Compliance with Covenants
The Credit Facility Agreementconvertible 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 ournet leverage and fixed chargeinterest coverage ratios, as defined in the agreement. Asand customary events of September 30, 2017, financial covenants under the Credit Facility Agreementdefault. The required a leverage ratio no greater than: (i)was increased to 4.50 to 1.00 as a result of the endqualifying acquisition of any fiscal quarter ending during the period from July 1, 2017 through June 30, 2018; (ii) 4.25EVO, which will remain in effect for up to eight consecutive quarters with a gradual step-down to 3.75 to 1.00, as ofand 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 chargerequired interest coverage ratio is required3.00 to be no less than 2.25 to 1.00.
The Credit Facility Agreement and settlement lines of credit also include various other covenants that are customary in such borrowings. The Credit Facility Agreement 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 Agreement 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 March 31, 2023.
Interest Expense
Interest expense was $119.0 million and $89.3 million for the ninethree months ended September 30, 2017.March 31, 2023 and 2022, respectively.
NOTE 7—DERIVATIVES AND HEDGING INSTRUMENTS
Net Investment Hedge
We have designated our Euro-denominated senior notes as a hedge of our net investment in our Euro-denominated operations. The purpose of the net investment hedge is to reduce the volatility of our net 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 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. Net investment hedge accounting offers protection from this risk, 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.
As of March 31, 2023, an aggregate €800 million related to our Euro-denominated senior notes due March 2031 was designated as a net investment hedge of our investment in Euro-denominated operations. We recognized a loss of $18.2 million within foreign currency translation adjustments in other comprehensive income in our consolidated statement of comprehensive income during the three months ended March 31, 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 are reflected
as adjustments to interest expense. Since we have designated the interest rate swap agreements as portfolio cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recorded as components of other comprehensive income, except for any ineffective portion of the change in fair value, which would be immediately recorded in interest expense. During the three and nine months ended September 30, 2017 and 2016, 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.
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Fair Values |
| Derivative Financial Instruments | | Balance Sheet Location | | Weighted-Average Fixed Rate of Interest at March 31, 2023 | | Range of Maturity Dates at March 31, 2023 | | March 31, 2023 | | December 31, 2022 |
| | | | | | | | | | |
| | | | | | | | (in thousands) |
| | | | | | | | | | |
| Interest rate swaps (Notional of $1.5 billion at March 31, 2023) | | Other noncurrent liabilities | | 4.26 | % | | April 17, 2027 - August 17, 2027 | | $ | 46,403 | | | $ | — | |
|
| | | | | | | | | | | | | | |
| Derivative Financial Instruments | | Balance Sheet Location | | Weighted-Average Fixed Rate of Interest at September 30, 2017 | | Range of Maturity Dates | | September 30, 2017 | | December 31, 2016 |
| | | | | | | | | (in thousands) |
| | | | | | | | | | | |
| Interest rate swaps (Notional of $1,000 million at September 30, 2017, $250 million at December 31, 2016) | | Other assets | | 1.49% | | February 28, 2019 - July 31, 2020 | | $ | 2,923 |
| | $ | 2,147 |
|
| Interest rate swaps (Notional of $300 million at September 30, 2017, $750 million at December 31, 2016) | | Accounts payable and accrued liabilities | | 1.91% | | March 31, 2021 | | $ | 1,495 |
| | $ | 3,175 |
|
The table below presents the effects of our interest rate swaps on the consolidated statements of income and statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2023 | | March 31, 2022 |
| | | |
| (in thousands) |
| | | |
| Net unrealized (losses) gains recognized in other comprehensive income (loss) | $ | (48,051) | | | $ | 8,934 | |
| Net unrealized losses reclassified out of other comprehensive income (loss) to interest expense | $ | 1,386 | | | $ | 9,445 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | | | | | | | |
| | (in thousands) |
| | | | | | | | |
| Amount of gain (loss) recognized in other comprehensive income | $ | 341 |
| | $ | 3,429 |
| | $ | (2,214 | ) | | $ | (12,665 | ) |
| Amount reclassified out of other comprehensive income to interest expense | $ | 1,172 |
| | $ | 1,853 |
| | $ | 4,667 |
| | $ | 5,733 |
|
As of September 30, 2017,March 31, 2023, the amount of net unrealized losses in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was approximately $1.7$0.4 million.
Interest Expense
NOTE 8—INCOME TAX
Interest expense
For the three months ended March 31, 2023, we reported a tax benefit in excess of the U.S. statutory tax rate. The tax benefit included the favorable effect of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction. In addition, the tax benefit on the loss on business dispositions was $41.8 million and $44.6 milliontax effected at the applicable tax rate, whereas the earnings other than this discrete item were tax effected at the lower estimated annual effective tax rate.
Our effective income tax rate for the three months ended September 30, 2017 and 2016, respectively, and $130.3 million and $95.6 million for the nine months ended September 30, 2017 and 2016, respectively.
NOTE 7—INCOME TAX
March 31, 2022 was 18.4%. Our effective income tax rates were 11.7% and 18.4% for the three months ended September 30, 2017 and September 30, 2016, respectively. Our effective income tax rates were 14.4% and 14.7% for the nine months ended September 30, 2017 and September 30, 2016, respectively. Our effective income tax rates differMarch 31, 2022 differed from the U.S. statutory rate primarily due to income generated in international jurisdictions with lower tax rates. In addition, as a result of adopting ASU 2016-09foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law, which, among other things, implements 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 three months ended March 31, 2023, we reflected excise taxes of $2.3 million within equity as part of the price of common stock repurchased during the period.
NOTE 9—REDEEMABLE NONCONTROLLING INTERESTS
Through the acquisition of EVO, we have certain redeemable noncontrolling interests related to the portion of equity in our consolidated subsidiaries in Poland, Chile, and Greece, not attributable, directly or indirectly, to us, that is redeemable upon the occurrence of an event that is not solely within our control.
We own 66% of our subsidiary in Poland. Under the shareholders agreement, the holder of the remaining 34% of the shares has the option to compel us to purchase the shares held by the minority shareholder at a price per share based on the fair value of the shares. The option expires on January 1, 2017, as described2024. We own 50.1% of our subsidiary in "Note 1— Basis of Presentation and Summary of Significant Accounting Policies," we recognizeChile. Under the income tax effectsshareholders agreement, the holder of the excess benefits or deficienciesremaining 49.9% of share-based awardsthe shares has the option to compel us to purchase those shares at a price per share based on the fair value of the shares. The option has no expiration date. We own 51% of our subsidiary in Greece. Under the shareholders agreement, the holder of the remaining 49% of the shares has the option, under certain limited circumstances, to compel us to purchase those shares at a price set forth in the statementagreement. In addition, beginning December 2025, the minority shareholder has the option to compel us to purchase those shares at a price per share based on the fair value of income when share-based awards vest orthe shares. The options have no expiration date.
Because the exercise of each of these redemption options is not solely within our control, the redeemable noncontrolling interests are settled, which contributed to lower effective income tax ratespresented in the current year periods. Duringmezzanine section between total liabilities and shareholders’ equity, as temporary equity, in our consolidated balance sheet as of March 31, 2023. We adjust the nine months ended September 30, 2016, we recordedredeemable noncontrolling interests at each balance sheet date to reflect our estimate of the maximum redemption amounts with changes recognized as an income tax benefitadjustment to paid-in capital within equity in our consolidated balance sheets. Such estimates are based on projected operating performance of $12.7 million associated with 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 the United States indefinitely.
We conduct business globally and file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities around the world, including, without limitation, the United Stateseach subsidiary, and the United Kingdom. Wekey assumptions used in estimating the fair value include, but are no longer subjectnot limited to, state income tax examinations for years endedrevenue growth rates and weighted-average cost of capital.
Redeemable noncontrolling interests are carried at fair value on or before Maya recurring basis and are classified within Level 3 of the valuation hierarchy. The estimated fair value of the redeemable noncontrolling interests was $556.1 million as of the date of the acquisition of EVO and as of March 31, 2008, U.S. federal income tax examinations for fiscal years prior to 2013 and U.K. federal income tax examinations for years ended on or before May 31, 2013.2023.
NOTE 8—10—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 ("ASR") programs. As of September 30, 2017, we were authorized to repurchase up to $264.9 million of our common stock. During the three and nine months ended September 30, 2017, respectively, through open market repurchase plans,March 31, 2023 and 2022, we repurchased and retired 311,5932,058,902 and 376,3094,515,626 shares of our common stock, respectively, at a cost, including commissions and applicable excise taxes, of $29.0$206.6 million and $34.8$649.7 million, or an average cost of $93.09$100.33 and $92.51$143.95 per share, including commissions.
Duringrespectively. As of March 31, 2023, the three and nine months ended September 30, 2016, respectively, through open market repurchase plans, we repurchased and retired 484,256 and 1,142,415 shares ofremaining amount available under our common stock at a cost of $35.5 million and $80.3 million, or an average cost of $73.25 and $70.29 per share, including commissions. In addition to shares repurchased through open market repurchase plans, we repurchased 673,212 shares of our common stock at a cost of $50.0 million, or an average cost of $74.27 per share, including commissions, through an accelerated share repurchase program during the nine months ended Septemberwas $1,295.7 million.
On April 27, 2023, our board of directors declared a dividend of $0.25 per share payable on June 30, 2016.2023 to common shareholders of record as of June 15, 2023.
NOTE 9—11—SHARE-BASED AWARDS AND STOCK OPTIONS
The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options:
| | | | Three Months Ended | | Nine Months Ended | | Three Months Ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 | | March 31, 2023 | | March 31, 2022 |
| | | | | | | | | | | | |
| | (in thousands) | | (in thousands) |
| | | | | | | | | |
| Share-based compensation expense | $ | 9,617 |
| | $ | 8,688 |
| | $ | 30,771 |
| | $ | 26,060 |
| Share-based compensation expense | $ | 89,566 | | | $ | 38,399 | |
| Income tax benefit | $ | 3,523 |
| | $ | 2,968 |
| | $ | 10,788 |
| | $ | 8,679 |
| Income tax benefit | $ | 9,417 | | | $ | 9,679 | |
The following table sets forth the computation of diluted weighted-average number of shares outstanding for the three and nine months ended September 30, 2017March 31, 2023 and September 30, 2016:2022:
The changes in the accumulated balances for each component of other comprehensive loss, net of tax,income (loss) were as follows for the three and nine months ended September 30, 2017March 31, 2023 and September 30, 2016:2022:
ITEM 2—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 our unaudited consolidated financial statements and related notes included in Item 1 of Part 1I of this Quarterly Report and the Management’s Discussion and Analysis of Financial Condition and Results of Operations and consolidated financial statements contained in our TransitionAnnual Report on Form 10-K for the seven monthsyear ended December 31, 2016.2022. 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. See "Forward-Looking Statements" below for additional information.
Executive Overview
We are a leading worldwide provider of paymentpayments technology servicescompany delivering innovative solutionssoftware and services to our customers globally. Our technologies, services and employeeteam member expertise enableallow us to provide a broad range of servicessolutions that allowenable our customers to accept various payment types. We distribute our servicesoperate their businesses more efficiently across a variety of channels around the world.
We have grown organically, as well as through acquisitions, and continue to invest in new technology solutions and innovation, 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 merged with Heartlandhave furthered our business strategy through several recent key transactions, including the following:
•On March 24, 2023, we acquired all of the outstanding common stock of EVO Payments, Systems, Inc. ("Heartland"EVO") in a cash-and-stock transaction on April 22, 2016 for total purchase consideration of $3.9$4.3 billion. SeeEVO is a leading payment technology and services provider, offering an array of payment solutions to merchants ranging from small and middle market enterprises to multinational companies and organizations across the Americas and Europe. The cash portion of the purchase consideration was funded through cash on hand and borrowings from our revolving credit facility.
•On April 26, 2023, we completed the sale of the consumer portion of our Netspend business for approximately $1 billion, subject to final closing adjustments. In connection with the sale, we provided $675 million of seller financing and a first lien five-year $50 million secured revolving facility available from the date of closing of the sale. We recognized a loss on business dispositions in our consolidated statement of income of $244.8 million during the three months ended March 31, 2023 related to the consumer business disposal group.
•On April 1, 2023, we completed the sale of our gaming business for approximately $400.0 million, including $32 million of seller financing, and subject to final closing adjustments. We expect to recognize a gain on the sale of approximately $100 million in the second quarter of 2023.
•Our capital allocation priorities were supported by the successful issuance of new Euro-denominated senior notes and the launch of a new commercial paper program during the first quarter of 2023.
◦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. The net proceeds from the offering were used for general corporate purposes.
◦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 on the revolving credit facility. The proceeds from issuances of commercial paper notes will be used for acquisitions, to pay dividends, for debt refinancing or for other general corporate purposes.
Highlights related to our financial condition at March 31, 2023 and results of operations for the three months then ended include the following:
•Consolidated revenues for the three months ended March 31, 2023 increased to $2,292.4 million compared to $2,156.3 million for the prior year. The increase in consolidated revenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions, partially offset by the effects of unfavorable foreign currency exchange rates.
•Merchant Solutions segment and Issuer Solutions segment operating income and operating margin for the three months ended March 31, 2023 increased compared to the prior year primarily due to the favorable effects of the increase in revenues, since certain fixed costs do not vary with revenues, and continued prudent expense management. These favorable effects were partially offset by the effects of unfavorable foreign currency exchange rates.
•Consolidated operating income for the three months ended March 31, 2023 included the unfavorable effects of the loss on business dispositions as described above and an increase in acquisition and integration expenses as compared to the prior year, primarily related to the acquisition of EVO.
Risks Related to Macroeconomic Conditions
We are exposed to general economic conditions, including currency fluctuations, inflation, rising interest rates and health and social events or other conditions that affect the overall level of consumer, business and government spending, which could negatively affect our financial performance.
Certain of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses has been and may continue to be affected by fluctuations in foreign currency exchange rates. For the three months ended March 31, 2023, currency exchange rate fluctuations decreased our consolidated revenues by approximately $30.4 million and decreased our operating income by approximately $10.7 million, calculated by converting revenues and operating income for the current year in local currencies using exchange rates for the prior year. A continued strengthening of the US dollar or other significant fluctuations in 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 reduced our interest rate risk through issuance of fixed rate debt in place of variable rate debt, including the 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 could adversely 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, recent failures of several financial institutions, including Silicon Valley Bank, have created 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.
For a further discussion of trends, uncertainties and other factors that could affect our future operating results, see the section entitled "Risk Factors" in Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequent filings we make with the SEC, including this Quarterly Report on Form 10-Q.
Results of Operations
During 2022, as a result of the pending divestiture of our consumer business and changes in how the business is managed, we realigned the businesses previously comprising our Business and Consumer Solutions segment to include the business-to-business portion within our Issuer Solutions segment and the consumer portion forming our new Consumer Solutions segment. Our three reportable segments now are: Merchant Solutions, Issuer Solutions and Consumer Solutions. The presentation of segment information for the three months ended March 31, 2022 has been recast to align with the segment presentation for the three months ended March 31, 2023. For further information about our reportable segments, see "Item 1. Business—Business Segments" within our Annual Report on Form 10-K for the year ended December 31, 2022, incorporated herein by reference, and "Note 2—Acquisitions"15—Segment Information" in the notes to the accompanying unaudited consolidated financial statements for further discussion of our merger with Heartland.statements.
On September 1, 2017, we acquired the communities and sports divisions of Athlaction Topco, LLC ("ACTIVE Network") in a cash-and-stock transaction with Vista Equity Partners. We paid the sellers consideration of $600 million in cash, which we funded primarily by drawing on our Revolving Credit Facility (as defined in "Liquidity and Capital Resources - Long-Term Debt and Lines of Credit" below), and 6,357,509 shares of our common stock having an estimated fair value of approximately $572 million.
Highlights related to our financial condition and results of operations for the three and nine months ended September 30, 2017 are provided below:
Consolidated revenues increased by 9.1% and 20.7% to $1,038.9 million and $2,920.9 million, respectively, for the three and nine months ended September 30, 2017, compared to $951.9 million and $2,420.8 million, respectively, for the prior-year periods. The increase for the three month-period was primarily due to organic growth across our operating segments and the increase for the nine month-period was primarily due to our merger with Heartland.
Consolidated operating income was $172.5 million and $409.3 million, respectively, for the three and nine months ended September 30, 2017 compared to $120.4 million and $276.1 million, respectively, for the prior-year periods. Our operating margin for the three and nine months ended September 30, 2017 was 16.6% and 14.0%, respectively, compared to 12.6% and 11.4%, respectively, for the prior-year periods. The contribution of the revenue growth was partially offset by an increase in depreciation and amortization expense of $5.1 million and $93.7 million, respectively.
Net income attributable to Global Payments was $110.7 million and $226.5 million, respectively, for the three and nine months ended September 30, 2017 compared to $55.5 million and $177.7 million, respectively, for the prior-year periods. The nine months ended September 30, 2016 included a gain of $41.2 million from the sale of all of our membership interests in Visa Europe Limited ("Visa Europe") to Visa Inc. ("Visa").
Diluted earnings per share was $0.71 and $1.47, respectively, for the three and nine months ended September 30, 2017 compared to $0.36 and $1.23, respectively, for the prior-year periods.
Emerging Trends
We believe that electronic 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.
We also believe new markets will continue to develop 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-business payments, to continue to see transactions migrate to electronic-based solutions. We anticipate that the continued development of new services and the emergence of new vertical markets will be a factor in the growth of our business and our revenue in the future.
The payments industry continues to 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 or increase our scale and improve our competitiveness in existing markets by pursuing further acquisitions and joint ventures.
Results of Operations
The following table sets forth key selected financial data for the three months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the three months ended September 30, 2016 areMarch 31, 2023 and 2022 is derived from ourthe accompanying unaudited consolidated financial statements for that period.included in Part I, Item 1 - Financial Statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, 2023 | | % of Revenues(1) | | Three Months Ended
March 31, 2022 | | % of Revenues(1) | | $ Change | | % Change |
| | | | | | | | | | | |
| (dollar amounts in thousands) |
| | | | | | | | | | | |
Revenues(2): | | | | | | | | | | | |
| Merchant Solutions | $ | 1,605,610 | | | 70.0 | % | | $ | 1,473,019 | | | 68.3 | % | | $ | 132,591 | | | 9.0 | % |
| Issuer Solutions | 570,907 | | | 24.9 | % | | 537,326 | | | 24.9 | % | | 33,581 | | | 6.2 | % |
| Consumer Solutions | 143,709 | | | 6.3 | % | | 169,115 | | | 7.8 | % | | (25,406) | | | (15.0) | % |
| Intersegment eliminations | (27,779) | | | (1.2) | % | | (23,206) | | | (1.1) | % | | (4,573) | | | 19.7 | % |
| Consolidated revenues | $ | 2,292,447 | | | 100.0 | % | | $ | 2,156,254 | | | 100.0 | % | | $ | 136,193 | | | 6.3 | % |
| | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
| Cost of service | $ | 947,753 | | | 41.3 | % | | $ | 957,158 | | | 44.4 | % | | $ | (9,405) | | | (1.0) | % |
| Selling, general and administrative | 1,043,126 | | | 45.5 | % | | 823,149 | | | 38.2 | % | | 219,977 | | | 26.7 | % |
| Loss on business dispositions | 244,833 | | | 10.7 | % | | — | | | — | % | | 244,833 | | | NM |
| Operating expenses | $ | 2,235,712 | | | 97.5 | % | | $ | 1,780,307 | | | 82.6 | % | | $ | 455,405 | | | 25.6 | % |
| | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
| Merchant Solutions | $ | 507,210 | | | 22.1 | % | | $ | 444,530 | | | 20.6 | % | | $ | 62,680 | | | 14.1 | % |
| Issuer Solutions | 82,810 | | | 3.6 | % | | 69,142 | | | 3.2 | % | | 13,668 | | | 19.8 | % |
| Consumer Solutions | (5,798) | | | (0.3) | % | | 22,618 | | | 1.0 | % | | (28,416) | | | (125.6) | % |
Corporate(3) | (282,654) | | | (12.3) | % | | (160,343) | | | (7.4) | % | | (122,311) | | | 76.3 | % |
| Loss on business dispositions | (244,833) | | | (10.7) | % | | — | | | — | % | | (244,833) | | | NM |
| Operating income | $ | 56,735 | | | 2.5 | % | | $ | 375,947 | | | 17.4 | % | | $ | (319,212) | | | (84.9) | % |
| | | | | | | | | | | |
Operating margin(2): | | | | | | | | | | | |
| Merchant Solutions | 31.6 | % | | | | 30.2 | % | | | | 1.4 | % | | |
| Issuer Solutions | 14.5 | % | | | | 12.9 | % | | | | 1.6 | % | | |
| Consumer Solutions | (4.0) | % | | | | 13.4 | % | | | | (17.4) | % | | |
NM = Not meaningful
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2017 | | % of Revenue(1) | | Three Months Ended September 30, 2016 | | % of Revenue(1) | | Change | | % Change |
| | | | | | | | | | | | |
| | (dollar amounts in thousands) |
| | | | | | | | | | | | |
Revenues(2): | | | | | | | | | | | |
| North America | $ | 764,902 |
| | 73.6 | % | | $ | 718,977 |
| | 75.5 | % | | $ | 45,925 |
| | 6.4 | % |
| Europe | 205,203 |
| | 19.8 | % | | 173,246 |
| | 18.2 | % | | 31,957 |
| | 18.4 | % |
| Asia-Pacific | 68,802 |
| | 6.6 | % | | 59,662 |
| | 6.3 | % | | 9,140 |
| | 15.3 | % |
| Total revenues | $ | 1,038,907 |
| | 100.0 | % | | $ | 951,885 |
| | 100.0 | % | | $ | 87,022 |
| | 9.1 | % |
| | | | | | | | | | | | |
Consolidated operating expenses: | | | | | | | | | | | |
| Cost of service | $ | 493,883 |
| | 47.5 | % | | $ | 469,980 |
| | 49.4 | % | | $ | 23,903 |
| | 5.1 | % |
| Selling, general and administrative | 372,553 |
| | 35.9 | % | | 361,516 |
| | 38.0 | % | | 11,037 |
| | 3.1 | % |
| Operating expenses | $ | 866,436 |
| | 83.4 | % | | $ | 831,496 |
| | 87.4 | % | | $ | 34,940 |
| | 4.2 | % |
| | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | |
| North America | $ | 138,345 |
| |
|
| | $ | 110,983 |
| | | | $ | 27,362 |
| | 24.7 | % |
| Europe | 76,214 |
| | | | 63,727 |
| | | | 12,487 |
| | 19.6 | % |
| Asia-Pacific | 20,032 |
| | | | 14,657 |
| | | | 5,375 |
| | 36.7 | % |
Corporate(2) | (62,120 | ) | | | | (68,978 | ) | | | | 6,858 |
| | (9.9 | )% |
| Operating income | $ | 172,471 |
| | 16.6 | % | | $ | 120,389 |
| | 12.6 | % | | $ | 52,082 |
| | 43.3 | % |
| | | | | | | | | | | | |
Operating margin: | | | | | | | | | | | |
| North America | 18.1 | % | | | | 15.4 | % |
| | | 2.7 | % | | |
| Europe | 37.1 | % | | | | 36.8 | % | | | | 0.3 | % | | |
| Asia-Pacific | 29.1 | % | | | | 24.6 | % |
| | | 4.5 | % | | |
(1) Percentage amounts may not sum to the total due to rounding.
(2) Revenues, consolidated operating expenses, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates and the effects of divested businesses through the respective disposal dates. See “Note 2—Acquisition” and “Note 3—Business Dispositions” for further discussion.
(2) Operating
(3) Operating loss for Corporate included acquisition and integration expenses of $21.5$87.8 million and $34.0$48.2 million during the three months ended September 30, 2017 and 2016, respectively. These expenses are included primarily in selling, general and administrative expenses in the unaudited consolidated statements of income.
The following table sets forth key selected financial data for the nine months ended September 30, 2017 and September 30, 2016, this data as a percentage of total revenues and the changes between the periods in dollars and as a percentage of the prior-year amount. The income statement data for the nine months ended September 30, 2016 are derived from our unaudited consolidated financial statements for that period.
|
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2017 | | % of Revenue(1) | | Nine Months Ended September 30, 2016 | | % of Revenue(1) | | Change | | % Change |
| | | | | | | | | | | | |
| | (dollar amounts in thousands) |
| | | | | | | | | | | | |
Revenues(2): | | | | | | | | | | | |
| North America | $ | 2,162,911 |
| | 74.0 | % | | $ | 1,770,957 |
| | 73.2 | % | | $ | 391,954 |
| | 22.1 | % |
| Europe | 557,258 |
| | 19.1 | % | | 479,620 |
| | 19.8 | % | | 77,638 |
| | 16.2 | % |
| Asia-Pacific | 200,741 |
| | 6.9 | % | | 170,212 |
| | 7.0 | % | | 30,529 |
| | 17.9 | % |
| Total revenues | $ | 2,920,910 |
| | 100.0 | % | | $ | 2,420,789 |
| | 100.0 | % | | $ | 500,121 |
| | 20.7 | % |
| | | | | | | | | | | | |
Consolidated operating expenses(2): | | | | | | | | | | | |
| Cost of service | $ | 1,418,969 |
| | 48.6 | % | | $ | 1,125,041 |
| | 46.5 | % | | $ | 293,928 |
| | 26.1 | % |
| Selling, general and administrative | 1,092,648 |
| | 37.4 | % | | 1,019,626 |
| | 42.1 | % | | 73,022 |
| | 7.2 | % |
| Operating expenses | $ | 2,511,617 |
| | 86.0 | % | | $ | 2,144,667 |
| | 88.6 | % | | $ | 366,950 |
| | 17.1 | % |
| | | | | | | | | | | | |
Operating income (loss)(2): | | | | | | | | | | | |
| North America | $ | 344,604 |
| | | | $ | 258,648 |
| | | | $ | 85,956 |
| | 33.2 | % |
| Europe | 196,394 |
| | | | 172,293 |
| | | | 24,101 |
| | 14.0 | % |
| Asia-Pacific | 57,321 |
| | | | 40,266 |
| | | | 17,055 |
| | 42.4 | % |
Corporate(3) | (189,026 | ) | | | | (195,085 | ) | | | | 6,059 |
| | (3.1 | )% |
| Operating income | $ | 409,293 |
| | 14.0 | % | | $ | 276,122 |
| | 11.4 | % | | $ | 133,171 |
| | 48.2 | % |
| | | | | | | | | | | | |
Operating margin(2): | | | | | | | | | | | |
| North America | 15.9 | % | | | | 14.6 | % | | | | 1.3 | % | | |
| Europe | 35.2 | % | | | | 35.9 | % | | | | (0.7 | )% | | |
| Asia-Pacific | 28.6 | % | | | | 23.7 | % | | | | 4.9 | % | | |
(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. For further discussion, see "Note 2—Acquisitions" in the notes to the accompanying unaudited consolidated financial statements.
(3) Operating loss for Corporate included acquisition and integration expenses of $69.5 million and $93.0 million during the nine months ended September 30, 2017 and 2016, respectively. These expenses are included primarily in selling, general and administrative expenses in the unaudited consolidated statements of income.
Revenues
For the three months ended September 30, 2017, revenues increased by $87.0 million, or 9.1%, compared to the prior year, to $1,038.9 million, reflecting organic growth in each of our operating segments and the favorable effect of currency fluctuations of $9.1 million. For the nine months ended September 30, 2017, revenues increased by $500.1 million, or 20.7%, compared to the prior year, to $2,920.9 million, due primarily to our merger with Heartland, despite the unfavorable effect of currency fluctuations of $13.1 million.
North America Segment. For the three and nine months ended September 30, 2017, revenues from our North America segment increased by $45.9 million and $392.0 million, or 6.4% and 22.1%, respectively, compared to the prior year, to $764.9 million and $2,162.9 million, respectively. The increase for the three months ended September 30, 2017 was primarily due to organic growthMarch 31, 2023 and the increase for the nine months ended September 30, 2017 was primarily due to our merger with Heartland.2022, respectively.
Europe Segment. For the three and nine months ended September 30, 2017,Revenues
Consolidated revenues from our Europe segment increased by $32.0 million and $77.6 million, or 18.4% and 16.2%, respectively, compared to the prior year, to $205.2 million and $557.3 million, respectively, primarily due to organic growth. During the three and nine months ended September 30, 2017, revenues from our Europe segment included a favorable effect from currency fluctuations of $5.6 million and an unfavorable effect from currency fluctuations of $15.1 million, respectively.
Asia-Pacific Segment. For the three and nine months ended September 30, 2017, revenues from our Asia-Pacific segment increased by $9.1 million and $30.5 million, or 15.3% and 17.9%, respectively, compared to the prior year, to $68.8 million and $200.7 million, respectively, primarily due to organic growth.
Operating Expenses
Cost of Service. For the three and nine months ended September 30, 2017, cost of service increased by $23.9 million and $293.9 million, or 5.1% and 26.1%, respectively, compared to the prior year, to $493.9 million and $1,419.0 million, respectively. The increase in cost of service was driven primarily by an increase in the variable costs associated with our revenue growth, including during the nine months ended September 30, 2017, the incremental expenses associated with the merger with and integration of Heartland as well as additional intangible asset amortization of $75.8 million from recently acquired businesses. As a percentage of revenues, cost of service decreased to 47.5% for the three months ended September 30, 2017 from 49.4% for the prior year. As a percentage of revenues, cost of serviceMarch 31, 2023 increased by 6.3% to 48.6% for the nine months ended September 30, 2017 from 46.5%$2,292.4 million compared to $2,156.3 million for the prior year. The decreaseincrease in costrevenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions, partially offset by the effects of unfavorable foreign currency exchange rates as the U.S. dollar strengthened during the first quarter of 2023 as compared to the first quarter of 2022.
Merchant Solutions Segment. Revenues from our Merchant Solutions segment for the three months ended March 31, 2023 increased by 9.0% to $1,605.6 million compared to $1,473.0 million for the prior year. The increase in revenues was primarily due to an increase in transaction volumes as a result of the increasing use of digital payment solutions and growth in subscription and software revenue, partially offset by the effects of unfavorable foreign currency exchange rates of $17.8 million for the three months ended March 31, 2023.
Issuer Solutions Segment. Revenues from our Issuer Solutions segment for the three months ended March 31, 2023 increased by 6.2% to $570.9 million compared to $537.3 million for the prior year. The increase in revenues was primarily due to an increase in transaction volumes, partially offset by the effects of unfavorable foreign currency exchange rates of $12.5 million for the three months ended March 31, 2023.
Consumer Solutions Segment. Revenues from our Consumer Solutions segment for the three months ended March 31, 2023 were $143.7 million compared to $169.1 million for the prior year. Revenues for the three months ended March 31, 2023 were affected by reduced consumer spending and lower spending volumes as compared to the prior year.
Operating Expenses
Cost of Service. Cost of service for the three months ended March 31, 2023 was $947.8 million compared to $957.2 million for the prior year. Cost of service as a percentage of revenuerevenues decreased to 41.3% for the three months ended September 30, 2017March 31, 2023 compared to 44.4% for the prior year. Compared to the prior year, cost of service for the three months ended March 31, 2023 included higher variable costs associated with the increase in revenues, which was duemore than offset by the favorable effects of lower amortization of acquired intangibles, as the consumer and gaming business assets classified as held for sale are not subject to a decrease in Heartland customer-related intangible asset amortization, which is calculated using an accelerated method.and prudent expense management. Amortization of acquired intangibles was $301.3 million and $329.0 million for the three months ended March 31, 2023 and 2022, respectively.
Selling, General and Administrative Expenses. For the three and nine months ended September 30, 2017, selling,Expenses. Selling, general and administrative expenses for the three months ended March 31, 2023 increased by $11.026.7% to $1,043.1 million and $73.0 million, or 3.1% and 7.2%, respectively, compared to $823.1 million for the prior year, to $372.6 millionyear. Selling, general and $1,092.6 million, respectively. Asadministrative expenses as a percentage of revenues selling, general and administrative expenses decreased to 35.9% and 37.4%was 45.5% for the three and nine months ended September 30, 2017 from 38.0% and 42.1%, respectively,March 31, 2023 compared to 38.2% for the prior year.
During the three and nine months ended September 30, 2017, the The increase in selling, general and administrative expenses was primarily due to additionalincreases in variable selling and other costs related to support the growth of our business, including during the nine months ended September 30, 2017 incrementalincrease in revenues, acquisition and integration expenses. The decreaseexpenses related primarily to the acquisition of EVO, higher compensation and benefits costs, including an increase in selling,share-based compensation expense for retirement eligible executives and our CEO, whose departure was announced on May 1, 2023, and other costs related to the sale of the consumer business. Selling, general and administrative expenses as a percentageincluded acquisition and integration expenses of revenues$101.4 million and $51.0 million for the three months ended March 31, 2023 and 2022.
Corporate. Corporate expenses for the three months ended March 31, 2023 were $282.7 million compared to $160.3 million for the prior year. The increase for the three months ended March 31, 2023 compared to the prior year was primarily due to synergies achieved in general and administrative expenses from the merger with Heartland, as well as the decreaseincrease in acquisition and integration and share-based compensation expenses duringas described above. Corporate
expenses included acquisition and integration expenses of $87.8 million for the three and nine months ended September 30, 2017.March 31, 2023 compared to $48.2 million for the three months ended March 31, 2022.
Operating Income and Operating Margin
North America Segment. OperatingConsolidated operating income in our North America segment increased by 24.7% and 33.2% to $138.3 million and $344.6 million, respectively, for the three and nine months ended September 30, 2017March 31, 2023 was $56.7 million compared to $375.9 million for the prior year. Operating margin increased by 2.7 and 1.3 percentage points for the three and nine months ended September 30, 2017, respectively. TheMarch 31, 2023 was 2.5% compared to 17.4% for the prior year. Consolidated operating income and operating margin for the three months ended March 31, 2023 compared to the prior year included the favorable effects of the increase in operating income was primarily due to revenue growthrevenues, since certain fixed costs do not vary with revenues, and lower amortization of acquired intangibles as described above. We recognized a loss on business dispositions in our U.S. business, which during the nine months ended September 30,
2017 was partially offset by additional intangible asset amortization associated with acquired businesses. The increase in operating marginconsolidated statement of income of $244.8 million during the three months ended September 30, 2017 was primarily dueMarch 31, 2023 to reduce the decreasecarrying amount of the disposal group to estimated fair value less costs to sell, including the effects of incremental negotiated closing adjustments, changes in intangible asset amortization expense from the merger with Heartland as a percentageestimated fair value of revenue.
Europe Segment.the seller financing and the effects of the final tax structure of the transaction. Operating income in our Europe segment increased by 19.6% and 14.0% to $76.2 million and $196.4 million, respectively, for the three and nine months ended September 30, 2017 compared toMarch 31, 2023 also included the prior year, despite theunfavorable effect of unfavorable currency fluctuations of $11.3 million for the nine months ended September 30, 2017. The increase in operating income for the threehigher acquisition and nine months ended September 30, 2017 was primarily due to revenue growth.integration and share-based compensation expenses as described above.
Asia-Pacific Segment. Operating income inIncome and Operating Margin
In our Asia-PacificMerchant Solutions segment, increased by 36.7% and 42.4% to $20.0 million and $57.3 million, respectively, for the three and nine months ended September 30, 2017 compared to the prior year. Operating margin increased by 4.5 and 4.9 percentage points, respectively, for the three and nine months ended September 30, 2017. The increase in operating income and operating margin was due to organic revenue growth.
Corporate. Corporate expenses decreased by 9.9% and 3.1% to $62.1 million and $189.0 million, respectively, for the three and nine months ended September 30, 2017March 31, 2023 increased compared to the prior year primarily due to a decreasethe favorable effect of the increase in acquisitionrevenues, since certain fixed costs do not vary with revenues, and integration expenses.continued prudent expense management. These favorable effects were partially offset by incremental expenses related to continued investment in new product, innovation and our technology environments and the effects of unfavorable foreign currency exchange rates. In our Issuer Solutions segment, operating income and operating margin for the three months ended March 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 revenues, and continued prudent expense management, partially offset by the effects of unfavorable foreign currency exchange rates. In our Consumer Solutions segment, operating income and operating margin for the three months ended March 31, 2023 were unfavorably affected by the decline in revenues and higher costs related to the sale of the consumer business.
Other Income/Expense, Net
Interest and other income decreased $39.5 million for the nine months ended September 30, 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. See "Note 5—Other Assets" in the notes to the accompanying unaudited consolidated financial statements for further discussion of this transaction.
Interest and other expense decreased $4.8for the three months ended March 31, 2023 increased to $122.9 million compared to $93.3 million for the prior year as a result of the increase in our average outstanding borrowings and higher average interest rates on outstanding borrowings.
Income Tax (Benefit) Expense
For the three months ended March 31, 2023, we reported a tax benefit of 57.0% of the reported loss before taxes compared to a tax expense of 18.4% of the reported income before taxes for the three months ended March 31, 2022. The tax rate for the three months ended March 31, 2023 included a higher benefit from foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction as compared to the three months ended March 31, 2022. In addition, during the three months ended March 31, 2023, we recognized a tax benefit on the loss on business disposition at the applicable tax rate, whereas the earnings other than this discrete item were tax effected at the lower estimated annual effective tax rate.
On August 16, 2022, the U.S. government enacted the Inflation Reduction Act into law, which, among other things, implements 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 three months ended March 31, 2023, we reflected excise taxes of $2.3 million within equity as part of the price of common stock repurchased during the period.
Net Income (Loss) Attributable to Global Payments
Net loss attributable to Global Payments was $11.0 million for the three months ended September 30, 2017March 31, 2023 compared to net income of $244.7 million for the prior year, and increased $35.1 million forreflecting the nine months ended September 30, 2017 compared to the prior year. The outstanding borrowings on our long-term debt facilities increased significantlychanges in April 2016 as a resultoperating income noted above along with changes in equity in income of incremental borrowings we made to fund a portionequity method investments.
Provision for Income TaxesDiluted Earnings (Loss) per Share
Our effective income tax rates were 11.7% and 18.4%Diluted loss per share was $0.04 for the three months ended September 30, 2017 and September 30, 2016, respectively, and 14.4% and 14.7%March 31, 2023 compared to diluted earnings per share of $0.87 for the nine months ended September 30, 2017 and September 30, 2016, respectively. The effective income tax ratesprior year. Diluted loss per share for the three and nine months ended September 30, 2017 includedMarch 31, 2023 reflects the effect of excess tax benefits associated with share-based awards that vested during the periods. The effectivechanges in net income tax rate for the nine months ended September 30, 2016 included the effect of eliminating certain net deferred tax liabilities associated with undistributed earnings from Canada, as a result of management's plans to reinvest these earnings outside the United States indefinitely.(loss).
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 principal 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 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited 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 18—Commitments and Contingencies” in our Annual Report on Form 10-K for the year ended December 31, 2022.
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 oura combination of bank financing, such as borrowings under our Revolving Credit Facilitycredit facilities, commercial paper program and our term loans,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 satisfying 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 September 30, 2017,March 31, 2023, we had cash and cash equivalents totaling $1,186.1$2,001.7 million. Of this amount, we consider $560.7considered $696.2 million to be available for general purposes, of which $61.2 million is undistributed foreign earnings considered to be indefinitely reinvested outside the United States. The available cash of $696.2 million does not include the following: (1)(i) settlement-related cash balances, (2)(ii) funds held as collateral for merchant losses ("Merchant Reserves") and (3)(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 depositstheir use, include amounts collected priorbefore the corresponding obligation is due to remittance onbe settled to or at the direction of our customers' behalf.customers.
Our availableWe also had restricted cash balanceof $147.3 million as of March 31, 2023, representing amounts deposited by customers for prepaid card transactions at September 30, 2017 included $500.1 millionone of cash held by foreign subsidiaries whose earnings are considered indefinitely reinvested outside the United States. These cash balances reflect our capital investments in theseSpain subsidiaries and the accumulationfunds held as a liquidity reserve at our Chilean and Greek subsidiaries. These balances are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use.
Operating activities provided net cash of $360.1$599.5 million and $367.4$630.0 million for the ninethree months ended September 30, 2017March 31, 2023 and September 30, 2016, respectively.2022, respectively, which reflect net income adjusted for noncash items, including depreciation and amortization, charges associated with the loss on business dispositions and facility exit charges, and changes in operating assets and liabilities. The decrease in cash flows from operating activities of $7.3 millionfrom the prior year was primarily due to the improvementfluctuations in our earnings before non-cash expenses, such as amortizationoperating assets and liabilities that are affected primarily by timing of acquired intangibles, offset by a decrease in the change in net settlement processing assets of $232.6 millionmonth-end and other working capital accounts. Fluctuationstransaction volume, including changes in settlement processing assets and obligations are largely due to timing of month-end and settlement transaction volume.accounts payable and other liabilities balances.
NetWe used net cash used in investing activities was $710.2of $4,206.8 million and $1,892.0$160.8 million during the ninethree months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, respectively. Cash used for investing activities primarily represents cash used to fund acquisitions, net of cash and restricted cash acquired, and capital expenditures. During the ninethree months ended September 30, 2017,March 31, 2023 and 2022, we paid $600used cash of $4,046.8 million of cash as a portion of the considerationand $4.7 million, respectively, for the acquisition of ACTIVE Network. During the nine months ended September 30, 2016, we paid Heartland shareholders $2,043.4 million of cash as a portion of the consideration for the merger.
acquisitions. We made capital expenditures of $136.6$162.2 million and $102.4$156.1 million during the ninethree months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, respectively. DuringThese investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and the consolidation and enhancement of our operating platforms. These investments also include new product development and innovation to further enhance and differentiate our suite 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 for the year ending December 31, 2017,2023.
Financing activities include borrowings and repayments under our various 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 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited 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, cash distributions made to our shareholders and cash contributions from and distributions to noncontrolling interests. Financing activities provided net cash of $3,610.8 million during the three months ended March 31, 2023, and we expect capital expendituresused net cash in financing activities of $376.3 million during the three months ended March 31, 2022.
Proceeds from long-term debt were $4,708.1 million and $1,529.2 million for propertythe three months ended March 31, 2023 and equipment, including internal-use capitalized software development costs, to approximate $180 million.
2022, respectively. Repayments of long-term debt were $1,556.0 million and $1,176.5 million for the three months ended March 31, 2023 and 2022, respectively. Proceeds from and repayments of long-term debt consist of borrowings and repayments that we make with available cash, from time-to-time, under our revolving credit facility, as well as scheduled principal repayments we make on our term loans, finance leases and other vendor financing arrangements. During the ninethree months ended September 30, 2017,March 31, 2023, we completed a sale-leasebackalso had net borrowings of $1,048.6 million under our commercial paper program. See section "Long-Term Debt and Lines of Credit" below for further discussion of our operating facility in Jeffersonville, Indianarecent debt transactions.
Activity under our settlement lines of credit is affected primarily by timing of month-end and received cashtransaction volume. During the three months ended March 31, 2023, we had net repayments of $37.5settlement lines of credit of $281.4 million. During the ninethree months ended September 30, 2016, we received cash of $37.8 million from the sale of our membership interests in Visa Europe.
Net cash provided by financing activities was $333.1 million and $1,954.8 million during the nine months ended September 30, 2017 and September 30, 2016, respectively. The changes in each period were primarily due to financing activities associated with our corporate credit facility. During the nine months ended September 30, 2017, we amended our corporate credit facility and subsequently borrowed an additional $600 million under our Revolving Credit Facility primarily to fund the cash portion of the consideration for the acquisition of ACTIVE Network. After repayments made during the nine months ended September 30, 2017,March 31, 2023, we had net proceedsborrowings from long-term debtsettlement lines of $326.6credit of $16.5 million. During the nine months ended September 30, 2016, we increased our long-term debt by $2,152.8 million, primarily to fund our merger with Heartland.
As of September 30, 2017, we have approximately $264.9 million of shareWe repurchase authority remaining under a program authorized by the board of directors, announced on January 5, 2017, to repurchase shares of our common stock. We make repurchases of our common stock mainly through the use of open market purchasesrepurchase plans and, at times, through accelerated share repurchase programs. The manner, timing and amount of any purchases are determined by our management based on an evaluation of market conditions, stock price and other factors. During the ninethree months ended September 30, 2017March 31, 2023 and September 30, 2016,2022, we used cash of $32.8$206.6 million and $130.3$649.7 million, respectively, to repurchase shares of our common stock. As of March 31, 2023, the remaining amount available under our share repurchase program was $1,295.7 million.
We believe thatpaid dividends to our current levelcommon shareholders in the amounts of cash$65.8 million and borrowing capacity under our long-term debt$70.2 million during the three months ended March 31, 2023 and lines of credit described below, together with future cash flows from operations will be sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future.2022, respectively.
Long-Term Debt and Lines of Credit
Senior Notes
We have $12.7 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from June 2023 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 at March 31, 2023. Interest on the senior unsecured notes is payable annually in arrears on March 17 of each year, commencing March 17, 2024. The notes are partyunsecured 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.
Convertible Notes
We have $1.5 billion in aggregate principal amount of 1.000% convertible notes due 2029, which were issued during 2022 in a private placement pursuant to an investment agreement with Silver Lake Partners.
The convertible notes bear interest at a rate of 1.000% per annum. 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 convertible notes mature on August 15, 2029, subject to earlier conversion or repurchase.
Revolving Credit Facility
Our revolving 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 Agreement"). The Credit Facility Agreement was most recently amended on May 2, 2017 (the "Fourth Amendment") and, as amended, provides for (i) a $1.25an unsubordinated unsecured $5.75 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"). The Fourth Amendment increased the total financing capacity under the Credit Facility Agreement on May 2, 2017 from $4.9 billion to $5.2 billion, although the outstanding debt under the Credit Facility Agreement did not change as we repaid certain outstanding amounts under the Term A Loan, the Term A-2 Loan and the Revolving Credit Facilitythat matures in connection with the Fourth Amendment. Substantially all of the assets of our domestic subsidiaries are pledged as collateral under the Credit Facility Agreement.August 2027.
The Credit Facility Agreement 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 were fully disclosed in our Current Report on Form 8-K filed on May 4, 2017. As of September 30, 2017, the interest rates on the Term A Loan, the Term A-2 Loan and the Term B-2 Loan were 2.99%, 2.95% and 3.23%, respectively, and the interest rate on the Revolving Credit Facility was 2.95%. The Credit Facility Agreement also provides for a commitment fee with respect to borrowings under the Revolving Credit Facility at an applicable rate per annum ranging from 0.20% to 0.30% depending on our leverage ratio. As of September 30, 2017, the aggregate outstanding balance on the term loans was $4.0 billion, and the outstanding balance on the Revolving Credit Facility was $855.0 million.
The Term A Loan and the Term A-2 Loan mature, and the Revolving Credit Facility Agreement 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 Agreement allows us toWe may issue standby letters of credit of up to $100$250.0 million in the aggregate under the Revolving Credit Facility.revolving credit facility. Outstanding letters of credit under the Revolving Credit Facilityrevolving credit facility reduce the amount of borrowings available to us. BorrowingsThe amounts available to usborrow under the Revolving Credit Facilityrevolving credit facility are further limitedalso determined by a financial leverage covenant. As of March 31, 2023, there were borrowings of $2,323.0 million outstanding under the covenants described below under "Compliance with Covenants." Therevolving credit facility, and the total available commitments under the Revolving Credit Facilityrevolving credit facility were $2.4 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 September 30, 2017a 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 March 31, 2023, we had borrowings under our commercial paper program of $1,048.6 million outstanding with a weighted average annual interest rate of 5.87%.
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 qualifying acquisition of EVO, which will remain in effect for up to eight consecutive quarters with a gradual step-down to 3.75 to 1.00, and the required interest coverage ratio is 3.00 to 1.00. We were $383.1 million.in compliance with all applicable covenants as of March 31, 2023.
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 September 30, 2017 and DecemberMarch 31, 2016,2023, a total of $55.5$82.6 million and $51.0 million, respectively, of cash on deposit was used to determine the available credit.
As of September 30, 2017 and DecemberMarch 31, 2016, respectively,2023, we had $487.5 million and $392.1$482.3 million outstanding under these lines of credit with additional capacity of $669.9 million as of September 30, 2017 to fund settlement.settlement of $1.8 billion. During the three months ended March 31, 2023, the maximum and average outstanding balances under these lines of credit were $994.9 million and $460.6 million, respectively. The weighted-average interest rate on these borrowings was 2.11% and 1.90%6.12% at September 30, 2017 and DecemberMarch 31, 2016, respectively.2023.
Compliance with Covenants
The Credit Facility Agreement 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 September 30, 2017, financial covenants under the Credit Facility Agreement 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 Agreement and settlement lines of credit also include various other covenants that are customary in such borrowings. The Credit Facility Agreement includes covenants, subject in each case to exceptions and qualifications that may restrict certain payments, including, in certain circumstances, repurchasing our common stock and paying cash dividends in excess of our current rate of $0.01 per share per quarter.
The Credit Facility Agreement 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 nine months ended September 30, 2017.
See "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited 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 usUpdate 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 in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies"Estimates
Redeemable noncontrolling interests - Redeemable noncontrolling interests in our Transition Report on Form 10-K forsubsidiaries in Poland, Chile, and Greece relate to the seven months ended December 31, 2016.
Commitments and Contractual Obligations
As a resultportion 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. We adjust the redeemable noncontrolling interests at each balance sheet date to reflect our estimates of the Fourth Amendment, the repayment schedules formaximum redemption amounts with changes recognized as an adjustment to our term loans and Revolving Credit Facility were extended. See "Note 6—Long-Term Debt and Lines of Credit"additional paid-in capital or, in the notesabsence of additional paid-in capital, to the accompanying unaudited consolidated financial statements for updated repayment requirements by year as of September 30, 2017. In addition, during the three months ended September 30, 2017, we borrowed an additional $600 million under our Revolving Credit Facility to fund a portionshareholders’ deficit. Such estimates are based on projected operating performance of the consideration forsubsidiaries and the acquisitionkey assumptions used in estimating the fair values include, but are not limited to, revenue growth rates and weighted-average cost of ACTIVE Network.
As a result of the sale-leaseback of our operating facility in Jeffersonville, Indiana, we entered into an operating lease with escalating future minimum payments totaling $55.5 million at September 30, 2017. See "Note 13—Commitments and Contingencies"capital. Refer to “Note 9—Redeemable Noncontrolling Interests” in the notes to the accompanying unaudited consolidated financial statements for further discussion about the sale-leaseback transaction.information.
Critical Accounting Policies
Our unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which often require the judgment of management in the selection and application of certain accounting principles and methods. We discuss our critical accounting policies in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Transition Report on Form 10-K for the seven months ended December 31, 2016.
During the first quarter of 2017, we revised our reporting unit structure within our North America segment to reflect changes made in connection with the integration 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. As a result of the change in reporting units, we performed goodwill impairment tests immediately before and after this change in reporting units and determined that there was no impairment.
Effect of New Accounting Pronouncements and Recently Issued Accounting Pronouncements Not Yet Adopted
From time to time,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 unaudited consolidated financial statements for a discussion ofThere were no new recently adopted accounting pronouncements andor recently issued accounting pronouncements not yet adopted.adopted during the period.
Forward-Looking Statements
Investors are cautioned that someSome of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements concerning our business operations, economic performance and are made pursuantfinancial condition, including in particular: our business strategy and means to implement the "safe-harbor" provisionsstrategy; measures of future results of operations, such as revenues, expenses, operating margins, income tax rates, and earnings per share; other operating metrics such as capital expenditures; the effects of economic conditions on our business; statements about the benefits of our acquisitions or divestitures, including future financial and operating results, the company’s plans, objectives, expectations and intentions, and the successful integration of our acquisitions or completion of anticipated benefits or strategic initiatives; and our success and timing in developing and introducing new services and expanding our business. You can sometimes identify forward-looking statements by our use of the words "believes," "anticipates," "expects," "intends," "plan," "forecast," "guidance" and similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These
Although we believe that the plans and expectations reflected in or suggested by our forward-looking statements involveare reasonable, those statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, and uncertainties and depend uponcontingencies, many of which are beyond our control, cannot be foreseen and reflect future events or conditions. Actual events or results might differ materially from those expressed or forecasted in these forward-looking statements.business decisions that are subject to change. Accordingly, we cannot guarantee you that our plans and expectations will be achieved. SuchOur actual revenues, revenue growth rates and margins, other results of operations and shareholder values could differ materially from those anticipated in our forward-looking statements may include, butas a result of many known and unknown factors, many of which are not limitedbeyond our ability to statements about the benefits of our merger with Heartland and the acquisition of ACTIVE Network, including future financial and operating results, the combined company’s plans, objectives, expectations and intentions and other statements that are not historical facts.
predict or control. Important factors, among others, that may otherwise cause actual events or results to differ materially from those anticipated by such forward-looking statements or historical performance include our abilitythe effects of global economic, political, market, health and social events or other conditions; foreign currency exchange, continuing inflation and rising interest rate risks; difficulties, delays and higher than anticipated costs related to safeguard our data; increased competition from largerintegrating the businesses of acquired companies, including with respect to implementing controls to prevent a material security breach of any internal systems or to successfully manage credit and non-traditional competitors, our abilityfraud risks in business units; the effect of a security breach or operational failure on the Company's business; failing to update our servicescomply with the applicable requirements of Visa, Mastercard or other payment networks or card schemes or changes in a timely manner; ourthose requirements; the ability to maintain Visa and MasterCardMastercard registration and financial institution sponsorship; our reliance on financial institutionsthe ability to provide clearing servicesretain, develop and hire key personnel; the diversion of management’s attention from ongoing business operations; the continued availability of capital and financing; increased competition in connection with our settlement activities; our potential failure to comply with card network requirements; potential systems interruptions or failures; software defects or undetected errors; increased attrition of merchants, referral partners or independent sales organizations;the markets in which we operate and our ability to increase our market share ofin existing markets and expand into new markets; a declineour ability to safeguard our data; risks associated with our indebtedness; our ability to meet environmental, social and governance targets, goals and commitments; the potential effects of climate change, including natural disasters; the effects of new or changes in the use of cards for payment generally; unanticipated increases in chargeback liability; increases incurrent laws, regulations, credit card network fees; change in laws, regulations or networkassociation rules or interpretations thereof; foreign currency exchangeother industry standards on us or our partners and interest rate risks; political, economiccustomers, including privacy and regulatory changes in the foreign countries in which we operate; future performance, integrationcybersecurity laws and conversion of acquired operations; including without limitation difficulties and delays in integrating the Heartland and ACTIVE Network businesses or fully realizing cost savingsregulations; and other benefits of the acquisitions at all or within the expected time period; fully realizing anticipated annual interest expense savings from refinancingevents beyond our corporate debt facilities; our loss of key personnelcontrol, and other risk factors presented in Item 1-"Item 1A - Risk FactorsFactors" of our TransitionAnnual Report on Form 10-K for the seven monthsyear ended December 31, 20162022 and any subsequent filings we make with the SEC, filings,including this Quarterly Report on Form 10-Q, which we advise you to review.
These cautionary statements qualify all of our forward-looking statements, and you are cautioned not to place undue reliance on these forward-looking statements. Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. We undertake noWhile we may elect to update or revise forward-looking statements at some time in the future, we specifically disclaim any obligation to revisepublicly release the results of any of theserevisions to our forward-looking statements, to reflect future circumstances or the occurrence of unanticipated events.except as required by law.
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk related to changes in interest rates on our long-term debt and cash investments. We invest our excess cash in securities that we believe are highly liquid and marketable in the short term. These investments earnFor a floating rate of interest and are not held for trading or other speculative purposes.
We have term loans and a Revolving Credit Facility that we use for general corporate purposes, as well as various lines of credit that we use to fund settlement in certain of our markets. Interest rates on these debt instruments and settlement lines of credit are based on market rates and fluctuate accordingly. As of September 30, 2017, $5.3 billion was outstanding under these variable-rate debt arrangements and settlement lines of credit.
The interest earned on our cash investments and the interest paid on 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 interest rate swaps that reduce a portiondiscussion of our exposure to market risk, refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," contained in our Annual Report on Form 10-K for the year ended December 31, 2022.
With respect to foreign currency exchange rate risk, during the three months ended March 31, 2023, we designated our Euro-denominated senior notes of €800 million 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.
With respect to interest rate risk, onin March 2023, we entered into interest rate swap agreements with an aggregate notional amount of $1.5 billion to convert eligible borrowings under our LIBOR-based debt as discussedrevolving credit facility from a floating term Secured Overnight Financing Rate to a fixed rate, which reduces our exposure to fluctuations in interest rates.
See "Note 6—Long-Term Debt7—Derivatives and Lines of Credit"Hedging Instruments" in the notes to ourthe accompanying unaudited consolidated financial statements.statements for further information about our hedging arrangements.
Based on balances outstanding under variable-rate debt agreements and cash investment balances at September 30, 2017, a hypothetical increase
Foreign Currency Exchange Rate Risk
A substantial amount 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 are also affected by fluctuations in exchange rates on assets and liabilities related to our foreign operations. We have not historically hedged our translation risk on foreign currency exposure, but we may do so in the future.
ITEM 4—CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of September 30, 2017,March 31, 2023, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2017,March 31, 2023, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
In April 2016, weWe completed our merger with Heartland, which is being integrated into our North America segment. As part of our ongoing integration activities, we are continuing to apply our controls and procedures to the Heartland business and to augment our company-wide controls to reflect the risks inherent in an acquisition of this magnitude.
In September 2017, we completed the acquisition of ACTIVE Network.EVO on March 24, 2023. In accordance with our integration efforts, we plan to incorporate ACTIVE Network'sEVO's operations into our internal control over financial reporting program within the time period provided by the applicable SEC rules and regulations. The assets, excluding goodwill,regulations of ACTIVE Network constituted approximately 4%the U.S. Securities and Exchange Commission.
Otherwise, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1—LEGAL PROCEEDINGS
We are party to a number of claims and lawsuits incidental to our business. In our opinion, the liabilities, if any, which 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. See "Note 16—Commitments and Contingencies" in the notes to the accompanying unaudited consolidated financial statements for information about certain legal matters.
ITEM 1A - 1A—RISK FACTORS
There have been no material changes from theThe following risk factors set forthare an update to our previously disclosed risk factors and should be considered in Part I, Item 1A, “Risk Factors” ofconjunction with the Risk Factors section in our TransitionAnnual Report on Form 10-K for the seven monthsyear ended December 31, 2016, other than2022 and any subsequent filings we make with the risk factors set forthSEC.
Adverse developments that affect financial institutions, such as bank failures, or concerns or speculation about any similar events or risks, could affect our ability to access our cash or cash equivalents, lead to market-wide liquidity problems or adversely affect our merchant settlement activities, which in Part II, Item 1Aturn may cause third parties, including customers, to become unable to meet their obligations under various types of financial arrangements as well as general disruptions or instability in the financial markets.
Although we do not have exposure to and did not experience losses as a result of recent bank failures, we regularly maintain cash balances with financial institutions in excess of the Federal Deposit Insurance Corporation insurance limit. A disruption in financial markets could impair our Quarterly Reportbanking partners, on Form 10-Qwhich we rely for operating cash management and derivative programs, which could affect our ability to access our cash or cash equivalents. Furthermore, if our customers are negatively affected by these disruptions, such as being unable to access their existing cash to fulfill their payment obligations to us, our business may be negatively affected.
In addition, we rely on various financial institutions to provide clearing services in connection with our settlement activities. Under this model, our financial institution sponsors have possession of the merchant settlement funds until the merchant has been funded. If our sponsor financial institutions in any market should fail, we would need to find another financial institution to provide those services or we would need to obtain direct membership with Visa and Mastercard, either of which could prove to be difficult and expensive. We could also have liability to the merchants for the quarterly period ended June 30, 2017.outstanding settlement funds. The occurrence of any of these events could harm our business, financial condition and results of operations.
ITEM 2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Unregistered Sales of Equity Securities and Use of Proceeds
As disclosed previously, in connection with the Company’s acquisition of ACTIVE Network, we issued 6,357,509 shares of the Company’s common stock having an estimated fair value of approximately $572 million. The Company relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) thereof and rules and regulations of the SEC promulgated thereunder. Each of the sellers who received the Company’s common stock in the acquisition is an “accredited investor” as defined in Regulation D promulgated by the SEC under the Securities Act.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Information about the shares of our common stock that we repurchased during the quarter ended September 30, 2017March 31, 2023 is set forth below:
|
| | | | | | | | | | | | |
| Period | Total Number of
Shares Purchased (1) | | Approximate Average Price Paid per Share | | 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) |
| July 2017 | 75,894 |
| | 89.16 |
| | 75,894 |
| | |
| August 2017 | 156,581 |
| | 94.24 |
| | 156,581 |
| | |
| September 2017 | 79,118 |
| | 94.57 |
| | 79,118 |
| | |
| Total | 311,593 |
| | | | 311,593 |
| | $ | 264.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Period | Total Number of
Shares Purchased (1) | | Average Price Paid per Share | | 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) |
| January 1-31, 2023 | — | | | $ | — | | | — | | | $ | — | |
| February 1-28, 2023 | 263,633 | | | 113.50 | | | — | | | — | |
| March 1-31, 2023 | 2,061,112 | | | 99.23 | | | 2,058,902 | | | — | |
| Total | 2,324,745 | | | $ | 101.83 | | | 2,058,902 | | | $ | 1,295.7 | |
| |
(1)
| Our board of directors has authorized us to repurchase shares of our common stock through any combination of Rule 10b5-1 open-market repurchase plans, accelerated share repurchase plans, discretionary open-market purchases or privately negotiated transactions. |
| |
(2)
| As of September 30, 2017, the approximate dollar value of shares that may yet be purchased under our share repurchase program was $264.9 million remaining available under the board’s authorization announced on January 5, 2017. The authorizations by the board of directors do not expire, but could be revoked at any time. In addition, we are not required by any of the board’s authorizations or otherwise to complete any repurchases by any specific time or at all. |
(1)Our board of directors has authorized us to repurchase shares of our common stock through any combination of Rule 10b5-1 open-market repurchase plans, accelerated share repurchase plans, discretionary open-market purchases or privately negotiated transactions. During the quarter ended September 30, 2017,March 31, 2023, pursuant to our employee incentive plans, we withheld 247,345265,843 shares, at an average price per share of $94.50$113.46, in order to satisfy employees' tax withholding and payment obligations in connection with the vesting of awards of restricted stock, whichstock.
(2)As of March 31, 2023, the remaining amount available under our share repurchase program was $1,295.7 million. The authorizations by our board of directors do not expire but could be revoked at any time. In addition, we withheldare not required by the board’s authorization or otherwise to complete any repurchases by any specific time or at fair market value on the vesting date.all.
ITEM 6—EXHIBITS
List of Exhibits
|
| | | | | | | |
| 2.1 | | Stock PurchaseAgreement and Plan of Merger, Agreement, dated as of August 2, 2017,1, 2022, by and among Athlaction Topco, LLC, the Vista Blocker Sellers (as defined therein)EVO Payments, Inc., Vista Equity Partners Management, LLC, as Sellers’ Representative, Global Payments Inc., Athens and Falcon Merger Sub LLC and the Vista AIVs and Vista GPs (as defined therein and solely for the limited purposes set forth therein)Inc., incorporated by reference to Exhibit 2.1 to the Company’sGlobal Payments Inc.’s Current Report on Form 8-K filed on August 8, 2017. ++2, 2022† |
2.23.1 | | Amendment No. 1 to the Stock PurchaseThird Amended and Merger Agreement, dated asRestated Articles of August 31, 2017, by and amongIncorporation of Global Payments Inc., Athlaction Topco, LLC, Vista Equity Partners Management, LLC, as Sellers’ Representative, and VEP Global Aggregator, LLC, incorporated by reference to Exhibit 2.2.4.1 to Global Payment Inc.’s Post-Effective Amendment No. 1 on Form S-8 to the Company’sRegistration Statement on Form S-4 filed on September 18, 2019. |
| 3.2 | | |
3.13.3 | | |
3.2 | | |
10.1 | | Stockholders’ Agreement, dated as of August 31, 2017, by and among Global PaymentsPayment Inc., VEPF IV AIV VII-A, L.P., VEP Global Aggregator, LLC, VEPF III AIV VI, L.P., VEPF IV AIV VII, L.P., VFF I AIV IV, L.P., Vista Equity Partners Fund III GP, LLC, Vista Equity Partners Fund IV GP, LLC, Vista Foundation Fund I GP, LLC, Todd Tyler, Ronald Tanner and certain other signatories thereto, incorporated by reference to Exhibit 10.1 to the Company’s’s Current Report on Form 8-K filed on September 6, 2017.February 1, 2023. |
31.1*4.1 | | |
| 4.2 | | Supplemental Indenture No. 6, dated as of March 17, 2023, between Global Payments Inc., U.S. Bank National Association, as trustee. Elavon Financial Services DAC, UK Branch, as initial paying agent, and U.S. Bank Trust Company, National Association, as initial securities registrar and transfer agent, incorporated by reference to Exhibit 4.2 to Global Payments Inc.’s Current Report on Form 8-K filed on March 17, 2023. |
| 4.3 | | |
| 10.1* | | |
| 10.2* | | |
| 10.3* | | |
| 31.1* | | |
| 31.2* | | |
| 32.1* | | |
| 101* | | The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) the Unaudited Consolidated Statements of Income; (ii) the Unaudited Consolidated Statements of Comprehensive Income; (iii) the Consolidated Balance Sheets; (iv) the Unaudited Consolidated Statements of Cash Flows; (v) the Unaudited Consolidated Statements of Changes in Equity; and (vi) the Notes to Unaudited Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
| 104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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| * | | Filed herewith. |
++† | | Certain schedules and exhibits to this agreement have been omitted pursuantPursuant to Item 601(b)(2) of Regulation S-K, and Global Payments Inc.certain schedules have been omitted. The registrant hereby agrees to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission a copy of any omitted schedule and/or exhibit upon request. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | Global Payments Inc. |
| | | (Registrant) |
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| Date: November 8, 2017May 3, 2023 | | /s/ Cameron M. BreadyJoshua J. Whipple |
| | Cameron M. Bready | Joshua J. Whipple |
| | | Senior Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
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