilities assumed, including a reconciliation toany variable consideration that meets specified criteria. Accordingly, the total purchase consideration, are as followsamount of 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, | |
2024 | $ | 1,099,271 | |
2025 | 878,093 | |
2026 | 700,407 | |
2027 | 536,018 | |
2028 | 275,222 | |
2029 and thereafter | 332,279 | |
Total | $ | 3,821,290 | |
|
| | | | |
Customer-related intangible assets | | $ | 143,400 |
|
Liabilities | | (150 | ) |
Total identifiable net assets | | 143,250 |
|
Goodwill | | 94,250 |
|
Total purchase consideration | | $ | 237,500 |
|
Goodwill arising from the acquisition, included in the North America segment, was attributable to expected growth opportunities, including cross-selling opportunities at existing and acquired gaming client locations, operating synergies in the gaming business and assembled workforce. Goodwill associated with this acquisition is deductible for income tax purposes. The customer-related intangible assets have an estimated amortization periodTable of 15 years.Contents
Realex Payments
On March 25, 2015, we acquired approximately 95% of the outstanding shares of Pay and Shop Limited, which does business as Realex Payments ("Realex"), for €110.2 million in cash ($118.9 million equivalent as of the acquisition date). Realex is a leading European online payment gateway technology provider. This acquisition furthered our strategy to provide omnichannel solutions that combine gateway services, payment service provisioning and payment technology services across Europe.
This transaction was accounted for as a business combination. We recorded the assets acquired, liabilities assumed and noncontrolling interest at their estimated fair values as of the acquisition date. On October 5, 2015, we paid €6.7 million ($7.5 million equivalent as of October 5, 2015) to acquire the remaining shares of Realex, after which we own 100% of the outstanding shares.
The estimated acquisition date fair values of the assets acquired, liabilities assumed and the noncontrolling interest, including a reconciliation to the total purchase consideration, are as follows (in thousands):
|
| | | | |
Cash | | $ | 4,082 |
|
Customer-related intangible assets | | 16,079 |
|
Acquired technology | | 39,820 |
|
Trade name | | 3,453 |
|
Other intangible assets | | 399 |
|
Other assets | | 6,213 |
|
Liabilities | | (3,479 | ) |
Deferred income tax liabilities | | (7,216 | ) |
Total identifiable net assets | | 59,351 |
|
Goodwill | | 66,809 |
|
Noncontrolling interest | | (7,280 | ) |
Total purchase consideration | | $ | 118,880 |
|
Goodwill of $66.8 million arising from the acquisition, included in the Europe segment, was attributable to expected growth opportunities in Europe, potential synergies from combining our existing business with gateway services and payment service provisioning in certain markets and an assembled workforce to support the newly acquired technology. Goodwill associated with this acquisition is not deductible for income tax purposes. The customer-related intangible assets have an estimated amortization period of 16 years. The acquired technology has an estimated amortization of 10 years. The trade name has an estimated amortization period of 7 years.
Ezidebit
On October 10, 2014, we completed the acquisition of 100% of the outstanding stock of Ezi Holdings Pty Ltd ("Ezidebit") for AUD302.6 million in cash ($266.0 million equivalent as of the acquisition date). This acquisition was funded by a combination of cash on hand and borrowings on our revolving credit facility. Ezidebit is a leading integrated payments company focused on recurring payments verticals in Australia and New Zealand. The acquisition of Ezidebit further enhanced our existing integrated solutions offerings. This transaction was accounted for as a business combination. We recorded the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.
The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, are as follows (in thousands):
|
| | | |
Cash | $ | 45,826 |
|
Customer-related intangible assets | 42,721 |
|
Acquired technology | 27,954 |
|
Trade name | 2,901 |
|
Other assets | 2,337 |
|
Deferred income tax assets (liabilities) | (9,788 | ) |
Other liabilities | (49,797 | ) |
Total identifiable net assets | 62,154 |
|
Goodwill | 203,828 |
|
Total purchase consideration | $ | 265,982 |
|
Goodwill of $203.8 million arising from the acquisition, included in the Asia-Pacific segment, was attributable to expected growth opportunities in Australia and New Zealand, as well as growth opportunities and operating synergies in integrated payments in our existing Asia-Pacific and North America markets. Goodwill associated with this acquisition is not deductible for income
tax purposes. The customer-related intangible assets have an estimated amortization period of 15 years. The acquired technology has an estimated amortization period of 15 years. The trade name has an estimated amortization period of 5 years.
NOTE 3—SETTLEMENT PROCESSING ASSETS AND OBLIGATIONS
Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. For transactions processed on our systems, we use our internal network to provide funding instructions to financial institutions that in turn fund the merchants. We process funds settlement under two models, a sponsorship model and a direct membership model.
Under the sponsorship model, we are designated as a Merchant Service Provider by MasterCard and an Independent Sales Organization by Visa, which means that member clearing banks ("Member") sponsor us and require our adherence to the standards of the payment networks. In certain markets, we have sponsorship or depository and clearing agreements with financial institution sponsors. These agreements allow us to route transactions under the Members' control and identification numbers to clear credit card transactions through MasterCard and Visa. In this model, the standards of the payment networks restrict us from performing funds settlement or accessing merchant settlement funds, and, instead, require that these funds be in the possession of the Member until the merchant is funded.
Under the direct membership model, we are members in various payment networks, allowing us to process and fund transactions without third-party sponsorship. In this model, we route and clear transactions directly through the card brand’s network and are not restricted from performing funds settlement. Otherwise, we process these transactions similarly to how we process transactions in the sponsorship model. We are required to adhere to the standards of the payment networks in which we are direct members. We maintain relationships with financial institutions, which may also serve as our Member sponsors for other card brands or in other markets, to assist with funds settlement.
Timing differences, interchange fees, Merchant Reserves and exception items cause differences between the amount received from the payment networks and the amount funded to the merchants. These intermediary balances arising in our settlement process for direct merchants are reflected as settlement processing assets and obligations on our consolidated balance sheets. Settlement processing assets and obligations include the components outlined below:
Interchange reimbursement. Our receivable from merchants for the portion of the discount fee related to reimbursement of the interchange fee.
Receivable from Members. Our receivable from the Members for transactions in which we have advanced funding to the Members to fund merchants in advance of receipt of funding from networks.
Receivable from networks. Our receivable from a payment network for transactions processed on behalf of merchants where we are a direct member of that particular network.
Exception items. Items such as customer chargeback amounts received from merchants.
Merchant Reserves. Reserves held to minimize contingent liabilities associated with losses that may occur under the merchant agreement.
Liability to Members. Our liability to the Members for transactions for which funding from the payment network has been received by the Members but merchants have not yet been funded.
Liability to merchants. Our liability to merchants for transactions that have been processed but not yet funded where we are a direct member of a particular payment network.
Reserve for operating losses and sales allowances. Our reserve for allowances, charges or losses that we do not expect to collect from the merchants due to concessions, merchant fraud, insolvency, bankruptcy or any other merchant-related reason.
We apply offsetting to our settlement processing assets and obligations where a right of setoff exists. In the sponsorship model, we apply offsetting by Member agreement because the Member is ultimately responsible for funds settlement. With these Member transactions, we do not have access to the gross proceeds of the receivable from the payment networks and, thus, do not have a direct obligation or any ability to satisfy the payable to fund the merchant. In these situations, we apply offsetting to determine a net position for each Member agreement. If that net position is an asset, we reflect the net amount in settlement processing assets on our consolidated balance sheet, and we present the individual components in the settlement processing assets table below. If that net position is a liability, we reflect the net amount in settlement processing obligations on our consolidated balance sheet, and we present the individual components in the settlement processing obligations table below. In the direct
membership model, offsetting is not applied, and the individual components are presented as an asset or obligation based on the nature of that component.
As of December 31, 2017 and 2016 settlement processing assets and obligations consisted of the following:
|
| | | | | | | |
| 2017 | | 2016 |
| | | |
| (in thousands) |
Settlement processing assets: | | | |
Interchange reimbursement | $ | 304,964 |
| | $ | 150,612 |
|
Receivable from Members | 104,339 |
| | 71,590 |
|
Receivable from networks | 2,055,390 |
| | 1,325,029 |
|
Exception items | 7,867 |
| | 6,450 |
|
Merchant Reserves | (13,268 | ) | | (6,827 | ) |
| $ | 2,459,292 |
| | $ | 1,546,854 |
|
| | | |
Settlement processing liabilities: | | | |
Interchange reimbursement | $ | 72,053 |
| | $ | 199,202 |
|
Liability to Members | (20,369 | ) | | (177,979 | ) |
Liability to merchants | (1,961,107 | ) | | (1,358,271 | ) |
Exception items | 6,863 |
| | 21,194 |
|
Merchant Reserves | (133,907 | ) | | (158,419 | ) |
Reserve for operating losses and sales allowances | (4,042 | ) | | (2,939 | ) |
| $ | (2,040,509 | ) | | $ | (1,477,212 | ) |
NOTE 4—5—PROPERTY AND EQUIPMENT
As of December 31, 20172023 and 2016,2022, property and equipment consisted of the following:
| | | | | | | | | Range of Depreciable Lives | | 2023 | | 2022 |
| Range of Depreciable Lives | | |
| (Years) | |
| (Years) | |
| (Years) | | | (in thousands) |
| (Years) | | 2017 | | 2016 |
| | | | | |
| | (in thousands) |
Land | N/A | | $ | 2,742 |
| | $ | 6,159 |
|
Software | |
Software | |
Software | |
Equipment | |
Buildings | 25-30 | | 29,309 |
| | 61,135 |
|
Equipment | 2-20 | | 280,774 |
| | 224,460 |
|
Software | 2-10 | | 411,975 |
| | 319,214 |
|
Leasehold improvements | 3-15 | | 63,154 |
| | 40,158 |
|
Furniture and fixtures | 3-7 | | 24,054 |
| | 15,913 |
|
| | 812,008 |
| | 667,039 |
|
Land | |
| | | 3,335,578 | |
Less accumulated depreciation and amortization | | (314,336 | ) | | (226,570 | ) |
Work-in-progress | | 90,676 |
| | 85,901 |
|
| | $ | 588,348 |
| | $ | 526,370 |
|
| | | $ | |
As a result of actions taken during the years ended December 31, 2023, 2022 and 2021 to reduce our facility footprint in certain markets around the world, we recognized charges of $1.6 million, $7.5 million and $9.2 million, respectively, in selling, general and administrative expenses in our consolidated statement of income, primarily related to certain leasehold improvements, furniture and fixtures and equipment, to reduce the carrying amount of each asset group to the estimated fair value.
NOTE 5—6—GOODWILL AND OTHER INTANGIBLE ASSETS
As of December 31, 20172023 and 2016,2022, goodwill and other intangible assets consisted of the following:
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| (in thousands) |
| | | |
Goodwill | $ | 26,743,523 | | | $ | 23,320,736 | |
Other intangible assets: | | | |
Customer-related intangible assets | $ | 10,653,036 | | | $ | 9,524,922 | |
Acquired technologies | 3,005,576 | | | 2,863,731 | |
Contract-based intangible assets | 2,254,273 | | | 1,741,321 | |
Trademarks and trade names | 1,074,631 | | | 1,067,745 | |
| 16,987,516 | | | 15,197,719 | |
Less accumulated amortization: | | | |
Customer-related intangible assets | 3,866,686 | | | 3,155,838 | |
Acquired technologies | 2,047,330 | | | 1,692,762 | |
Contract-based intangible assets | 309,886 | | | 197,478 | |
Trademarks and trade names | 595,568 | | | 493,267 | |
| 6,819,470 | | | 5,539,345 | |
| $ | 10,168,046 | | | $ | 9,658,374 | |
|
| | | | | | | |
| 2017 | | 2016 |
| | | |
| (in thousands) |
Goodwill | $ | 5,703,992 |
| | $ | 4,807,594 |
|
Other intangible assets: | | | |
Customer-related intangible assets | $ | 2,078,891 |
| | $ | 1,864,731 |
|
Acquired technologies | 722,466 |
| | 547,151 |
|
Trademarks and trade names | 247,688 |
| | 188,311 |
|
Contract-based intangible assets | 171,522 |
| | 157,882 |
|
| 3,220,567 |
| | 2,758,075 |
|
Less accumulated amortization: | | | |
Customer-related intangible assets | 685,869 |
| | 487,729 |
|
Acquired technologies | 210,063 |
| | 89,633 |
|
Trademarks and trade names | 50,849 |
| | 24,142 |
|
Contract-based intangible assets | 92,079 |
| | 71,279 |
|
| 1,038,860 |
| | 672,783 |
|
| $ | 2,181,707 |
| | $ | 2,085,292 |
|
The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| Merchant Solutions | | Issuer Solutions | | Consumer Solutions | | Total |
| | | | | | | |
| (in thousands) |
| | | | | | | |
Balance at December 31, 2020 | $ | 13,548,690 | | | $ | 9,481,183 | | | $ | 841,578 | | | $ | 23,871,451 | |
Goodwill acquired | 557,044 | | | 431,797 | | | — | | | 988,841 | |
Effect of foreign currency translation | (36,192) | | | (4,826) | | | — | | | (41,018) | |
Measurement-period adjustments | (5,860) | | | (140) | | | — | | | (6,000) | |
Balance at December 31, 2021 | 14,063,682 | | | 9,908,014 | | | 841,578 | | | 24,813,274 | |
Goodwill acquired | 3,296 | | | — | | | — | | | 3,296 | |
Effect of foreign currency translation | (66,251) | | | (29,009) | | | — | | | (95,260) | |
Goodwill derecognized in connection with the sale of a business (1) | (17,719) | | | — | | | — | | | (17,719) | |
Impairment of goodwill (2) | — | | | — | | | (833,075) | | | (833,075) | |
Reallocation of accumulated impairment losses due to change in reporting units (2) | — | | | (357,933) | | | 357,933 | | | — | |
Reclassification of goodwill to assets held for sale (3) | (163,105) | | | — | | | (366,436) | | | (529,541) | |
Measurement-period adjustments | (2,958) | | | (17,281) | | | — | | | (20,239) | |
Balance at December 31, 2022 | 13,816,945 | | | 9,503,791 | | | — | | | 23,320,736 | |
Goodwill acquired | 3,283,285 | | | — | | | — | | | 3,283,285 | |
Effect of foreign currency translation | 126,835 | | | 12,904 | | | — | | | 139,739 | |
Measurement-period adjustments | (237) | | | — | | | — | | | (237) | |
Balance at December 31, 2023 | $ | 17,226,828 | | | $ | 9,516,695 | | | $ | — | | | $ | 26,743,523 | |
(1) Reflects goodwill derecognized in connection with the sale of our Merchant Solutions business in Russia. See “Note 3—Business Dispositions” for further discussion.
(2) Reflects a goodwill impairment charge related to our former Business and Consumer Solutions reporting unit. In connection with the change in presentation of segment information during the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015:
|
| | | | | | | | | | | | | | | |
| North America | | Europe | | Asia-Pacific | | Total |
| | | | | | | |
| (in thousands) |
Balance at May 31, 2015 | $ | 779,734 |
| | $ | 485,921 |
| | $ | 226,178 |
| | $ | 1,491,833 |
|
Goodwill acquired | 3,318,768 |
| | — |
| | 53,402 |
| | 3,372,170 |
|
Effect of foreign currency translation | (3,872 | ) | | (13,737 | ) | | (15,397 | ) | | (33,006 | ) |
Measurement-period adjustments | (8,200 | ) | | (411 | ) | | 7,019 |
| | (1,592 | ) |
Balance at May 31, 2016 | 4,086,430 |
| | 471,773 |
| | 271,202 |
| | 4,829,405 |
|
Goodwill acquired | — |
| | 28,820 |
| | — |
| | 28,820 |
|
Effect of foreign currency translation | (1,911 | ) | | (45,265 | ) | | (2,160 | ) | | (49,336 | ) |
Measurement-period adjustments | (1,267 | ) | | (28 | ) | | — |
| | (1,295 | ) |
Balance at December 31, 2016 | 4,083,252 |
| | 455,300 |
| | 269,042 |
| | 4,807,594 |
|
Goodwill acquired | 784,668 |
| | — |
| | — |
| | 784,668 |
|
Effect of foreign currency translation | 5,060 |
| | 57,838 |
| | 18,291 |
| | 81,189 |
|
Measurement-period adjustments | 23,511 |
| | — |
| | 7,030 |
| | 30,541 |
|
Balance at December 31, 2017 | $ | 4,896,491 |
| | $ | 513,138 |
| | $ | 294,363 |
| | $ | 5,703,992 |
|
There was no2022, accumulated impairment loss at any date reflectedlosses associated with our former Business and Consumer Solutions reporting unit were reallocated to our new reporting units based on relative fair value. See "Note 1— Summary of Significant Accounting Policies" for further discussion.
(3) Reflects the reclassification of goodwill in connection with the above table.presentation of the consumer and gaming businesses as held for sale. See “Note 3—Business Dispositions” for further discussion.
Accumulated impairment losses for goodwill as of December 31, 2023 were $357.9 million. Accumulated impairment losses for goodwill as of December 31, 2022 were $833.1 million, of which $475.2 million related to assets held for sale.
Customer-related intangible assets, acquired technologies, contract-based intangible assets, and trademarks and trade names acquired during the year ended December 31, 20172023 had weighted-average amortization periods of 16.810.8 years, 8.86.3 years, 312.0 years, and 152.0 years, respectively. Customer-related intangible assets, acquired during the 2016 fiscal transition period had a weighted-average amortization period of 12.1 years. Customer-relatedtechnologies, contract-based intangible assets, acquired technologies and trademarks and trade names acquired during the year ended MayDecember 31, 20162021 had weighted-average amortization periods of 13.911.9 years, 5.06.0 years, 18.5 years, and 7.015.0 years, respectively. Customer-related intangible assets, acquired technologies and trademarks and trade names acquired during the year ended May 31, 2015 had weighted-average amortization periods of 15.1 years, 9.1 years and 6.1 years, respectively.
Amortization expense of acquired intangibles was $337.9$1,318.5 million for the year ended December 31, 2017, $194.32023, $1,263.0 million for the 2016 fiscal transition periodyear ended December 31, 2022 and $113.7 million and $72.6$1,295.0 million for the yearsyear ended MayDecember 31, 2016 and 2015, respectively.2021.
The estimated amortization expense of acquired intangibles as of December 31, 20172023 for the next five years, calculated using the currency exchange rate at the date of acquisition, if applicable, is as follows (in thousands):
| | | | | |
2024 | $ | 1,348,934 | |
2025 | 1,268,360 | |
2026 | 1,121,414 | |
2027 | 890,245 | |
2028 | 820,752 | |
|
| | | |
2018 | $ | 345,351 |
|
2019 | 323,457 |
|
2020 | 298,135 |
|
2021 | 216,758 |
|
2022 | 177,891 |
|
NOTE 6—7—LEASES
Our leases consist primarily of operating real estate leases for office space and data centers in the markets in which we conduct business. We also have operating and finance leases for computer and other equipment. Many of our leases include escalating rental payments and incentives, as well as termination and renewal options. Certain of our lease agreements provide that we pay the cost of property taxes, insurance and maintenance.
As of December 31, 2023 and 2022, right-of-use assets and lease liabilities consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Location | | December 31, 2023 | | December 31, 2022 |
| | | | | | |
| | | | (in thousands) |
| | | | | | |
Assets: | | | | | | |
Operating lease right-of-use assets: | | | | | | |
Real estate | | Other noncurrent assets | | $ | 340,061 | | | $ | 336,993 | |
Computer equipment | | Other noncurrent assets | | 5,352 | | | 22,763 | |
Other | | Other noncurrent assets | | 302 | | | 727 | |
Total operating lease right-of-use-assets | | | | $ | 345,715 | | | $ | 360,483 | |
| | | | | | |
Finance lease right-of-use assets: | | | | | | |
Computer equipment | | Property and equipment, net | | $ | 11,168 | | | $ | 7,280 | |
Other equipment | | Property and equipment, net | | 52,264 | | | 53,410 | |
Other | | Property and equipment, net | | 6,634 | | | 6,090 | |
| | | | 70,066 | | | 66,780 | |
Less accumulated depreciation: | | | | | | |
Computer equipment | | Property and equipment, net | | (4,361) | | | (3,331) | |
Other equipment | | Property and equipment, net | | (38,338) | | | (29,052) | |
Other | | Property and equipment, net | | (4,497) | | | (2,884) | |
Total accumulated depreciation | | | | (47,196) | | | (35,267) | |
Total finance lease right-of-use assets | | | | 22,870 | | | 31,513 | |
Total right-of-use assets(1) | | | | $ | 368,585 | | | $ | 391,996 | |
| | | | | | |
Liabilities: | | | | | | |
Operating lease liabilities (current) | | Accounts payable and accrued liabilities | | $ | 81,696 | | | $ | 80,208 | |
Operating lease liabilities (noncurrent) | | Other noncurrent liabilities | | 411,227 | | | 439,580 | |
Finance lease liabilities (current) | | Current portion of long-term debt | | 12,055 | | | 12,883 | |
Finance lease liabilities (noncurrent) | | Long-term debt | | 12,470 | | | 19,552 | |
Total lease liabilities | | | | $ | 517,448 | | | $ | 552,223 | |
(1) As of December 31, 2023 and 2022, approximately 70% and 73%, respectively, of our right-of-use assets were located in the United States.
The weighted-average remaining lease term for operating and finance leases at December 31, 2023 was 8.4 years and 3.2 years, respectively. The weighted-average remaining lease term for operating and finance leases at December 31, 2022 was 8.8 years and 2.7 years, respectively. As of December 31, 2023, the weighted-average discount rate used in the measurement of operating and finance lease liabilities was 4.0% and 3.7%, respectively. As of December 31, 2022, the weighted-average discount rate used in the measurement of operating and finance lease liabilities was 3.3% and 3.4%, respectively.
As of December 31, 2023, maturities of lease liabilities were as follows:
| | | | | | | | | | | | | | |
| | Operating Leases | | Finance Leases |
| | | | |
| | (in thousands) |
| | | | |
Year ending December 31, | | | | |
2024 | | $ | 99,422 | | | $ | 13,128 | |
2025 | | 88,193 | | | 7,369 | |
2026 | | 77,240 | | | 2,955 | |
2027 | | 63,918 | | | 1,585 | |
2028 | | 56,802 | | | 835 | |
2029 and thereafter | | 187,213 | | | — | |
Total lease payments | | 572,788 | | | 25,872 | |
Imputed interest | | (79,865) | | | (1,347) | |
Total lease liabilities | | $ | 492,923 | | | $ | 24,525 | |
Operating lease costs in our consolidated statement of income for the year ended December 31, 2023 were $101.6 million, including $81.6 million in selling, general and administrative expenses and $20.0 million in cost of services.Total lease costs for the year ended December 31, 2023 include variable lease costs of $19.1 million, which are primarily comprised of the cost of property taxes, insurance and maintenance. Finance lease costs for the year ended December 31, 2023 were $14.1 million, including $13.2 million of amortization on right-of use assets and $0.9 million of interest on lease liabilities. Lease costs for leases with a term of less than 12 months were not material for the year ended December 31, 2023.
Operating lease costs in our consolidated statement of income for the year ended December 31, 2022 were $137.8 million, including $105.7 million in selling, general and administrative expenses and $32.1 million in cost of services.Total lease costs for the year ended December 31, 2022 include variable lease costs of $21.0 million, which are primarily comprised of the cost of property taxes, insurance and maintenance. Finance lease costs for the year ended December 31, 2022 were $18.1 million, including $16.7 million of amortization on right-of use assets and $1.4 million of interest on lease liabilities. Lease costs for leases with a term of less than 12 months were not material for the year ended December 31, 2022.
Operating lease costs in our consolidated statement of income for the year ended December 31, 2021 were $195.6 million, including $157.4 million in selling, general and administrative expenses and $38.2 million in cost of services. Total lease costs for the year ended December 31, 2021 include variable lease costs of $18.1 million, which are primarily comprised of the cost of property taxes, insurance and maintenance. Finance lease costs for the year ended December 31, 2021 were $20.5 million, including $18.4 million of amortization on right-of use assets and $2.2 million of interest on lease liabilities. Lease costs for leases with a term of less than 12 months were not material for the year ended December 31, 2021.
Opportunities were identified during the years ended December 31, 2023, 2022 and 2021 to reduce our facility footprint in certain markets around the world. In conjunction with the actions taken to exit certain leased facilities, we assessed the respective asset groups for impairment by comparing the carrying amount of the assets associated with the leased facilities to the discounted cash flows from estimated sublease payments. As a result, we recognized charges of $4.4 million, $22.9 million and $42.1 million in selling, general and administrative expenses in our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, respectively.
Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2023, 2022 and 2021 was $101.7 million, $120.7 million and $123.6 million, respectively, which are included as a component of cash provided by operating activities in the consolidated statements of cash flows. Operating lease liabilities arising from obtaining new or modified right-of-use assets, net of reductions resulting from certain lease modifications, were $31.2 million, $25.8 million and $200.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. Cash paid for amounts included in the measurement of finance lease liabilities that is included as a component of cash used in financing activities in the consolidated statements of cash flows was $12.9 million, $21.2 million and $22.6 million for the years ended December 31,
2023, 2022 and 2021, respectively. Finance lease liabilities arising from obtaining new or modified right-of-use assets, net of reductions resulting from certain lease modifications, were $4.4 million, $8.2 million and $7.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.
In connection with the EVO acquisition completed during the year ended December 31, 2023, we acquired right-of-use assets and assumed lease liabilities for operating leases of $41.3 million. In connection with business dispositions completed during the year ended December 31, 2023, we disposed of right-of-use assets and lease liabilities for operating leases of $4.9 million and $4.9 million, respectively. In connection with acquisitions completed during the year ended December 31, 2021, we acquired right-of-use assets and assumed lease liabilities for operating and finance leases of $8.8 million and $5.8 million, respectively.
During the years ended December 31, 2023 and 2022, we entered into agreements to acquire hardware, software and related services, including the purchase of certain assets previously leased. During the year ended December 31, 2023, the reduction in operating and finance lease liabilities arising from the termination of the related right-of-use assets was $10.3 million and $0.1 million, respectively. During the year ended December 31, 2022, the reduction in operating and finance lease liabilities arising from the termination of the related right-of-use assets was $44.2 million and $9.7 million, respectively.
NOTE 8 - OTHER ASSETS
Visa Preferred Shares
Through certain of our subsidiaries in Europe, we were a member and shareholder of Visa Europe Limited ("Visa Europe"). On June 21, 2016, Visa Inc. ("Visa") acquired all of the membership interests in Visa Europe, including ours, upon whichand we recorded a gainreceived consideration in the form of $41.2 million included in interest and other income in our consolidated statements of income for the 2016 fiscal transition period. We received up-front consideration comprised of €33.5 million ($37.7 million equivalent at June 21, 2016) in cash and Series B and C convertible preferred shares whose initial conversion rate equates to Visa common shares valued at $22.9 million as of June 21, 2016. However,Visa. We assigned the preferred shares were assignedreceived a value of zero based on transfer restrictions, Visa's ability to adjust the conversion rate and the estimation uncertainty associated with those factors. Based on the outcome of any current or potential litigation involving Visa Europe in the United Kingdom and elsewhere in Europe, the conversion rate of the preferred shares could be adjusted down such that the number of Visa common shares we ultimately receive could be as low as zero,zero.
The Series B and approximately €25.6 million ($28.8 million equivalent at June 21, 2016)C convertible preferred shares become convertible in stages based on developments in the litigation and become fully convertible no later than 2028 (subject to a holdback to cover any then pending claims). In July 2022, in connection with the second mandatory release assessment, a portion of the up-front cash consideration could be refundable.Series B and C convertible preferred shares was converted by Visa representing approximately one quarter of the original potential conversion rate. We accountrecognized a gain of $13.2 million reported in interest and other income in our consolidated statement of income for the year ended December 31, 2022 based on the fair value of the shares received and subsequently sold. The remaining Series B and C convertible preferred shares usingcontinue to be carried at an assigned value of zero based on the cost method. On the third anniversary of the closing ofaforementioned factors.
Through the acquisition byof EVO in 2023, we obtained Series A and C convertible preferred shares of Visa. The Series C preferred shares are carried at an assigned value of zero based on the aforementioned factors. The Series A convertible preferred shares were not restricted and were convertible into a fixed number of Visa we are contractually entitledClass A common shares. In November 2023, the Series A convertible preferred shares were converted into a fixed number of Visa Class A common shares and sold for cash proceeds of $42.1 million. Prior to receive €3.1 million ($3.5 million equivalentsale, the Visa Class A common shares were presented at June 21, 2016)fair value in our consolidated balance sheet with changes in fair value recognized in interest and other income in our consolidated statement of deferred consideration (plus compounded interest at a rateincome.
NOTE 7—9—LONG-TERM DEBT AND LINES OF CREDIT
As of December 31, 20172023 and 2016,2022, long-term debt consisted of the following:
| | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| | | |
| (in thousands) |
| | | |
Long-term Debt | | | |
3.750% senior notes due June 1, 2023 | $ | — | | | $ | 552,113 | |
4.000% senior notes due June 1, 2023 | — | | | 552,747 | |
1.500% senior notes due November 15, 2024 | 499,143 | | | 498,164 | |
2.650% senior notes due February 15, 2025 | 998,172 | | | 996,485 | |
1.200% senior notes due March 1, 2026 | 1,095,848 | | | 1,093,932 | |
4.800% senior notes due April 1, 2026 | 775,425 | | | 786,724 | |
2.150% senior notes due January 15, 2027 | 746,196 | | | 744,945 | |
4.950% senior notes due August 15, 2027 | 496,444 | | | 495,463 | |
4.450% senior notes due June 1, 2028 | 469,406 | | | 473,800 | |
3.200% senior notes due August 15, 2029 | 1,241,169 | | | 1,239,588 | |
5.300% senior notes due August 15, 2029 | 496,063 | | | 495,362 | |
2.900% senior notes due May 15, 2030 | 992,537 | | | 991,367 | |
2.900% senior notes due November 15, 2031 | 743,394 | | | 742,555 | |
5.400% senior notes due August 15, 2032 | 742,908 | | | 742,085 | |
4.150% senior notes due August 15, 2049 | 740,860 | | | 740,503 | |
5.950% senior notes due August 15, 2052 | 738,576 | | | 738,177 | |
4.875% senior notes due March 17, 2031 | 873,747 | | | — | |
1.000% convertible notes due August 15, 2029 | 1,453,493 | | | 1,445,225 | |
Revolving credit facility | 1,570,000 | | | — | |
Commercial paper notes | 1,371,639 | | | — | |
Finance lease liabilities | 24,525 | | | 32,435 | |
Other borrowings | 243,337 | | | 96,908 | |
Total long-term debt | 16,312,882 | | | 13,458,578 | |
Less current portion | 620,585 | | | 1,169,330 | |
Long-term debt, excluding current portion | $ | 15,692,297 | | | $ | 12,289,248 | |
The carrying amounts of our senior notes and convertible notes in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At December 31, 2023, the unamortized discount on senior notes and convertible notes was $46.1 million, and unamortized debt issuance costs on senior notes and convertible notes was $78.4 million. At December 31, 2022, the unamortized discount on senior notes and convertible notes was $50.8 million, and unamortized debt issuance costs on our senior notes and convertible notes were $85.4 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At December 31, 2023 and 2022, unamortized debt issuance costs on the unsecured revolving credit facility were $18.5 million and $23.5 million, respectively. 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 was $27.0 million, $20.5 million and $14.4 million, respectively, for years ended December 31, 2023, 2022 and 2021.
|
| | | | | | | |
| 2017 | | 2016 |
| | | |
| (in thousands) |
Credit Facility: | | | |
Term loans (face amounts of $3,932,677 and $3,728,857 at December 31, 2017 and 2016, respectively, less unamortized debt issuance costs of $37,961 and $46,282 at December 31, 2017 and 2016, respectively) | $ | 3,894,716 |
| | $ | 3,682,575 |
|
Revolving Credit Facility | 765,000 |
| | 756,000 |
|
Capital lease obligations | — |
| | 37 |
|
Total long-term debt | 4,659,716 |
| | 4,438,612 |
|
Less current portion of Credit Facility (face amounts of $108,979 and $187,274 at December 31, 2017 and 2016, respectively, less unamortized debt issuance costs of $8,671 and $9,526 at December 31, 2017 and 2016, respectively) and current portion of capital lease obligations of $37 at December 31, 2016 | 100,308 |
| | 177,785 |
|
Long-term debt, excluding current portion | $ | 4,559,408 |
| | $ | 4,260,827 |
|
Maturity requirements onAt December 31, 2023, future maturities of long-term debt (excluding finance lease liabilities) are as follows by year (in thousands):
| | | | | |
Year ending December 31, | |
2024 | $ | 610,114 | |
2025 | 1,049,113 | |
2026 | 1,885,419 | |
2027 | 4,226,578 | |
2028 | 462,962 | |
2029 and thereafter | 8,133,894 | |
Total | $ | 16,368,080 | |
See "Note 7—Leases" for more information about our finance lease liabilities, including maturities.
Senior Notes
We have $10.8 billion in aggregate principal amount of senior unsecured notes outstanding, as presented in the table above, which are comprised of senior notes issued in 2023, 2022, 2021, 2020 and 2019, and senior notes assumed in our merger with Total System Services, Inc. ("TSYS") in September 2019 (the "TSYS Merger"). Interest on the senior notes is payable annually or semi-annually at 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.
On March 17, 2023, we issued €800 million aggregate principal amount of 4.875% senior unsecured notes due March 2031 and received net proceeds of €790.6 million, or $843.6 million based on the exchange rate on the issuance date. We issued the senior notes at a discount of $2.8 million, and we incurred debt issuance costs of $7.2 million, including underwriting fees, professional services fees and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used for general corporate purposes.
On August 22, 2022, we issued $2.5 billion aggregate principal amount of senior unsecured notes consisting of the following: (i) $500.0 million aggregate principal amount of 4.950% senior notes due August 2027; (ii) $500.0 million aggregate principal amount of 5.300% senior notes due August 2029; (iii) $750.0 million aggregate principal amount of 5.400% senior notes due August 2032; and (iv) $750.0 million aggregate principal amount of 5.950% senior notes due August 2052. We issued the senior notes at a total discount of $5.2 million, and we incurred debt issuance costs of $24.8 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2023. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. The net proceeds from the offering were used to refinance the outstanding indebtedness under our credit facility, to make cash payments and pay transaction fees and expenses in connection with the acquisition of EVO and for general corporate purposes.
On November 22, 2021, we issued $2.0 billion aggregate principal amount of senior unsecured notes consisting of the following: (i) $500.0 million aggregate principal amount of 1.500% senior notes due November 2024; (ii) $750.0 million aggregate principal amount of 2.150% senior notes due January 2027; and (iii) $750.0 million aggregate principal amount of 2.900% senior notes due November 2031. We incurred debt issuance costs of approximately $14.4 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the senior unsecured notes is payable semi-annually in arrears on May 15 and November 15 for the 2024 and 2031 notes and January 15 and July 15 on the 2027 note, commencing May 15, 2022 for the 2024 note and the 2031 note and July 15, 2022 for the 2027 note. 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 the outstanding indebtedness under our prior credit facility and for general corporate purposes.
On February 26, 2021, we issued $1.1 billion aggregate principal amount of 1.200% senior unsecured notes due March 2026. We incurred debt issuance costs of approximately $8.6 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet. Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 2021. 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 this offering to fund the redemption in full of the 3.800% senior unsecured notes due April 2021, to repay a portion of the outstanding indebtedness under our prior credit facility and for general corporate purposes.
We have $1.0 billion in aggregate principal amount of 2.900% senior unsecured notes due May 2030. 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 issued the senior notes at a total discount of $3.3 million and capitalized related debt issuance costs of $8.4 million.
We have $3.0 billion in aggregate principal amount of senior unsecured notes, consisting of the following: (i) $1.0 billion aggregate principal amount of 2.650% senior notes due 2025; (ii) $1.25 billion aggregate principal amount of 3.200% senior notes due 2029; and (iii) $750.0 million aggregate principal amount of 4.150% senior notes due 2049. Interest on the senior notes is payable semi-annually in arrears on each February 15 and August 15, beginning on February 15, 2020. 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. We issued the senior notes at a total discount of $6.1 million and capitalized related debt issuance costs of $29.6 million.
In addition, in connection with the TSYS Merger, we assumed $3.0 billion aggregate principal amount of senior unsecured notes of TSYS, consisting of the following: (i) $750.0 million aggregate principal amount of 3.800% senior notes due 2021, which were redeemed in February 2021; (ii) $550.0 million aggregate principal amount of 3.750% senior notes due 2023, which were redeemed in June 2023; (iii) $550.0 million aggregate principal amount of 4.000% senior notes due 2023, which were redeemed in June 2023; (iv) $750 million aggregate principal amount of 4.800% senior notes due 2026; and (v) $450 million aggregate principal amount of 4.450% senior notes due 2028. For the 4.800% senior notes due 2026, interest is payable semi-annually each April 1 and October 1. For the 4.450% senior notes due 2028, interest is payable semi-annually each June 1 and December 1. The difference between the acquisition-date fair value and face value of senior notes assumed in the TSYS Merger is recognized over the terms of the respective notes as a reduction of interest expense. The amortization of this fair value adjustment was $15.7 million, $27.4 million, and $29.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Convertible Notes
On August 8, 2022, we issued $1.5 billion in aggregate principal amount of 1.000% convertible unsecured senior notes due August 2029 in a private placement pursuant to an investment agreement with Silver Lake Partners. The net proceeds from this offering were approximately $1.44 billion, reflecting an issuance discount of $37.5 million and $20.4 million of debt issuance costs, which were capitalized and reflected as a reduction of the related carrying amount of the convertible notes in our consolidated balance sheet. Interest on the convertible notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023, to the holders of record on the preceding February 1 and August 1, respectively.
The notes are convertible at the option of the holder at any time after the date that is 18 months after issuance (or earlier, upon the occurrence of certain corporate events) until the scheduled trading day prior to the maturity date. The notes are convertible into cash and shares of our common stock based on a conversion rate of 7.1421 shares of common stock per $1,000 principal amount of the convertible notes (which is equal to a conversion price of approximately $140.01 per share), subject to customary anti-dilution and other adjustments upon the occurrence of certain events. Upon conversion, the principal amount of, and interest due on, the convertible notes are required to be settled in cash and any other amounts may be settled in shares, cash or a combination of shares and cash at our election.
The notes are not redeemable by us. If certain corporate events that constitute a fundamental change (as defined in the indenture governing the notes) occur, any holder of the notes may require that we repurchase all or any portion of their notes for cash at a purchase price of par plus accrued and unpaid interest to, but excluding, the repurchase date. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the indenture governing the notes) occur, then the conversion rate will in certain circumstances be increased for a specified period of time. The notes include customary covenants for notes of this type, as well as customary events of default, which may result in the acceleration of the maturity of the convertible notes.
On August 8, 2022, in connection with the issuance of the notes, we entered into privately negotiated capped call transactions with certain financial institutions to cover, subject to customary adjustments, the number of shares of common stock initially underlying the notes. The economic effect of the capped call transactions is to hedge the potential dilutive effect upon conversion of the notes, or offset our cash obligation if the cash settlement option is elected, up to a cap price determined based on a hedging period that commenced on August 9, 2022 and concluded on August 25, 2022. The capped call had an initial strike price of $140.67 per share and a cap price of $229.26 per share. The capped call transactions meet the accounting criteria to be reflected in stockholders’ equity and not accounted for as derivatives. The cost of $302.4 million incurred in connection with the capped call transactions was reflected as a reduction to paid-in-capital in our consolidated balance sheet at December 31, 2022, net of applicable income taxes.
Revolving Credit Facility
On August 19, 2022, we entered into a credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents. The revolving credit agreement provides for an unsubordinated unsecured $5.75 billion revolving credit facility. We capitalized debt issuance costs of $12.3 million in connection with the issuances under the revolving credit facility. The revolving credit facility matures in August 2027. Borrowings under the revolving credit facility may be repaid prior to maturity without premium or penalty, subject to payment of certain customary expenses of lenders and customary notice provisions.
Borrowings under the revolving credit facility will be available to be made in US dollars, euros, sterling, Canadian dollars and, subject to certain conditions, certain other currencies at our option. Borrowings under the revolving credit facility will bear interest, at our option, at a rate equal to (i) for SOFR based currencies or certain alternative currencies, a secured overnight financing rate (subject to a 0.00% floor) plus a 0.10% credit spread adjustment or an alternative currency term rate (subject to a 0.00% floor), as applicable, (ii) for US dollar borrowings, a base rate, (iii) for US dollar borrowings, a daily floating secured overnight financing rate (subject to a 0.00% floor on or after January 1, 2023) plus a 0.10% credit spread adjustment or (iv) for certain alternative currencies, a daily alternative currency rate (subject to a 0.00% floor), in each case, plus an applicable margin. The applicable margin for borrowings under the revolving credit facility will range from 1.125% to 1.875% depending on our credit rating. 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.
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 a financial leverage covenant. As of December 31, 20172023, there were borrowings of $1,570.0 million outstanding under the revolving credit facility with an interest rate of 6.84%, and the total available commitments under the revolving credit facility were $2.8 billion.
Commercial Paper
In January 2023, we established a $2.0 billion commercial paper program under which we may issue senior unsecured commercial paper notes with maturities of up to 397 days from the date of issue. Commercial paper notes are expected to be issued at a discount from par, or they may bear interest, each at commercial paper market rates dictated by year are as follows (in thousands):market conditions at the time of their issuance. The proceeds from issuances of commercial paper notes will be used primarily for general corporate purposes but may also be used for acquisitions, to pay dividends, for debt refinancing or for other purposes.
As of December 31, 2023, we had net borrowings under our commercial paper program of $1,371.6 million outstanding, presented within long-term debt in our consolidated balance sheet based on our intent and ability to continually refinance on a
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| | | |
Years ending December 31, | |
2018 | $ | 108,979 |
|
2019 | 141,912 |
|
2020 | 161,144 |
|
2021 | 180,376 |
|
2022 | 3,021,391 |
|
2023 and thereafter | 1,083,875 |
|
Total | $ | 4,697,677 |
|
long-term basis, with a weighted average annual interest rate of 6.06%. The commercial program is backstopped by our revolving credit agreement, in that the amount of commercial paper notes outstanding cannot exceed the undrawn portion of our revolving credit facility. As such, we could draw on the revolving credit facility to repay commercial paper notes that cannot be rolled over or refinanced with similar debt.
We arePrior Credit Facility
Prior to the revolving credit facility, we were party to a prior credit facility agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents (as amended from time to time, the "Credit Facility")time-to-time). On May 2, 2017, we entered into the Fourth Amendment to the Credit Facility (the "Fourth Amendment"), which increased the total financing capacity availableThe prior credit facility provided for a senior unsecured $2.0 billion term loan facility and a senior unsecured $3.0 billion revolving credit facility. In August 2022, all borrowings outstanding and other amounts due under the Credit Facility to $5.2 billion; however, the aggregate outstanding debt under the Credit Facility did not change as weprior credit facility were repaid certain outstanding amounts under the Term A Loan, the Term A-2 Loan and the Revolving Creditprior credit facility was terminated.
Bridge Facility (each as defined below)
On August 1, 2022, in connection with our entry into the Fourth Amendment. EVO merger agreement, we obtained commitments for a $4.3 billion, 364-day senior unsecured bridge facility. Upon the execution of permanent financing, including the issuance of our senior unsecured notes and entry into the revolving credit facility described above, the aggregate commitments under the bridge facility were reduced to zero and terminated. For the year ended December 31, 2022, we recognized expense of $17.3 million related to commitment fees associated with the bridge facility, which was presented within interest and other expense in our consolidated statement of income.
Fair Value of Long-Term Debt
As of December 31, 2017, the Credit Facility provided for secured financing comprised2023, our senior notes had a total carrying amount of (i)$11.6 billion and an estimated fair value of $11.1 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 $1.25 billion revolving credit facility (the "Revolving Credit Facility"); (ii) a $1.5 billion term loan (the "Term A Loan"), (iii) a $1.3 billion term loan (the "Term A-2 Loan"); and (iv) a $1.2 billion term loan facility, which replaced the Term B Loan (the "Term B-2 Loan"). Substantially allLevel 1 measurement of the assets of our domestic subsidiaries are pledged as collateral under the Credit Facility.valuation hierarchy.
The Credit Facility provides for an interest rate, at our election, of either London Interbank Offered Rate ("LIBOR") or a base rate, in each case plus a leverage-based margin. As of December 31, 2017,2023, our convertible notes had a total carrying amount of $1.5 billion and an estimated fair value of $1.7 billion. The estimated fair value of our convertible notes was based on a lattice pricing model and is considered to be a Level 3 measurement of the interest rates on the Term A Loan, the Term A-2 Loan and the Term B Loan were 3.32%, 3.24% and 3.57%, respectively.valuation hierarchy.
The Term A Loan and the Term A-2 Loan mature, and the Revolving Credit Facility expires, on May 2, 2022. The Term B-2 Loan matures on April 22, 2023. The Term A Loan principal must be repaid in quarterly installments in thefair value of other long-term debt approximated its carrying amount of 1.25% of principal through June 2019, increasing to 1.875% of principal through June 2021, and increasing to 2.50% of principal through March 2022, with the remaining principal balance due upon maturity in May 2022. The Term A-2 Loan principal must be repaid in quarterly installments of $1.7 million through June 2018, increasing to quarterly installments of $8.6 million through March 2022, with the remaining balance due upon maturity in May 2022. The Term B-2 Loan principal must be repaid in quarterly installments in the amount of 0.25% of principal through March 2023, with the remaining principal balance due upon maturity in April 2023.
The Credit Facility allows us to issue standby letters of credit of up to $100 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. Borrowings available to us under the Revolving Credit Facility are further limited by the covenants described below under "Compliance with Covenants." The total available commitments under the Revolving Credit Facility at December 31, 2017 were $473.3 million.2023.
Compliance with Covenants
The convertible notes include customary covenants and events of default for convertible notes of this type. The revolving credit agreement contains customary affirmative covenants and restrictive covenants, including, among others, financial covenants based on net leverage and interest coverage ratios, and customary events of default. The required leverage ratio was increased to 4.50 to 1.00 as a result of the acquisition of EVO, and will gradually step-down over eight quarters to the original required ratio of 3.75 to 1.00. As of December 31, 2017,2023, the interest rate on the Revolving Credit Facility was 3.24%. In addition, we are required leverage ratio is 4.50 to pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility at an applicable rate per annum ranging from 0.20% to 0.30% depending on our leverage ratio.
The portion of deferred debt issuance costs related to the Revolving Credit Facility is included in other noncurrent assets,1.00, and the portionrequired interest coverage ratio is 3.00 to 1.00. We were in compliance with all applicable covenants as of deferred debt issuance costs related to the term loans is reported as a reduction to the carrying amount of the term loans. Debt issuance costs are amortized as an adjustment to interest expense over the terms of the respective facilities.December 31, 2023.
Settlement Lines of Credit
In various markets where we doour Merchant Solutions segment does 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 settlement 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 line of credit may exceed the stated credit limit. As of December 31, 2017 and 2016,2023, a total of $59.3$88.5 million and $51.0 million, respectively, of cash on deposit was used to determine the available credit.
As of December 31, 2017 and 2016, respectively,2023, we had $635.2 million and $392.1$981.2 million outstanding under these lines of credit with additional capacity of $689.4 million as of December 31, 2017 to fund settlement. The weighted-average interest rate on these borrowings was 1.97% and 1.90% at December 31, 2017 and 2016, respectively.settlement of $1,852.5 million. During the year ended December 31, 2017,2023, the maximum and average outstanding balances under these lines of credit were $863.6$1,506.5 million and $334.0$515.7 million, respectively.
Compliance with Covenants
The Credit Facility contains customary affirmative and restrictive covenants, including, among others, financial covenants basedweighted-average interest rate on our leverage and fixed charge coverage ratios, as defined in the agreement. As ofthese borrowings was 5.95% at December 31, 2017, financial covenants under2023.
Interest Expense
Interest expense was $629.8 million, $437.0 million and $328.0 million for the Credit Facility requiredyears ended December 31, 2023, 2022 and 2021, respectively.
NOTE 10—DERIVATIVES AND HEDGING INSTRUMENTS
Net Investment Hedge
We have designated our aggregate €800 million Euro-denominated senior notes due March 2031 as a leverage ratio no greater than: (i) 4.50 to 1.00 ashedge of our net investment in our Euro-denominated operations. The purpose of the end of any fiscal quarter ending duringnet investment hedge is to reduce the period from July 1, 2017 through June 30, 2018; (ii) 4.25 to 1.00 as of the end of any fiscal quarter ending during the period from July 1, 2018 through June 30, 2019; and (iii) 4.00 to 1.00 as of the end of any fiscal quarter ending thereafter. The fixed charge coverage ratio is required to be no less than 2.25 to 1.00.
The Credit Facility and settlement lines of credit also include various other covenants that are customary in such borrowings. The Credit Facility includes covenants, subject in each case to exceptions and qualifications that may restrict certain payments, including, in certain circumstances, the payment of cash dividends in excessvolatility of our currentnet investment in our Euro-denominated operations due to changes in foreign currency exchange rates.
Investments in foreign operations with functional currencies other than the reporting currency are subject to foreign currency risk as the assets and liabilities of these subsidiaries are translated into the reporting currency at the period-end rate of $0.01 per share per quarter.exchange with the resulting foreign currency translation adjustment presented as a component of other comprehensive income and included in accumulated comprehensive income within equity in our consolidated balance sheets. Under net investment hedge accounting, the foreign currency remeasurement gains and losses associated with the Euro-denominated senior notes are presented within the same components of other comprehensive income and accumulated comprehensive income, partially offsetting the foreign currency translation adjustment for our foreign subsidiaries.
The Credit Facility also includes customary eventsWe recognized a loss on the net investment hedge of default, the occurrence$27.0 million within foreign currency translation adjustments in other comprehensive income in our consolidated statements of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. We were in compliance with all applicable covenants as of and forcomprehensive income during the year ended December 31, 2017.2023.
Interest Rate Swap AgreementsSwaps
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. In the first quarter of 2023, we entered into new interest rate swap agreements with an aggregate notional amount of $1.5 billion to convert eligible borrowings under our revolving credit facility from a floating term Secured Overnight Financing Rate to a fixed rate. Net amounts to be received or paid under the swap agreements arewere reflected as adjustments to interest expense. Since we havehad designated the interest rate swap agreements as portfolio cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recordedrecognized as components of other comprehensive income, except for any ineffective portion of the change in fair value, which would be immediately recorded in interest expense. During the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015, there was no ineffectiveness.income. The fair values of theour 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.
In August 2022, in connection with entry into the revolving credit agreement and repayment of amounts outstanding under our prior credit facility, we terminated and settled our interest rate swap agreements existing at that time. The termination resulted in the recognition of a net gain of $1.2 million, including the reclassification of $0.5 million of accumulated losses from the separate component of equity. The net gain was presented in interest and other expense in our consolidated statement of income for the year ended December 31, 2022.
Upon issuance of our senior unsecured notes in August 2019, we made settlement payments of $48.3 million related to the termination of forward-starting interest rate swap agreements designated as cash flow hedges, for which the effective portion of the unrealized losses on the swaps was included in other comprehensive loss. We have and will continue to reclassify the effective portion of the realized loss from accumulated other comprehensive loss into interest expense over the terms of the related senior notes.
The table below presents the fair values ofinformation about our derivative financial instrumentsinterest rate swaps, designated as cash flow hedges, included in the consolidated balance sheets:
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| | | | | | | | | | | | | | |
| | | | Weighted-Average Fixed Rate of Interest at | | Range of Maturity Dates at | | December 31, |
Derivative Financial Instruments | | Balance Sheet Location | | December 31, 2017 | | December 31, 2017 | | 2017 | | 2016 |
| | | | | | | | (in thousands) |
Interest rate swaps (Notional of $1,300 and $250 million at December 31, 2017 and 2016, respectively) | | Other noncurrent assets | | 1.59% | | February 28, 2019 - March 31, 2021 | | $ | 9,202 |
| | $ | 2,147 |
|
Interest rate swaps (Notional of $0 million and $750 million at December 31, 2017 and 2016, respectively) | | Accounts payable and accrued liabilities | | NA | | NA | | $ | — |
| | $ | 3,175 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Fair Values |
Derivative Financial Instruments | | Balance Sheet Location | | Weighted-Average Fixed Rate of Interest at December 31, 2023 | | Ranges of Maturity Dates at December 31, 2023 | | December 31, 2023 | | December 31, 2022 |
| | | | | | | | | | |
| | | | | | | | (in thousands) |
| | | | | | | | | | |
Interest rate swaps (Notional of $1.5 billion at December 31, 2023) | | Other noncurrent liabilities | | 4.26 | % | | April 17, 2027 - August 17, 2027 | | $ | 28,187 | | | $ | — | |
NA = Not applicable.
As of December 31, 2017, the interest rate swap agreements effectively convert $1.3 billion of our variable-rate debt to the weighted-average fixed rates shown in the table above plus a leverage-based margin.
The table below presents the effects of our interest rate swaps on the consolidated statements of income and statements of comprehensive income for the periods presented:
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| | | | | | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| (in thousands) |
Amount of net unrealized gain (loss) recognized in other comprehensive income | $ | 4,549 |
| | $ | 5,532 |
| | $ | (12,859 | ) | | $ | (10,116 | ) |
Amount of net losses reclassified out of other comprehensive income to interest expense | $ | 5,673 |
| | $ | 4,222 |
| | $ | 8,240 |
| | $ | 3,958 |
|
Atyears ended December 31, 2017,2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
| (in thousands) |
| | | | | |
Net unrealized gains (losses) recognized in other comprehensive loss | $ | (19,683) | | | $ | 12,915 | | | $ | 3,425 | |
Net unrealized gains (losses) reclassified out of other comprehensive loss to interest expense | $ | 4,609 | | | $ | (21,327) | | | $ | (40,094) | |
As of December 31, 2023, the amount of gainnet unrealized gains 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 approximately $2.4$1.9 million.
Interest expense was $174.3 million, $108.6 million, $67.9 million and $39.9 million for the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015, respectively.
NOTE 8—11—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
As of December 31, 20172023 and 2016,2022, accounts payable and accrued liabilities consisted of the following:
| | | | | | | | 2023 | | 2022 |
| 2017 | | 2016 |
| | | |
| (in thousands) |
Customer deposits | $ | 397,085 |
| | $ | 303,353 |
|
| | (in thousands) |
| Funds held for customers | |
Funds held for customers | |
Funds held for customers | |
Trade accounts payable | |
Compensation and benefits | 102,187 |
| | 94,190 |
|
Unearned revenue | 101,029 |
| | 69,437 |
|
Payment network fees | 97,304 |
| | 87,591 |
|
Trade accounts payable | 47,391 |
| | 28,178 |
|
Commissions payable to third parties | 35,855 |
| | 39,370 |
|
Income taxes payable(1) | 35,405 |
| | 16,810 |
|
Contract liabilities | |
Interest | |
Income taxes | |
Third-party commissions | |
Operating leases | |
Miscellaneous taxes and withholdings | |
Third-party processing fees | |
Audit and legal | |
Unclaimed property | 26,468 |
| | 15,156 |
|
Third-party processing fees | 24,267 |
| | 24,971 |
|
Current portion of accrued buyout liability(2) | 20,739 |
| | 19,392 |
|
Current portion of accrued buyout liability(1) | |
Other | 151,877 |
| | 106,439 |
|
| $ | 1,039,607 |
| | $ | 804,887 |
|
| $ | |
(1) The 2017 U.S. Tax Act creates a territorial tax system (with a one-time mandatory "transition" tax on previously deferred foreign earnings), effective January 1, 2018. The transition tax on those deemed repatriated earnings may be paid over eight years. We recorded income taxes payable of $63.7 million on previously deferred foreign earnings, of which $55.7 million is included in other noncurrent liabilities on the consolidated balance sheet as of December 31, 2017 since those payments are not due within the next 12 months.
(2) The noncurrent portion of accrued buyout liability of $64.1$69.1 million and $58.6$45.4 million is included in other noncurrent liabilities onin the consolidated balance sheets as of December 31, 20172023 and 2016,2022, respectively.
NOTE 9—12—INCOME TAX
The income tax provision (benefit)expense for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 20152021 consisted of the following:
| | Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| | (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
| (in thousands) |
Current income tax provision (benefit): | | | | | | | |
Current income tax expense (benefit): | |
Current income tax expense (benefit): | |
Current income tax expense (benefit): | | | | | | |
Federal | $ | 79,903 |
| | $ | 22,859 |
| | $ | 26,493 |
| | $ | 25,022 |
|
State | 3,468 |
| | 3,443 |
| | 5,454 |
| | 3,905 |
|
Foreign | 67,851 |
| | 42,681 |
| | 56,689 |
| | (10,346 | ) |
| 151,222 |
| | 68,983 |
| | 88,636 |
| | 18,581 |
|
Deferred income tax provision (benefit): | | | | | | | |
Deferred income tax expense (benefit): | |
Federal | |
Federal | |
Federal | (266,869 | ) | | (36,447 | ) | | (18,205 | ) | | 14,822 |
|
State | 9,678 |
| | (1,842 | ) | | (3,620 | ) | | 3,606 |
|
Foreign | 4,582 |
| | 4,967 |
| | 3,884 |
| | 70,986 |
|
| (252,609 | ) | | (33,322 | ) | | (17,941 | ) | | 89,414 |
|
| $ | (101,387 | ) | | $ | 35,661 |
| | $ | 70,695 |
| | $ | 107,995 |
|
| $ | |
The incomeIncome tax provisionexpense allocated to noncontrolling interests was $8.6$12.9 million, for the year ended December 31, 2017, $4.4 million for the 2016 fiscal transition period and $7.3$9.8 million and $8.6$6.8 million for the years ended MayDecember 31, 20162023, 2022 and 2015,2021, respectively.
The following table presents income (loss) before income taxes for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 2015:2021:
| | Years Ended December 31, | |
| Years Ended December 31, | |
| Years Ended December 31, | |
| 2023 | | | 2023 | | | | 2022 | | 2021 |
| | Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) |
United States | $ | 29,692 |
| | $ | (55,279 | ) | | $ | 59,876 |
| | $ | 135,901 |
|
United States | |
United States | |
Foreign | 362,991 |
| | 228,623 |
| | 301,036 |
| | 281,209 |
|
| $ | 392,683 |
| | $ | 173,344 |
| | $ | 360,912 |
| | $ | 417,110 |
|
| $ | |
On December 22, 2017, the United States enacted the 2017 U.S. Tax Act, which resulted in numerous changes, including a reduction in the U.S. federal tax rate from 35% to 21% effective January 1, 2018 and the transition of the U.S. federal tax system to a territorial regime. As part of this transition, the 2017 U.S. Tax Act imposed a one-time mandatory "transition" tax on foreign earnings not previously subjected to U.S. income tax, payable over eight years.
As of December 31, 2017, pursuant to guidance provided in SAB 118, we have not completed our accounting for the effects of the 2017 U.S. Tax Act; however, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. For these items, which are further described below, we have recognized a provisional net income tax benefit of $158.7 million, which is included as a component of income tax benefit in our consolidated statement of income for the year ended December 31, 2017. To the extent that any other provisions of the 2017 U.S. Tax Act are determined to affect our December 31, 2017 provision, we have not recorded provisional amounts.
We remeasured our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse, which is now 21% instead of 35%. We are still analyzing certain aspects of the 2017 U.S. Tax Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts during the measurement period. The provisional income tax benefit recorded as a result of remeasuring our deferred tax assets and liabilities at the lower income tax rate was $222.4 million.
The one-time transition tax established by the 2017 U.S. Tax Act is based on our total post-1986 foreign earnings and profits, offset by allowable foreign tax credits. The transition tax rate applied to our foreign earnings is based on the amount of those earnings held in cash and cash equivalents, as well as other assets. We recorded a provisional income tax expense of $63.7 million for the transition tax on our previously deferred foreign earnings. We have not yet finalized our calculation of the post-1986 earnings and profits for our foreign subsidiaries, on which the transition tax is based. We are continuing to gather additional information to more precisely compute the amount of the transition tax.
Prior to the enactment of the 2017 U.S. Tax Act, the undistributed earnings of all foreign subsidiaries were considered to be indefinitely reinvested outside the United States (approximately $1.4 billion at December 31, 2016). As a result of the enactment of the 2017 U.S. Tax Act, our provisional position is that we now only consider approximately $60Approximately $64.3 million of our undistributed foreign earnings are considered to be indefinitely reinvested outside the United States as of December 31, 2017.2023. Because those earnings are considered to be indefinitely reinvested, no deferred income taxes have been provided thereon. If we were to make a distribution of any portion of those earnings in the form of dividends or otherwise, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax.
Our effective tax rates for periods presentedthe years ended December 31, 2023, 2022 and 2021 differ from the federal statutory rate for the year ended December 31, 2017, the 2016 fiscal transition period and the years ended May 31, 2016 and 2015those periods as follows:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
Federal U.S. statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
Net gain on dispositions and liquidations | 4.3 | | | 12.1 | | | — | |
Foreign inclusion, net of foreign tax credits | 3.4 | | | 8.2 | | | 1.0 | |
Foreign income taxes | 2.2 | | | 1.4 | | | 0.3 | |
State income taxes, net of federal income tax benefit | 0.9 | | | 9.0 | | | 3.4 | |
Nondeductible executive compensation | 0.9 | | | 4.7 | | | 1.0 | |
Share-based compensation expense | 0.9 | | | 2.0 | | | (0.2) | |
Deemed royalty | 0.7 | | | 1.2 | | | — | |
Uncertain tax positions | 0.5 | | | (0.7) | | | (0.3) | |
Goodwill impairment | — | | | 78.0 | | | — | |
Equity method investment partnership income | (0.1) | | | 0.1 | | | 0.9 | |
Valuation allowance | (0.4) | | | (0.2) | | | (1.7) | |
Foreign-derived intangible income deduction | (3.8) | | | (12.4) | | | (1.9) | |
Tax credits | (3.8) | | | (19.5) | | | (3.3) | |
Foreign interest income not subject to tax | (9.5) | | | (29.9) | | | (4.2) | |
Other | 0.7 | | | (0.7) | | | 0.2 | |
Effective tax rate | 17.9 | % | | 74.3 | % | | 16.2 | % |
|
| | | | | | | | | | | |
| Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
Federal U.S. statutory rate | 35.0 | % | | 35.0 | % | | 35.0 | % | | 35.0 | % |
State income taxes, net of federal income tax benefit | 1.9 |
| | 0.6 |
| | 0.4 |
| | 1.1 |
|
Federal U.S. transition tax | 16.2 |
| | — |
| | — |
| | — |
|
Federal U.S. rate reduction | (55.6 | ) | | — |
| | — |
| | — |
|
Foreign income taxes (primarily U.K.) | (12.0 | ) | | (12.6 | ) | | (10.1 | ) | | (8.5 | ) |
Foreign interest income not subject to tax | (2.2 | ) | | (2.3 | ) | | (2.6 | ) | | (1.8 | ) |
Taxes on unremitted earnings | — |
| | — |
| | (3.5 | ) | | — |
|
Share-based compensation expense | (4.2 | ) | | — |
| | — |
| | — |
|
Valuation allowance | (3.2 | ) | | — |
| | — |
| | — |
|
Other | (1.7 | ) | | (0.1 | ) | | 0.4 |
| | 1.0 |
|
Effective tax rate attributable to Global Payments | (25.8 | ) | | 20.6 |
| | 19.6 |
| | 26.8 |
|
Effective tax rate allocated to noncontrolling interests | — |
| | — |
| | — |
| | (0.9 | ) |
Effective tax rate | (25.8 | )% | | 20.6 | % | | 19.6 | % | | 25.9 | % |
Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. Deferred income taxes as of December 31, 20172023 and 20162022 reflect the effect of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. As of December 31, 20172023 and 2016,2022, principal components of deferred tax items were as follows:
| | 2023 | | | 2023 | | 2022 |
| | 2017 | | 2016 |
| | | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) |
Deferred income tax assets: | | | |
Basis difference - U.K. business | $ | 8,961 |
| | $ | 11,145 |
|
Deferred income tax assets: | |
Deferred income tax assets: | |
Research and development costs | |
Research and development costs | |
Research and development costs | |
Foreign net operating loss carryforwards | |
Credits | |
Financial instruments | |
Lease liabilities | |
Accrued expenses | |
Share-based compensation expense | |
Domestic net operating loss carryforwards | 17,228 |
| | 12,723 |
|
Foreign income tax credit carryforwards | — |
| | 7,140 |
|
Foreign net operating loss carryforwards | 3,819 |
| | 2,559 |
|
Share-based compensation expense | 7,856 |
| | 11,656 |
|
Accrued expenses | 34,582 |
| | 54,030 |
|
Other | 18,502 |
| | 9,101 |
|
| 90,948 |
| | 108,354 |
|
Less valuation allowance | (16,550 | ) | | (16,611 | ) |
| 74,398 |
| | 91,743 |
|
| 982,534 | |
Valuation allowance | |
| 771,485 | |
Deferred tax liabilities: | | | |
Acquired intangibles | 410,563 |
| | 663,922 |
|
Acquired intangibles | |
Acquired intangibles | |
Property and equipment | 77,481 |
| | 86,548 |
|
Partnership interests | |
Right-of-use assets | |
Other | 10,087 |
| | 1,956 |
|
| 498,131 |
| | 752,426 |
|
| 2,901,878 | |
Net deferred income tax liability | $ | (423,733 | ) | | $ | (660,683 | ) |
The net deferred income taxes reflected onin our consolidated balance sheets as of December 31, 20172023 and 20162022 are as follows:
| | | | | | | | | | | |
| 2023 | | 2022 |
| | | |
| (in thousands) |
| | | |
Noncurrent deferred income tax asset | $ | (111,712) | | | $ | (37,907) | |
Noncurrent deferred income tax liability | 2,242,105 | | | 2,428,412 | |
Net deferred income tax liability | $ | 2,130,393 | | | $ | 2,390,505 | |
|
| | | | | | | |
| 2017 | | 2016 |
| | | |
| (in thousands) |
Noncurrent deferred income tax asset | $ | 13,146 |
| | $ | 15,789 |
|
Noncurrent deferred income tax liability | (436,879 | ) | | (676,472 | ) |
| $ | (423,733 | ) | | $ | (660,683 | ) |
A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes to our valuation allowance during the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 20152021 are summarized below (in thousands):
|
| | | |
Balance at May 31, 2014 | $ | (7,199 | ) |
Utilization of foreign net operating loss carryforwards | 3,387 |
|
Other | (11 | ) |
Balance at May 31, 2015 | (3,823 | ) |
Allowance for foreign income tax credit carryforward | (7,140 | ) |
Allowance for domestic net operating loss carryforwards | (4,474 | ) |
Allowance for domestic net unrealized capital loss | (1,526 | ) |
Release of allowance of domestic capital loss carryforward | 1,746 |
|
Other | 98 |
|
Balance at May 31, 2016 | (15,119 | ) |
Allowance for domestic net operating loss carryforwards | (1,504 | ) |
Release of allowance of domestic net unrealized capital loss | 12 |
|
Balance at December 31, 2016 | (16,611 | ) |
Allowance for foreign net operating loss carryforwards | (6,469 | ) |
Allowance for domestic net operating loss carryforwards | (3,793 | ) |
Allowance for state credit carryforwards | (685 | ) |
Rate change on domestic net operating loss and capital loss carryforwards | 3,868 |
|
Utilization of foreign income tax credit carryforward | 7,140 |
|
Balance at December 31, 2017 | $ | (16,550 | ) |
| | | | | |
Balance at December 31, 2020 | $ | (132,531) | |
Allowance for foreign net operating losses | 5,804 | |
Allowance for foreign tax credits | 12,656 | |
Allowance for state tax credits | (1,995) | |
Allowance for domestic net operating losses | 3,807 | |
Balance at December 31, 2021 | (112,259) | |
Allowance for foreign net operating losses | (122) | |
Allowance for foreign tax credits | 60 | |
Allowance for state tax credits | 2,282 | |
Allowance for domestic net operating losses | (4) | |
Balance at December 31, 2022 | (110,043) | |
Allowance for foreign net operating losses | (674) | |
Allowance for foreign tax credits | (101,271) | |
Allowance for state tax credits | 3,079 | |
Allowance for state interest limitation | (2,335) | |
Allowance for domestic net operating losses | 195 | |
Balance at December 31, 2023 | $ | (211,049) | |
The increasechange in the valuation allowance related to net operating loss carryforwards of $10.3 million for the year ended December 31, 2017 relates2023 is primarily related to carryforward assetsanticipatory foreign tax credits and state interest deduction carryforwards recorded as partin acquisition accounting offset by recognition of the acquisition of ACTIVE Network.state tax credit carryforwards determined more likely than not to be realized. The increase decrease in the valuation allowance for the year ended December 31, 2022 is primarily related to domesticthe utilization of state tax credit carryforwards. The decrease in the valuation allowance for the year ended December 31, 2021 is primarily related to the foreign net operating loss carryforwards of $1.5 million and $4.5 million for the 2016 fiscal transition period and the year ended May 31, 2016, respectively, relatesforeign tax credit carryforwards which the Company determined are more likely than not to acquired carryforwards from the merger with Heartland.be realized.
Foreign net operating loss carryforwards of $43.2$109.4 million will expire between December 31, 2024 and domesticDecember 31, 2043, if not utilized. Foreign net operating loss carryforwards of $28.9$77.8 million at December 31, 2017have indefinite carryforward periods. Domestic net operating loss carryforwards of $34.1 million and tax credit carryforwards of $66.5 million will expire between December 31, 20262024 and December 31, 20372043, if not utilized.
We conduct business globally and file income tax returns in the domesticU.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. We are no longer subjectedsubject to state income tax examinations for years ended on or before MayDecember 31, 2008,2014, U.S. federal income tax examinations for years ended on or before December 31, 20132016 and U.K. federal incomecorporation tax examinations for years ended on or before MayDecember 31, 2014.2019.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits, excluding penalties and interest, for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 20152021 is as follows:
| | Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| | Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) |
Balance at the beginning of the year | $ | 17,916 |
| | $ | 7,803 |
| | $ | 2,559 |
| | $ | 67,576 |
|
Additions based on income tax positions related to the current year | 7,537 |
| | 4,626 |
| | 287 |
| | 6,311 |
|
Additions related to acquisition | 13,061 |
| | 6,149 |
| | 6,151 |
| | — |
|
Additions for income tax positions of prior years | 411 |
| | 247 |
| | 753 |
| | 512 |
|
Effect of foreign currency fluctuations on income tax positions | 27 |
| | (3 | ) | | 2 |
| | (5,713 | ) |
Balance at the beginning of the year | |
Balance at the beginning of the year | |
Additions related to acquisitions | |
Reductions for income tax positions of prior years | (7,285 | ) | | (906 | ) | | (123 | ) | | (32 | ) |
Settlements with income tax authorities | (449 | ) | | — |
| | (1,826 | ) | | (504 | ) |
Changes in judgment regarding tax position | — |
| | — |
| | — |
| | (65,591 | ) |
Additions for income tax positions of prior years | |
Additions based on income tax positions related to the current year | |
Balance at the end of the year | $ | 31,218 |
| | $ | 17,916 |
| | $ | 7,803 |
| | $ | 2,559 |
|
As of December 31, 2017,2023, the total amount of gross unrecognized income tax benefits that, if recognized, would affect the provision for income taxes is $24.1$40.9 million.
NOTE 10—13—SHAREHOLDERS’ EQUITY
We make repurchases ofrepurchase our common stock mainly through the use of open market purchasesrepurchase plans and, at times, through accelerated share repurchase programs ("ASR's"ASR"). As of programs. Information about shares repurchased and retired was as follows for the years ended December 31, 2017, we were authorized to2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| | | | | |
| (in thousands, except per share amounts) |
| | | | | |
Number of shares repurchased and retired | 4,065 | | | 23,266 | | | 15,169 | |
Cost of shares repurchased, including commissions and applicable excise taxes | $ | 413,667 | | | $ | 2,929,814 | | | $ | 2,513,629 | |
Average cost per share | $ | 101.77 | | | $ | 125.93 | | | $ | 165.72 | |
The share repurchase up to $264.9 million of our common stock. On February 6, 2018, the board increased its authorization to repurchase shares to $600 million.
Year Ended December 31, 2017
Duringactivity for the year ended December 31, 2017, through open market2021 included the repurchase plans, we repurchased and retired 376,309of 2,491,161 shares of our common stock at a cost of $34.8 million, or an average costprice of $92.51$200.71 per share including commissions.
2016 Fiscal Transition Period
During the 2016 fiscal transition period, through open market repurchase plans, we repurchased and retired 2.5 million shares of our common stock at a cost of $178.2 million, orunder an average cost of $70.77 per share, including commissions.
Year Ended May 31, 2016
On April 25, 2016,ASR agreement we entered into an ASRon February 10, 2021 with a financial institution to repurchase an aggregate of $50$500 million of our common stock. In exchange for an up-front payment of $50 million, the financial institution committed to deliver a number of sharesstock during the ASR'sASR program purchase period, which ended on June 23, 2016. March 31, 2021.
On April 26, 2016, 545,777 shares were initially delivered to us. At May 31, 2016, we accounted forAugust 16, 2022, the variable component of remaining shares to be delivered underU.S. government enacted the ASR asInflation Reduction Act into law, which, among other things, implemented a forward contract indexed to our common stock which met all of the applicable criteria for equity classification. On June 23, 2016, an additional 127,435 shares were delivered to us. The total number of shares delivered under this ASR was 673,212 shares at an average price of $74.27 per share.
In addition to shares repurchased under the ASR during1% excise tax on share repurchases effective beginning January 1, 2023. During the year ended MayDecember 31, 2016,2023, we repurchased and retired 1.5reflected excise taxes of $3.9 million shareswithin equity as part of ourthe cost of common stock atrepurchased, net of share issuances, during the period.
As of December 31, 2023, the amount available under our share repurchase program was $1,090.2 million. On January 25, 2024, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $2.0 billion.
On January 25, 2024, our board of directors declared a costcash dividend of $85.9 million, or an average cost of $58.12$0.25 per share including commissions, through open market repurchase plans.payable on March 29, 2024 to common shareholders of record on March 15, 2024.
On April 10, 2015, we entered into an ASR with a financial institution to repurchase an aggregate
NOTE 11—14—SHARE-BASED AWARDS AND OPTIONS
We have granted nonqualified stock options, and restricted stock and performance unit awards to key employees, officers and directors under a long-term incentive plan, which permits grants of equity to employees, officers, directors and consultants. A total of 14.0 million shares of our common stock washas been reserved and made available for issuance pursuant to awards granted under the plan. The awards are held in escrow and released upon the grantee's satisfaction of conditions of the award certificate.
The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options:
| | Years Ended December 31, | | | Years Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
| | Year Ended December 31, | | Seven Months Ended December 31, | | Year Ended May 31, |
| 2017 | | 2016 | | 2016 | | 2015 |
| | | | | | | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) | |
| (in thousands) |
Share-based compensation expense | $ | 39,095 |
| | $ | 18,707 |
| | $ | 30,809 |
| | $ | 21,056 |
|
Share-based compensation expense | |
Share-based compensation expense | |
Income tax benefit | $ | 13,849 |
| | $ | 6,582 |
| | $ | 9,879 |
| | $ | 6,907 |
|
Restricted Stock
Restricted stock awards vest in approximately equal annual installments, over a three-generally on each of the first three or four-year period andfour anniversaries of the grant date or, in some cases, vest atin one installment on the endthird anniversary of a three-yearthe grant date, in either case subject to the holder's continued service period.on each applicable vesting date. Restricted shares cannot be sold or transferred until they have vested. The grant date fair value of restricted stock awards, which is based on the quoted market value of our common stock on the grant date, is recognized as share-based compensation expense on a straight-line basis over the vesting period. Our restricted stock agreements provide for accelerated vesting under certain conditions.
Performance Units
Certain of our executives have been granted performance units under our long-term incentive plan. Performance units are performance-based restricted stock units ("performance units") that, after a performance period, may convert on a 1-for-1 basis into shares of our common shares, which may be restricted. The number of shares is dependentstock based upon the level of achievement of certain pre-established performance measures during the performance period.period and subject to the holders' continued service on the vesting date. The target number of performance units and any market-based performance measures ("at threshold," "target," and "maximum") are set by the compensation committeeCompensation Committee of our board of directors. Performance units are converted only after the compensation committee certifiesdirectors ("Compensation Committee") establishes performance based on pre-established goals.
The compensation committeemeasures and may set a range of possible performance-based outcomes for performance units. The performance periods generally range from one to three years. Performance units are converted into shares of common stock only after the Compensation Committee certifies the level of achievement against the performance measures. Our performance unit agreements provide for accelerated vesting under certain conditions.
For these awards, with only performance conditions, we recognize compensation expense on a straight-line basis over the applicable performance or service period using the grant date fair value of the award which is based onand the number of shares expected to be earned according to the level of achievement of performance goals. Ifmeasures. When the estimated number of common shares expected to be earned were to change at any timeis changed during the performance period, we would make a cumulative adjustment to share-based compensation expense based on the revised number of shares expected to be earned.estimate. The performance periodperiods for awards granted generally range from 28 monthsone to three years.
Leveraged Performance Units
During the year ended May 31, 2015, certain executives were granted performance units that we refer to as "leveraged performance units," or "LPUs." LPUs contain a market condition based on our relative stock price growth over a three-year performance period. The LPUs contain a minimum threshold performance which, if not met, would result in no payout. The LPUs also contain a maximum award opportunity set as a fixed dollar and fixed number of shares. After the three-year performance period, which concluded in October 2017, one-third of the earned units converted to unrestricted common stock. The remaining two-thirds converted to restricted stock that will vest in equal installments on each of the first two anniversaries of the conversion date. We recognize share-based compensation expense based on the grant date fair value of the LPUs, as determined by use of a Monte Carlo model, on a straight-line basis over the requisite service period for each separately vesting portion of the LPU award.
The following table summarizes the changes in unvested restricted stock awards and performance awards for the year ended December 31, 2017, the 2016 fiscal transition period andunits for the years ended MayDecember 31, 20162023, 2022 and 2015:2021:
| | | Shares | | | | Shares | | Weighted-Average Grant-Date Fair Value |
| | | (in thousands) | |
| | (in thousands) | |
| | (in thousands) | |
| | Shares | | Weighted-Average Grant-Date Fair Value |
Unvested at December 31, 2020 | |
| | (in thousands) | | |
Unvested at May 31, 2014 | | 1,754 |
| | $ | 22.72 |
|
Unvested at December 31, 2020 | |
| Unvested at December 31, 2020 | | | 1,546 | | | $176.71 |
Granted | | 954 |
| | 36.21 |
| Granted | | 1,465 | | | 192.19 | | 192.19 |
Vested | | (648 | ) | | 23.17 |
| Vested | | (1,263) | | | 154.06 | | 154.06 |
Forfeited | | (212 | ) | | 27.03 |
| Forfeited | | (108) | | | 181.61 | | 181.61 |
Unvested at May 31, 2015 | | 1,848 |
| | 28.97 |
|
Unvested at December 31, 2021 | | Unvested at December 31, 2021 | | 1,640 | | | 184.90 |
Granted | | 461 |
| | 57.04 |
| Granted | | 1,496 | | | 137.51 | | 137.51 |
Vested | | (633 | ) | | 27.55 |
| Vested | | (756) | | | 170.79 | | 170.79 |
Forfeited | | (70 | ) | | 34.69 |
| Forfeited | | (235) | | | 164.06 | | 164.06 |
Unvested at May 31, 2016 | | 1,606 |
| | 37.25 |
|
Unvested at December 31, 2022 | | Unvested at December 31, 2022 | | 2,145 | | | 159.04 |
Replacement Awards | | Replacement Awards | | 202 | | | 98.44 |
Granted | | 348 |
| | 74.26 |
| Granted | | 1,322 | | | 112.81 | | 112.81 |
Vested | | (639 | ) | | 31.38 |
| Vested | | (1,041) | | | 157.33 | | 157.33 |
Forfeited | | (52 | ) | | 45.27 |
| Forfeited | | (147) | | | 128.18 | | 128.18 |
Unvested at December 31, 2016 | | 1,263 |
| | 49.55 |
|
Granted | | 899 |
| | 79.79 |
|
Vested | | (858 | ) | | 39.26 |
|
Forfeited | | (78 | ) | | 59.56 |
|
Unvested at December 31, 2017 | | 1,226 |
| | $ | 78.29 |
|
Unvested at December 31, 2023 | | Unvested at December 31, 2023 | | 2,481 | | | $131.41 |
The total fair value of restricted stock and performance awardsunits vested was $33.7$163.8 million, for the year ended December 31, 2017, $20.0 million for the 2016 fiscal transition period and $17.4$129.2 million and $15.0$194.6 million respectively, for the years ended MayDecember 31, 20162023, 2022 and 2015.2021, respectively.
For restricted stock and performance awards,units, we recognized compensation expense of $35.2$186.9 million, for the year ended December 31, 2017, $17.2 million for the 2016 fiscal transition period and $28.8$151.5 million and $19.8$167.3 million respectively, for the years ended MayDecember 31, 20162023, 2022 and 2015.2021, respectively. As of December 31, 2017,2023, there was $46.1$156.0 million of unrecognized compensation expense related to unvested restricted stock awards and performance awardsunits that we expect to recognize over a weighted-average period of 1.81.7 years. Our restricted stock and performance award plans provide for accelerated vesting under certain conditions.
Stock Options
Stock options are granted with an exercise price equal to 100% of fair market value of our common stock on the date of grant and have a term of ten years. Stock options granted before the year ended May 31, 2015 vest in equal installments, generally on each of the first three or four anniversaries of the grant date. Stock options granted duringdate, subject to the year ended May 31, 2015 and thereafter vest in
equal installmentsholder's continued service on each of the first three anniversaries of the grantapplicable vesting date. Our stock option plansagreements provide for accelerated vesting under certain conditions.
The following table summarizes changes in stock option activity for the yearyears ended December 31, 2017, the 2016 fiscal transition period2023, 2022 and the years ended May 31, 2016 and 2015:2021:
| | Options | | | Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| | (in thousands) | |
| (in thousands) | |
| (in thousands) | | | | | (years) | | (in millions) |
| Options | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| (in thousands) | | | | (years) | | (in millions) |
Outstanding at May 31, 2014 | 1,532 |
| | $ | 20.36 |
| | 3.8 | | $ | 21.3 |
|
Outstanding at December 31, 2020 | |
Outstanding at December 31, 2020 | |
Outstanding at December 31, 2020 | | 1,253 | | | $93.66 | | 6.3 | | $152.6 |
Granted | 306 |
| | 35.78 |
| | |
Forfeited | (48 | ) | | 27.42 |
| | |
Forfeited | |
Forfeited | |
Exercised | (896 | ) | | 20.15 |
| | 16.6 |
|
Outstanding at May 31, 2015 | 894 |
| | 25.47 |
| | 5.2 | | 23.9 |
|
Exercised | |
Exercised | | (192) | | | 68.42 | | | | 24.1 |
Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | 1,172 | | | 107.44 | | 5.8 | | 47.4 |
Granted | 145 |
| | 55.92 |
| | |
Forfeited | (8 | ) | | 16.10 |
| | |
Forfeited | |
Forfeited | |
Exercised | (220 | ) | | 22.46 |
| | 9.4 |
|
Outstanding at May 31, 2016 | 811 |
| | 31.81 |
| | 5.8 | | 36.8 |
|
Exercised | |
Exercised | | (98) | | | 65.69 | | | | 5.5 |
Outstanding at December 31, 2022 | | Outstanding at December 31, 2022 | 1,139 | | | 111.75 | | 5.4 | | 17.3 |
Replacement Awards | |
Granted | |
Granted | |
Granted | 73 |
| | 74.66 |
| | |
Forfeited | (1 | ) | | 22.93 |
| | |
Exercised | (124 | ) | | 22.26 |
| | 6.5 |
|
Outstanding at December 31, 2016 | 759 |
| | 37.51 |
| | 6.0 | | 24.5 |
|
Granted | 124 |
| | 79.45 |
| | |
Forfeited | |
Forfeited | — |
| | — |
| | |
Exercised | (160 | ) | | 23.50 |
| | 10.1 |
|
Outstanding at December 31, 2017 | 723 |
| | $ | 47.79 |
| | 6.4 | | $ | 37.9 |
|
Exercised | |
Exercised | | (296) | | | 89.08 | | | | 9.4 |
Outstanding at December 31, 2023 | | Outstanding at December 31, 2023 | 921 | | | $99.54 | | 5.0 | | $32.1 |
| | | | | |
Options vested and exercisable at December 31, 2017 | 502 |
| | $ | 36.60 |
| | 5.4 | | $ | 31.9 |
|
Options vested and exercisable at December 31, 2023 | |
Options vested and exercisable at December 31, 2023 | |
Options vested and exercisable at December 31, 2023 | | 647 | | | $96.41 | | 3.6 | | $25.3 |