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Item 2. Management’s Discussion and Analysis

2020-10-29 compared with 2020-08-03 · 150 added, 128 removed, 156 unchanged (64% of the section changed)

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In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic.

This outbreak continues to cause major disruptions to businesses and markets worldwide as the virus spreads in certain jurisdictions, and restrictions to control the spread of the virus remain in place.

A number of countries as well as certain states and cities within the United States have enacted temporary closures of businesses, issued quarantine or shelter-in-place orders and taken other restrictive measures in response to COVID-19.

This outbreak has caused and may continue to cause significant disruptions to businesses and markets worldwide as the virus continues to spread or has a resurgence in certain jurisdictions.

We continue to closely monitor the effects of the COVID-19 pandemic;

however, the effects of the outbreak are still evolving, and the ultimate severity and duration of the pandemic and the implications on global economic conditions remains uncertain.

however, the effects of the outbreak are still evolving, and the ultimate severity and duration of the pandemic and the implications on future global economic conditions remains uncertain.

We are continuing to operate normally worldwide, and, at this time, we do not anticipate any significant operational effects as a result of the pandemic.

Starting in mid-March, the COVID-19 pandemic began to significantly affect our financial results as governments took actions to encourage social distancing and implement shelter-in-place directives.

As certain state and local governments in the United States and abroad began to gradually ease restrictions, and certain businesses reopened at reduced capacities, we saw improvement in our financial results and positive trends throughout the latter half of the second quarter.

Starting in mid-March, the COVID-19 pandemic began to significantly affect our financial results as governments took actions to encourage social distancing and implemented shelter-in-place directives.

As certain state and local governments in the United States and abroad began to gradually ease restrictions during the summer months, and certain businesses reopened, we saw improvement in our financial results and positive trends throughout the latter half of the second quarter and continuing through the third quarter.

It is possible that certain state or local authorities in the United States or governments abroad may re-impose restrictions and closures in response to a resurgence or another wave of the pandemic through the fall and winter.

We expect that the COVID-19 pandemic will continue to have an adverse effect on our revenues and earnings for the remainder of 2020, although the magnitude, duration and ultimate effects of the COVID-19 pandemic are not possible to predict at this time.

We have implemented cost-saving actions, such as reductions in employee compensation costs and discretionary spending, to help mitigate the financial effects of the COVID-19 pandemic.

We have also temporarily suspended activity under our share repurchase program and reduced planned capital investments in the business from our initial expectations prior to the pandemic.

For a further discussion of trends, uncertainties and other factors that could affect our continuing operating results related to the effects of the COVID-19 pandemic, see the section entitled "Risk Factors" in Item 1A in this Quarterly Report on Form 10-Q.

We also took actions to preserve our available capital and provide financial flexibility, including temporarily suspending our share repurchase program during the second and third quarters and reducing our planned capital investments in the business, as well as the cost-savings actions previously noted.

As we continue to see the economy slowly recover from the early effects of the pandemic, we continue to expect our capital expenditures for the year to be below our initial expectations.

For a further discussion of trends, uncertainties and other factors that could affect our future operating results related to the effects of the COVID-19 pandemic, see the section entitled "Risk Factors" in Item 1A in this Quarterly Report on Form 10-Q.

Financial Highlights

Highlights related to our financial condition at June 30, 2020 and results of operations for the three and six months then ended include the following:

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

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

Operating margin for the three and

six months ended June 30, 2020 was 6.4% and 9.8% , respectively, compared to 23.7% and 23.2% for the prior-year period.

For the three and six months ended June 20, 2020, consolidated operating income and operating margins were negatively impacted by the unfavorable effects of COVID-19 on our revenues.

Net income attributable to Global Payments for the three and six months ended June 30, 2020 was $37.3 million and $180.9 million , respectively, compared to $120.5 million and $232.8 million for the prior-year periods.

The additional income from the acquired operations of TSYS was more than offset by increases in acquisition and integration expenses and interest expense, and the unfavorable effects of COVID-19 on our revenues.

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

On May 15, 2020, we issued $1.0 billion aggregate principal amount of 2.900% senior unsecured notes due May 2030.

We used the net proceeds from this offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes.

As of June 30, 2020 , there were no outstanding borrowings under the revolving credit facility.

Highlights related to our financial condition at September 30, 2020 and results of operations for the three and nine months then ended include the following:

• Consolidated revenues for the three and nine months ended September 30, 2020 increased to $1,917.8 million and $5,493.4 million, respectively, compared to $1,105.9 million and $2,924.1 million for the prior-year periods primarily due to additional revenues from the acquired operations of TSYS, partially offset by the unfavorable effects of COVID-19 on our revenues.

Revenues from the acquired operations of TSYS were $1,067.2 million and $3,119.2

million for the three and nine months ended September 30, 2020, respectively, and $147.5 million for the three and nine months ended September 30, 2019.

• Consolidated operating income for the three and nine months ended September 30, 2020 increased to $290.4 million and $642.0 million, respectively, compared to $174.0 million and $595.3 million for the prior-year periods due to additional income from the acquired operations of TSYS.

Operating margin for the three and nine months ended September 30, 2020 was 15.1% and 11.7%, respectively, compared to 15.7% and 20.4% for the prior-year periods.

Consolidated operating income and operating margins were negatively affected by the unfavorable effects of COVID-19 on our revenues for the three and nine months ended September 30, 2020, and an increase in acquisition and integration expenses, primarily due to the Merger, for the nine months ended September 30, 2020.

However, we saw improvement in our financial results and positive trends throughout the latter half of the second quarter and continuing through the third quarter as a result of the continued recovery across our markets and reductions in costs due to actions we took in response to the pandemic.

• Net income attributable to Global Payments for the three and nine months ended September 30, 2020 increased to $221.0 million and $401.9 million, respectively, compared to $95.0 million and $327.8 million for the prior-year periods, reflecting the change in operating income and additional equity in income of equity method investments, partially offset by an increase in income tax expense.

• Diluted earnings per share for the three and nine months ended September 30, 2020 was $0.74 and $1.34, respectively, compared to $0.54 and $2.00 for the prior-year periods.

Diluted earnings per share for the three and nine months ended September 30, 2020 reflects the additional income from the acquired operations of TSYS.

Additionally, diluted earnings per share for the three and nine months ended September 30, 2020 reflects an increase in the weighted-average number of shares outstanding as a result of issuing common shares as purchase consideration in the Merger.

Results of Operations

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We evaluate performance and allocate resources based on the operating income of each operating segment.

In connection with an organizational realignment implemented after the Merger in the fourth quarter of 2019, the presentation of segment information for the three and six months ended June 30, 2019 has been recast to align with the segment presentation for the three and six months ended June 30, 2020 .

In connection with an organizational realignment implemented after the Merger in the fourth quarter of 2019, the presentation of segment information for the three and nine months ended September 30, 2019 has been recast to align with the segment presentation for the three and nine months ended September 30, 2020.

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, 2019, incorporated herein by reference, and "Note 12—Segment Information" in the notes to the accompanying unaudited consolidated financial statements.

The following table sets forth key selected financial data for the three months ended June 30, 2020 and 2019 , 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 June 30, 2020 and 2019 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Three Months Ended June 30, 2020

% of Revenues (1)

Three Months Ended June 30, 2019

% of Revenues (1)

The following table sets forth key selected financial data for the three months ended September 30, 2020 and 2019, 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, 2020 and 2019 is derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Three Months Ended

September 30, 2020 % of Revenues (1)

Three Months Ended

September 30, 2019 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

1 unchanged sentence

Merchant Solutions $ 1,243,961 64.9 % $ 1,004,943 90.9 % $ 239,018 23.8 %

Issuer Solutions

Business and Consumer Solutions

Intersegment eliminations

Issuer Solutions 487,409 25.4 % 75,628 6.8 % 411,781 NM

Business and Consumer Solutions 204,106 10.6 % 27,896 2.5 % 176,210 NM

Intersegment eliminations (17,661) (0.9) % (2,526) (0.2) % (15,135) NM

Consolidated revenues $ 1,917,815 100.0 % $ 1,105,941 100.0 % $ 811,874 73.4 %

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Merchant Solutions $ 344,981 18.0 % $ 318,786 28.8 % $ 26,195 8.2 %

Issuer Solutions

Business and Consumer Solutions

Issuer Solutions 70,800 3.7 % 5,885 0.5 % 64,915 NM

Business and Consumer Solutions 31,052 1.6 % 3,365 0.3 % 27,687 NM

Corporate (3)

(156,414) (8.2) % (153,999) (13.9) % (2,415) (1.6) %

Operating income $ 290,419 15.1 % $ 174,037 15.7 % $ 116,382 66.9 %

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Merchant Solutions 27.7 % 31.7 % (4.0) %

Issuer Solutions

Business and Consumer Solutions

Issuer Solutions 14.5 % NM NM

Business and Consumer Solutions 15.2 % NM NM

NM = not meaningful.

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For further discussion of our acquisitions, see "Note 2—Acquisitions" in the notes to the accompanying unaudited consolidated financial statements.

(3) During the three months ended June 30, 2020 and 2019 , operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $4.4 million and $3.7 million , respectively.

Operating loss for Corporate included acquisition and integration expenses of $80.7 million and $10.5 million during the three months ended June 30, 2020 and 2019 , respectively.

The following table sets forth key selected financial data for the six months ended June 30, 2020 and 2019 , 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 six months ended June 30, 2020 and 2019 are derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Six Months Ended June 30, 2020

% of Revenues (1)

Six Months Ended June 30, 2019

% of Revenues (1)

(3) During the three months ended September 30, 2019, operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $13.9 million.

Operating loss for Corporate included acquisition and integration expenses of $57.6 million and $86.9 million during the three months ended September 30, 2020 and 2019, respectively.

The following table sets forth key selected financial data for the nine months ended September 30, 2020 and 2019, 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, 2020 and 2019 are derived from the accompanying unaudited consolidated financial statements included in Part I, Item 1 - Financial Statements.

Nine Months Ended

September 30, 2020 % of Revenues (1)

Nine Months Ended

September 30, 2019 % of Revenues (1)

$ Change % Change

(dollar amounts in thousands)

1 unchanged sentence

Merchant Solutions $ 3,460,785 63.0 % $ 2,812,640 96.2 % $ 648,145 23.0 %

Issuer Solutions

Business and Consumer Solutions

Intersegment eliminations

Issuer Solutions 1,461,196 26.6 % 86,122 2.9 % 1,375,074 NM

Business and Consumer Solutions 624,774 11.4 % 27,896 1.0 % 596,878 NM

Intersegment eliminations (53,390) (1.0) % (2,527) (0.1) % (50,863) NM

Consolidated revenues $ 5,493,365 100.0 % $ 2,924,131 100.0 % $ 2,569,234 87.9 %

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Merchant Solutions $ 824,212 15.0 % $ 840,326 15.3 % $ (16,114) (1.9) %

Issuer Solutions

Business and Consumer Solutions

Issuer Solutions 188,131 3.4 % 12,920 0.2 % 175,211 NM

Business and Consumer Solutions 110,358 2.0 % 3,365 0.1 % 106,993 NM

Corporate (3)

(480,730) (8.8) % (261,356) (4.8) % (219,374) (83.9) %

Operating income $ 641,971 11.7 % $ 595,255 20.4 % $ 46,716 7.8 %

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Merchant Solutions 23.8 % 29.9 % (6.1) %

Issuer Solutions

Business and Consumer Solutions

Issuer Solutions 12.9 % NM NM

Business and Consumer Solutions 17.7 % NM NM

NM = not meaningful.

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For further discussion of our acquisitions, see "Note 2—Acquisitions" in the notes to the accompanying unaudited consolidated financial statements.

(3) During the six months ended June 30, 2020 and 2019 , operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $6.6 million and $8.4 million , respectively.

Operating loss for Corporate

included acquisition and integration expenses of $150.4 million and $11.1 million during the six months ended June 30, 2020 and 2019 , respectively.

Consolidated revenues for the three and six months ended June 30, 2020 increased by 78.8% and 96.7% , respectively, to $1,672.0 million and $3,575.6 million , compared to $935.2 million and $1,818.2 million in the prior year, primarily due to additional revenues of $997.0 million and $2,052.0 million from the acquired operations of TSYS, partially offset by the adverse effects of COVID-19 on our revenues.

(3) During the nine months ended September 30, 2020 and 2019, operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $5.7 million and $22.3 million, respectively.

Operating loss for Corporate included acquisition and integration expenses of $208.0 million and $98.0 million during the nine months ended September 30, 2020 and 2019, respectively.

Consolidated revenues for the three and nine months ended September 30, 2020 increased by 73.4% and 87.9%, respectively, to $1,917.8 million and $5,493.4 million, compared to $1,105.9 million and $2,924.1 million for the prior-year periods, primarily due to additional revenues from the acquired operations of TSYS.

Revenues from the acquired operations of TSYS were $1,067.2 million and $3,119.2 million for the three and nine months ended September 30, 2020, respectively, compared to $147.5 million for the prior-year periods.

While COVID-19 continued to have unfavorable effects on our revenues as compared to the prior-year periods, we saw improvements throughout the latter half of the second quarter and continuing through the third quarter.

Merchant Solutions Segmen t.

Revenues from our Merchant Solutions segment for the three and six months ended June 30, 2020 increased by 7.7% and 22.6% , respectively, to $1,001.6 million and $2,216.8 million , compared to $929.9 million and $1,807.7 million in the prior year, primarily due to additional revenues from the acquired operations of TSYS.

Revenues from our Merchant Solutions segment for the three and nine months ended September 30, 2020 increased by 23.8% and 23.0%, respectively, to $1,244.0 million and $3,460.8 million, compared to $1,004.9 million and $2,812.6 million for the prior-year periods, primarily due to additional revenues from the acquired operations of TSYS.

We experienced significant revenue declines starting in mid-March related to COVID-19 due to a reduction in consumer spending and closures of certain of our merchant customer businesses throughout North America, Europe and Asia Pacific.

We saw improvement in our financial results in May and June as certain state and local governments in the United States and abroad began to gradually ease restrictions and consumer spending began to gradually increase.

We saw improvement in our financial results beginning in May, and continuing through the third quarter, as state and local governments in the United States and governments abroad began to gradually ease pandemic-related restrictions and consumer spending increased.

Issuer Solutions Segment.

Revenues from our Issuer Solutions segment for the three and six months ended June 30, 2020 were $470.0 million and $973.8 million , respectively, primarily reflecting revenues from the acquired operations of TSYS.

Revenues from our Issuer Solutions segment for the three and nine months ended September 30, 2020 were $487.4 million and $1,461.2 million, respectively, compared to $75.6 million and $86.1 million for the prior-year periods, primarily reflecting revenues from the acquired operations of TSYS.

Starting in mid-March, we experienced revenue declines as a result of lower transaction volumes, particularly related to the processing of commercial cards as a result of COVID-19.

We saw improvement in our financial results in May and June as state and local governments in the United States and abroad began to ease restrictions.

Business and Consumer Solutions Segment.

Revenues from our Business and Consumer segment for the three and six months ended June 30, 2020 were $216.7 million and $420.7 million , respectively, reflecting revenues from the acquired operations of TSYS .

Our Business and Consumer Solutions segment experienced revenue declines starting in mid-March due to reduced consumer spending;

however, these declines were mitigated by revenues from our customers loading individual stimulus payments and supplementary unemployment insurance distributions resulting from the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

Additionally, we saw improvements in our financial results later in the second quarter from increases in consumer spending as state and local governments in the United States began to gradually ease quarantine restrictions .

Revenues from our Business and Consumer Solutions segment for the three and nine months ended September 30, 2020 were $204.1 million and $624.8 million, respectively, compared to $27.9 million for the prior-year periods, reflecting revenues from the acquired operations of TSYS.

Our Business and Consumer Solutions segment experienced revenue declines starting in mid-March due to reduced consumer spending as a result of COVID-19;

however, these declines were mitigated by revenues in the second quarter from our customers loading individual stimulus payments and supplementary unemployment insurance distributions resulting from the Coronavirus Aid, Relief and Economic Security Act.

Additionally, we saw improvements in our financial results later in the second quarter, and continuing through the third quarter, from increases in consumer spending as state and local governments in the United States began to gradually ease restrictions.

Operating Expenses

Cost of Service.

Cost of service for the three and six months ended June 30, 2020 increased by 195.7% and 200.8% , respectively, to $893.7 million and $1,827.6 million , compared to $302.3 million and $607.5 million for the prior year, primarily due to additional costs associated with the acquired operations of TSYS, including the amortization of acquired intangibles.

Cost of service for the three and six months ended June 30, 2020 reflects amortization of acquired intangibles of $314.0 million and $628.3 million , respectively, compared to $103.5 million and $211.0 million , respectively, for the prior year.

Cost of service as a percentage of revenues increased to 53.5% and 51.1% , respectively, for the three and six months ended June 30, 2020 , compared to 32.3% and 33.4% for the prior year, primarily due to the increase in amortization of acquired intangibles.

Cost of service for the three and nine months ended September 30, 2020 increased by 110.6% and 163.6%, respectively, to $900.9 million and $2,728.5 million, compared to $427.7 million and $1,035.2 million for the prior-year periods, primarily due to additional costs associated with the acquired operations of TSYS, including the amortization of acquired intangibles.

Cost of service for the three and nine months ended September 30, 2020 reflects amortization of acquired intangibles of $313.4 million and $941.7 million, respectively, compared to $134.5 million and $345.5 million, respectively, for the prior-year periods.

Cost of service as a percentage of revenues increased to 47.0% and 49.7%, respectively, for the three and nine months ended September 30, 2020, compared to 38.7% and 35.4% for the prior-year periods, primarily due to the increase in amortization of acquired intangibles.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses for the three and six months ended June 30, 2020 increased by 63.1% and 76.9% , respectively, to $670.6 million and $1,396.4 million , compared to $411.2 million and $789.5 million for the prior year.

The increase in selling, general and administrative expenses for the three months ended June 30, 2020 compared to the prior year was primarily due to additional costs associated with the acquired operations of TSYS and included acquisition and integration expenses of $82.2 million , primarily related to the Merger, compared to $13.0 million for the prior year.

The increase in selling, general and administrative expenses for the six months ended June 30, 2020 compared to the prior year was primarily due to additional costs associated with the acquired operations of TSYS and included acquisition and integration expenses of $153.8 million , primarily related to the Merger, compared to $17.6 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues was 40.1% and 39.1% , respectively, for the three and six months ended June 30, 2020 , compared to 44.0% and 43.4% for the prior year.

Corporate expenses increased by $108.4 million and $217.0 million , respectively, to $173.7 million and $324.3 million for the three and six months ended June 30, 2020 , compared to $65.3 million and $107.4 million for the prior year, primarily due to additional expenses associated with the acquired operations of TSYS and an increase in acquisition and integration expenses primarily due to the Merger.

During the three and six months ended June 30, 2020 , Corporate expenses included acquisition and integration expenses of $80.7 million and $150.4 million , respectively, compared to $10.5 million and $11.1 million , respectively, for the prior year.

During the three and six months ended June 30, 2020 , Corporate expenses included charges for employee termination benefits of $24.1 million and $41.7 million , respectively, which included $1.7 million and $4.2 million , respectively, of share-based compensation expense.

We expect to incur additional charges as Merger–related integration activities continue in 2020.

Selling, general and administrative expenses for the three and nine months ended September 30, 2020 increased by 44.1% and 64.1%, respectively, to $726.5 million and $2,122.9 million, compared to

$504.2 million and $1,293.7 million for the prior-year periods.

The increase in selling, general and administrative expenses for the three months ended September 30, 2020 compared to the prior year was primarily due to additional costs associated with the acquired operations of TSYS.

Additionally, selling, general and administrative expenses included acquisition and integration expenses of $59.8 million compared to $90.5 million for the prior year.

The increase in selling, general and administrative expenses for the nine months ended September 30, 2020 compared to the prior year was primarily due to additional costs associated with the acquired operations of TSYS.

Additionally, selling, general and administrative expenses included acquisition and integration expenses of $213.6 million compared to $108.0 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues was 37.9% and 38.6%, respectively, for the three and nine months ended September 30, 2020, compared to 45.6% and 44.2% for the prior year.

Corporate expenses for the three and nine months ended September 30, 2020 increased by $2.4 million and $219.4 million, respectively, to $156.4 million and $480.7 million, compared to $154.0 million and $261.4 million for the prior-year periods, primarily due to additional expenses associated with the acquired operations of TSYS and an increase in acquisition and integration expenses for the nine months ended September 30, 2020.

During the three and nine months ended September 30, 2020, Corporate expenses included acquisition and integration expenses of $57.6 million and $208.0 million, respectively, compared to $86.9 million and $98.0 million, for the prior-year periods.

During the three and nine months ended September 30, 2020, Corporate expenses included charges for employee termination benefits of $8.1 million and $49.8 million, respectively, which included $1.9 million and $6.1 million, respectively, of share-based compensation expense.

We expect to incur additional charges over the next 12 months as Merger–related integration activities continue.

Operating Income and Operating Margin

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

Operating margin for the three and six months ended June 30, 2020 was 6.4% and 9.8% , respectively, compared to 23.7% and 23.2% for the prior year.

Consolidated operating income for the three and six months ended June 30, 2020 includes additional income from the acquired operations of TSYS of $103.8 million and $219.3 million , respectively.

Consolidated operating income for the three and six months ended June 30, 2020 reflects an increase in amortization of acquired intangibles of $210.5 million and $417.3 million , respectively, and an increase in acquisition and integration expenses of $71.0 million and $137.5 million , respectively, primarily due to the Merger, compared to the prior year.

Consolidated operating income for the three and nine months ended September 30, 2020 was $290.4 million and $642.0 million, respectively, compared to $174.0 million and $595.3 million for the prior-year periods.

Operating margin for the three and nine months ended September 30, 2020 was 15.1% and 11.7%, respectively, compared to 15.7% and 20.4% for the prior-year periods.

Consolidated operating income for the three and nine months ended September 30, 2020 includes income from the acquired operations of TSYS of $165.8 million and $385.1 million, respectively, compared to a loss of $11.1 million for the prior-year periods.

Consolidated operating income for the three and nine months ended September 30, 2020 reflects an increase in amortization of acquired intangibles of $178.9 million and $596.2 million, respectively.

Acquisition and integration expenses decreased by $44.1 million and increased by $93.4 million for the three and nine months ended September 30, 2020, respectively, compared to the prior-year periods.

The unfavorable effects of COVID-19 on our revenues and incremental expenses directly related to COVID-19 also contributed to the decrease in consolidated operating income and operating margin compared to the prior year.

Other Income/Expense, Net

Interest and other expense for the three and six months ended June 30, 2020 increased by $17.2 million and $50.8 million , respectively, to $82.9 million and $175.5 million , compared to the prior year, as a result of the increase in our outstanding borrowings.

Interest and other income for the three and nine months ended September 30, 2020 increased by $18.8 million and $14.9 million, respectively, to $30.0 million and $35.3 million, compared to the prior-year periods, primarily due to a gain of $27.3 million recorded in connection with the partial release and conversion of our Visa convertible preferred shares.

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 for the three and nine months ended September 30, 2020 increased by $13.2 million and $37.6 million, respectively, to $83.0 million and $258.5 million, compared to the prior-year periods, as a result of the increase in our outstanding borrowings.

Interest expense for the three and nine months ended September 30, 2019 included fees and charges of $25.5 million and $28.4 million, respectively, incurred in connection with financing activities related to the Merger.

These fees and charges included fees associated with bridge financing and charges for the write-off of unamortized debt issuance costs related to borrowings under a credit facility extinguished prior to the completion of the Merger.

Income Tax Expense

Our effective income tax rates for the three months ended June 30, 2020 and 2019 were 3.0% and 19.9% , respectively.

Our effective income tax rates for the six months ended June 30, 2020 and 2019 were 9.0% and 18.4% , respectively.

The changes in our effective tax rates for the three and six months ended June 30, 2020 from the prior year reflects the effect of tax credits and benefits associated with share-based awards.

Our effective income tax rate for the three months ended September 30, 2020 was 18.0%, and our effective income tax rate for the three months ended September 30, 2019 was a benefit of 18.7%.

The increase in our effective tax rate for the three months ended September 30, 2020 from the prior-year period is primarily due to the effect of the discrete benefits in the prior year related to the Merger, principally the reduction of our U.S.

deferred tax liability resulting from the effects of the Merger on the apportionment of income among states, and the effective settlement of uncertain tax positions.

Our effective income tax rates for the nine months ended September 30, 2020 and 2019 were 14.1% and 10.1%, respectively.

The increase in our effective tax rate for the nine months ended September 30, 2020 from the prior-year period is primarily due to the above noted prior year discrete items, partially offset by an increase in tax credits in the current year.

Liquidity and Capital Resources

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We believe that our current level of cash and borrowing capacity under our senior unsecured revolving credit facility, together with expected future cash flows from operations, will be sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future.

We have implemented measures to manage liquidity in future periods, taking into account the potential effects of COVID-19, including the reduction of certain operating expenses, including compensation costs, other discretionary expenses and planned capital expenditures, as well as suspension of repurchases of our common stock.

We have implemented measures to preserve liquidity in future periods, taking into account the potential effects of COVID-19, including the reduction of certain operating expenses, including compensation costs, other discretionary expenses and planned capital expenditures.

We also temporarily suspended repurchases of our common stock during the second and third quarters.

We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future through the issuance of debt or equity or by other means.

At June 30, 2020 , we had cash and cash equivalents totaling $1,825.6 million .

Of this amount, we considered $1,207.2 million to be available for general purposes, of which $29.0 million was undistributed foreign earnings considered to be indefinitely reinvested outside the United States.

At September 30, 2020, we had cash and cash equivalents totaling $2,220.8 million.

Of this cash and cash equivalent amount, we considered $1,426.1 million to be available for general purposes, of which $29.0 million was undistributed foreign earnings considered to be indefinitely reinvested outside the United States.

The available cash of $1,426.1 million did not include the following:

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Funds held for customers and the corresponding liability that we record in customer deposits include amounts collected prior to remittance on our customers' behalf.

Operating activities provided net cash of $960.3 million and $247.4 million for the six months ended June 30, 2020 and 2019 , respectively, which reflect net income adjusted for noncash items, including depreciation and amortization and changes in operating assets and liabilities.

Operating activities provided net cash of $1,544.8 million and $1,349.4 million for the nine months ended September 30, 2020 and 2019, respectively, which reflect net income adjusted for noncash items, including depreciation and amortization and changes in operating assets and liabilities.

Fluctuations in operating assets and liabilities are affected primarily by timing of month-end and transaction volume, especially changes in settlement processing assets and obligations.

Changes in settlement processing assets and obligations increased operating cash flows by $136.5 million during the six months ended June 30, 2020 and decreased operating cash flows by $41.7 million during the six months ended June 30, 2019 .

Changes in settlement processing assets and obligations increased operating cash flows by $155.4 million during the nine months ended September 30, 2020 and increased operating cash flows by $624.0 million during the nine months ended September 30, 2019.

The increase in cash flows from operating activities from the prior year was primarily due to the increase in earnings after the adjustment for certain noncash items, including amortization of acquired intangibles and depreciation and amortization of property and equipment.

We used net cash in investing activities of $270.3 million and $198.4 million during the six months ended June 30, 2020 and 2019 , respectively, primarily to fund acquisitions and capital expenditures.

During the six months ended June 30, 2020 and 2019, we used cash of $75.1 million and $78.2 million , respectively, for acquisitions.

We made capital expenditures of $208.4 million and $133.3 million during the six months ended June 30, 2020 and 2019 , respectively.

Cash flows from operations during the nine months ended September 30, 2019 also reflect the effect of settlement payments of $48.3 million related to interest rate swaps that we terminated upon the issuance of our senior unsecured notes.

We used net cash in investing activities of $395.0 million and $506.3 million during the nine months ended September 30, 2020 and 2019, respectively, primarily to fund acquisitions and capital expenditures.

During the nine months ended September 30, 2020 and 2019, we used cash of $77.2 million and $334.4 million, respectively, for acquisitions.

We made capital expenditures of $329.4 million and $201.0 million during the nine months ended September 30, 2020 and 2019, respectively.

These investments include software and hardware to support the development of new technologies, infrastructure to support our growing business and continued consolidation and enhancement of our operating platforms.

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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, as well as cash distributions made to noncontrolling interests and our shareholders.

We used net cash in financing activities of $510.1 million and $212.5 million during the six months ended June 30, 2020 and 2019 , respectively.

Proceeds from long-term debt were $1,867.0 million and $586.0 million for the six months ended June 30, 2020 and 2019 , respectively.

Repayments of long-term debt were $1,809.2 million and $569.1 million for the six months ended June 30, 2020 and 2019 , respectively.

Cash flows from financing activities used net cash of $594.6 million during the nine months ended September 30, 2020 and provided net cash of $109.9 million during the nine months ended September 30, 2019.

Proceeds from long-term debt were $1,868.2 million and $6,704.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Repayments of long-term debt were $1,829.6 million and $6,097.2 million for the nine months ended September 30, 2020 and 2019, 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.

On May 15, 2020, we issued $1.0 billion aggregate principle senior unsecured notes.

On May 15, 2020, we issued $1.0 billion in aggregate principle amount of senior unsecured notes.

We used the net proceeds from this offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes.

For the nine months ended September 30, 2019, in connection with financing activities associated with the Merger, we received $2,993.9 million of proceeds from the issuance of senior unsecured notes and $2,868.0 million from our senior unsecured credit facility.

We used these proceeds to repay TSYS's unsecured revolving credit facility, to refinance certain of our existing indebtedness, to fund cash payments made in lieu of fractional shares payable in accordance with the terms of the Merger and to pay transaction fees and costs related to the Merger.

Activity under our settlement lines of credit is affected primarily by timing of month-end and transaction volume.

During the six months ended June 30, 2020 and 2019 , we had net repayments of settlement lines of credit of $25.5 million and net borrowings of settlement lines of credit of $32.2 million , respectively.

We repurchase our common stock mainly through open market repurchase plans.

During the six months ended June 30, 2020 and 2019 , we used $421.2 million and $234.0 million , respectively, to repurchase shares of our common stock.

As of June 30, 2020 , we had $880.0 million of share repurchase authority remaining under a share repurchase program authorized by the board of directors.

We have temporarily suspended activity under our share repurchase program.

We paid dividends to our common shareholders in the amounts of $116.6 million and $3.1 million during the six months ended June 30, 2020 and 2019 , respectively.

During the nine months ended September 30, 2020 and 2019, we had net repayments of settlement lines of credit of $31.1 million and net borrowings of settlement lines of credit of $144.5 million, respectively.

We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase programs.

During the nine months ended September 30, 2020 and 2019, we used $421.2 million and $234.0 million, respectively, to repurchase shares of our common stock.

We temporarily suspended repurchases of our common stock during the second and third quarters.

As of September 30, 2020, we had $880.0 million of share repurchase authority remaining under a share repurchase program authorized by the board of directors.

Additionally, the board of directors increased our share purchase authorization to $1.25 billion on October 28, 2020.

We paid dividends to our common shareholders in the amounts of $175.0 million and $4.7 million during the nine months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2019, we paid distributions to noncontrolling interest in the amount of $31.6 million, and we funded assumed dividends payable (declared by TSYS's board of directors prior to consummation of the Merger) to former TSYS shareholders in the amount of $23.2 million.

Long-Term Debt and Lines of Credit

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We have $7.1 billion in aggregate principal amount of senior unsecured notes, which mature at various dates ranging from April 2021 to August 2049.

Interest on the senior notes is payable semi-annually upon various dates.

Interest on the senior notes is payable 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 May 15, 2020, we issued $1.0 billion aggregate principal amount of 2.900% senior unsecured notes due May 2030 and received proceeds of $996.7 million , net of discounts.

We incurred debt issuance costs of approximately $8.4 million , including underwriting fees, fees for professional services and registration fees, all of which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at June 30, 2020 .

On May 15, 2020, we issued $1.0 billion in aggregate principal amount of 2.900% senior unsecured notes due May 2030 and received proceeds of $996.7 million.

We incurred debt issuance costs of approximately $8.4 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at September 30, 2020.

Interest on the notes is payable semi-annually in arrears on May 15 and November 15 of each year, commencing November 15, 2020.

The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our outstanding unsecured and unsubordinated indebtedness.

The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness.

We used the net proceeds from the offering to repay a portion of the outstanding indebtedness on our revolving credit facility and for general corporate purposes.

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dollars and borrowings under the revolving credit facility are available to be made in U.S.

dollars, euros, sterling, Canadian dollars and, subject to certain conditions, certain other currencies at our option.

dollars, euros, sterling, Canadian dollars and, subject to specific conditions, certain other currencies at our option.

Borrowings in U.S.

dollars and certain other London Interbank Offered Rate ("LIBOR")-quoted currencies will bear interest, at our option, at a rate equal to either (1) the rate (adjusted for any statutory reserve requirements for eurocurrency liabilities) for eurodollar deposits in the London interbank market, (2) a floating rate of interest set forth on the applicable LIBOR screen page designated by Bank of America, N.A., or (3) the highest of (a) the federal funds effective rate plus 0.5%, (b) the rate of interest as publicly announced by Bank of America, N.A., as its "prime rate" or (c) LIBOR plus 1.0%, in each case, plus an applicable margin.

As of June 30, 2020 , borrowings outstanding under the term loan facility were $2.0 billion and there were no borrowings outstanding under the revolving credit facility.

As of September 30, 2020, borrowings outstanding under the term loan facility were $2.0 billion and there were no borrowings outstanding under the revolving credit facility.

We continue to monitor developments related to the anticipated transition from LIBOR to an alternative benchmark reference rate, such as the Secured Overnight Financing Rate ("SOFR"), beginning January 1, 2022.

Additionally, we maintain contact with our lenders and other stakeholders to evaluate the potential effects of these changes on our future financing activities.

As of June 30, 2020 , the interest rate on the term loan facility was 1.55% .

As of September 30, 2020, the interest rate on the term loan facility was 1.52%.

In addition, we are required to pay a quarterly commitment fee with respect to the unused portion of the revolving credit facility at an applicable rate per annum ranging from 0.125% to 0.300% depending on our credit rating.

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Outstanding letters of credit under the revolving credit facility reduce the amount of borrowings available to us.

The amounts available to borrow under the revolving credit facility are also determined by our financial leverage covenant.

As of June 30, 2020 , the total available commitments under the revolving credit facility were $2.3 billion , and there were no outstanding borrowings under the facility.

The amounts available to borrow under the revolving credit facility are also determined by a financial leverage covenant.

As of September 30, 2020, the total available commitments under the revolving credit facility were $2.1 billion, and there were no outstanding borrowings under the facility.

Compliance with Covenants

The senior unsecured term loan and revolving credit facility contain customary conditions to funding, affirmative covenants, negative covenants, financial covenants and events of default.

As of June 30, 2020 , financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00.

We were in compliance with all applicable covenants as of June 30, 2020 .

As of September 30, 2020, financial covenants under the term loan facility required a leverage ratio of 3.50 to 1.00 and an interest coverage ratio of 3.00 to 1.00.

We were in compliance with all applicable covenants as of September 30, 2020.

Settlement Lines of Credit

In various markets where we do business, we have specialized lines of credit, which are restricted for use in funding settlement.

In various markets where we do business, we have specialized lines of credit, that 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.

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Accordingly, the amount of the outstanding lines of credit may exceed the stated credit limit.

As of June 30, 2020 and December 31, 2019 , a total of $62.1 million and $74.5 million , respectively, of cash on deposit was used to determine the available credit.

As of June 30, 2020 and December 31, 2019 we had $439.5 million and $463.2 million , respectively, outstanding under these lines of credit with additional capacity to fund settlement of $1,124.6 million as of June 30, 2020 .

During the six months ended June 30, 2020 , the maximum and average outstanding balances under these lines of credit were $508.5 million and $282.9 million , respectively.

The weighted-average interest rate on these borrowings was 2.11% and 3.16% at June 30, 2020 and December 31, 2019 , respectively.

As of September 30, 2020, a total of $58.5 million of cash on deposit was used to determine the available credit.

As of September 30, 2020 and December 31, 2019, we had $439.4 million and $463.2 million, respectively, outstanding under these lines of credit with additional capacity to fund settlement of $1,387.3 million as of September 30, 2020.

During the three months ended September 30, 2020, the maximum and average outstanding balances under these lines of credit were $560.7 million and $324.6 million, respectively.

The weighted-average interest rate on these borrowings was 2.05% and 3.16% at September 30, 2020 and December 31, 2019, respectively.

See "Note 6—Long-Term Debt and Lines of Credit" in the notes to the accompanying unaudited consolidated financial statements for further information about our borrowing agreements.

Commitments and Contractual Obligations

During the six months ended June 30, 2020 , our commitments and contractual obligations increased from the amounts disclosed in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Commitments and Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2019 .

The increase primarily relates to the acquisition of software and related services for $293.8 million .

We financed $97.6 million of this amount utilizing a two-year vendor financing arrangement.

As of June 30, 2020 , the estimated remaining purchase commitments for this acquisition were $29.7 million during the remainder of 2020, $64.9 million during 2021, $66.9 million during 2022 and $16.8 million during 2023.

During the nine months ended September 30, 2020, our commitments and contractual obligations increased from the amounts disclosed in "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Commitments and Contractual Obligations" in our Annual Report on Form 10-K for the year ended December 31, 2019.

The increase primarily relates to the acquisition of software, technology infrastructure and related services.

Additionally, a portion of this amount, $97.6 million, was financed utilizing a two-year vendor financing arrangement.

Our estimated purchase obligations as of September 30, 2020 were $88.7 million during the remainder of 2020, $244.5 million during 2021, $279.2 million during 2022 and 2023, $177.2 million during 2024 and 2025 and $527.4 million thereafter.

Effects of the COVID-19 Pandemic on our Critical Accounting Policies

Because of the effects of the COVID-19 pandemic on our business, we evaluated the potential effects on our financial statements as of June 30, 2020 and for the three and six months then ended.

However, the magnitude and duration of the ultimate effect of the COVID-19 pandemic are not possible to predict at this time, and our assessments are therefore subject to material revision.

Goodwill - We considered a variety of factors that might indicate that it is more likely than not that the fair value of any reporting unit is below its carrying amount at June 30, 2020 , including general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, our share price and other relevant events.

For certain of our reporting units that were recently acquired in the Merger, we also considered the expected near term impact of the COVID-19 pandemic on revenues and our cost mitigation efforts as well as longer term performance expectations.

Based on the analyses completed, we believe it is not more likely than not that the carrying amount of any of our reporting units exceeded the fair value as of June 30, 2020 .

Because of the effects of the COVID-19 pandemic on our business, we evaluated the potential effects on our financial statements as of September 30, 2020 and for the three and nine months then ended.

However, the future magnitude and duration of the ultimate effect of the COVID-19 pandemic are not possible to predict at this time, and our assessments are therefore subject to material revision.

Goodwill - We considered a variety of factors that might indicate that it is more likely than not that the fair value of any reporting unit is below its carrying amount at September 30, 2020, including general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, our share price and other relevant events.

For certain of our reporting units that were acquired in the Merger, we also considered the expected near term impact of the COVID-19 pandemic on revenues and our cost mitigation efforts, as well as longer term performance expectations.

Based on the analyses completed, we believe it is not more likely than not that the carrying amount of any of our reporting units exceeded the fair value as of September 30, 2020.

Off-Balance Sheet Arrangements

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Accordingly, we cannot guarantee that our plans and expectations will be achieved.

Examples of forward-looking statements include, but are not limited to, statements we make regarding the effects of the COVID-19 pandemic on our business, including estimates of the effects of the pandemic on our revenues and financial operating results, the effects of actions taken by us in response to the pandemic, the anticipated benefits of the Merger, including our future financial and operating results, the combined company’s plans, objectives, expectations and intentions, our expected financial and operating results, projected future growth of business, or completion of anticipated benefits of strategic initiatives, and other statements that are not historical facts.

Examples of forward-looking statements include, but are not limited to, statements we make regarding the effects of the COVID-19 pandemic on our business, including estimates of the effects of the pandemic on our revenues, financial operating results and liquidity, the effects of actions taken by us in response to the pandemic, the anticipated benefits of the Merger, including our future financial and operating results, the combined company’s plans, objectives, expectations and intentions, our expected financial and operating results, projected future growth of business, or completion of anticipated benefits of strategic initiatives, and other statements that are not historical facts.

Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that our expectations will be attained, and therefore actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements.

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the effects and duration of global economic, political, market, health and social events or other conditions, including the effects and duration of the COVID-19 pandemic;

regulatory measures or voluntary actions, including social distancing, shelter-in-place orders, reinstating of opening restrictions on nonessential businesses and similar measures imposed or undertaken in an effort to combat the spread of the COVID-19 pandemic;

management’s assumptions and projections used in their estimates of the timing and severity of the effects of the COVID-19 pandemic on our future revenues and results of operations;

regulatory measures or voluntary actions, including social distancing, shelter-in-place orders, operating restrictions on nonessential businesses and similar measures imposed or undertaken in an effort to combat the spread of the COVID-19 pandemic;

management’s assumptions and projections used in their estimates of the timing and severity of the effects of the COVID-19 pandemic on our future revenues, results of operations and liquidity;

our ability to meet our liquidity needs in light of the effects of the COVID-19 pandemic;

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failing to fully realize anticipated cost savings and other anticipated benefits of the Merger when expected or at all;

business disruptions from the Merger or integration that will harm our business, including current plans and operations;

potential adverse reactions or changes to business relationships resulting from the Merger, including as it relates to the businesses’ ability to successfully renew existing client contracts on favorable terms or at all and obtain new clients;

business disruptions from the Merger or integration that may harm our business, including current plans and operations;

failing to comply with the applicable requirements of Visa, Mastercard or other payment networks or card schemes or changes in those requirements;

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and events beyond our control, such as acts of terrorism, and other factors included in the “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and in other documents that we file with the SEC, which are available at http://www.sec.gov.

looking statements speak only as of the date of this communication or as of the date they were made, and we undertake no obligation to update forward-looking statements, except as required by law.

Any forward-looking statements speak only as of the date of this communication or as of the date they were made, and we undertake no obligation to update forward-looking statements, except as required by law.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis