What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-19 compared with 2020-02-21 · 214 added, 153 removed, 234 unchanged (61% of the section changed)

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Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our actual results could differ materially from the results anticipated by our forward-looking statements as a result of many known and unknown factors, including but not limited to, those discussed in "Item 1A - Risk Factors." See "Cautionary Notice Regarding Forward-Looking Statements" located above in "Item 1 - Business."

Discussions of our results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018 that have been omitted under this item can be found in "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 21, 2020.

Executive Overview

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Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to operate their businesses more efficiently across a variety of channels around the world.

We operate in three reportable segments:

Merchant Solutions, Issuer Solutions and Business and Consumer Solutions.

See "Note 16—Segment Information" in the notes to the accompanying consolidated financial statements for additional information about our segments.

On September 18, 2019, we consummated our merger with Total System Services, Inc.

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Prior to the Merger, TSYS was a leading global payments provider, offering seamless, secure and innovative solutions to issuers, merchants and consumers.

Consolidated operating results for the year ended December 31, 2020 reflect a full year of the acquired operations of TSYS, while the prior year includes the acquired operations of TSYS only from the acquisition date through December 31, 2019.

We continue to focus on merger and integration activities, such as combining business operations, aligning go-to-market strategies, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies.

We also continue to invest in 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.

See "Note 2—Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of the Merger.

We experienced strong business and financial performance around the world during the year ended December 31, 2019 .

Highlights related to our financial condition at December 31, 2019 and results of operations for the year then ended include the following:

Consolidated revenues increased to $4,911.9 million compared to $3,366.4 million for the prior-year period, primarily due to additional revenues from TSYS.

Consolidated operating income increased to $791.4 million compared to $737.1 million for the prior-year period.

Operating margin decreased to 16.1% compared to 21.9% for the prior-year period, primarily due to an increase in acquisition and integration expenses associated with the Merger.

Net income attributable to Global Payments decreased to $430.6 million compared to $452.1 million for the prior-year period, reflecting increases in acquisition and integration expenses, amortization of acquired intangibles and interest expense from the prior-year period.

Diluted earnings per share decreased to $2.16 compared to $2.84 for the prior-year period, reflecting the decrease in net income and an increase in the number of weighted-average shares outstanding as a result of issuing common shares as purchase consideration in the Merger.

In connection with the Merger, we achieved an investment grade debt structure, which now consists of a $5.0 billion senior unsecured term loan and revolving credit facility, unsecured senior notes of $3.0 billion that we issued and $3.0 billion of TSYS' unsecured senior notes that we assumed in the Merger.

Effects of COVID-19 on Our Business

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

During 2020 and continuing into 2021, the global economy has been, and continues to be, affected by COVID-19.

The pandemic 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.

The pandemic and measures to prevent its spread affected our financial results during 2020.

As governments took actions to encourage social distancing and implement shelter-in-place directives, spending and transaction volumes decreased beginning in mid-March 2020.

We saw improvement in our financial results and positive trends during the latter half of 2020 as certain state and local governments in the United States and abroad began to gradually ease restrictions, certain businesses reopened and spending increased.

While we continue to see signs of economic recovery, the

rate of recovery has been affected by the recent reinstatement of restrictions in certain jurisdictions both in the United States and internationally due to a resurgence of the virus.

We have taken a number of actions to preserve our available capital and provide financial flexibility in response to the effects of COVID-19 on our business, including temporarily suspending our share repurchase program during the second and third quarters of 2020 and reducing our planned capital investments in the business.

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

however, the implications on future global economic conditions and related effects on our business and financial condition are difficult to predict due to uncertainties around the ultimate severity, scope and duration of the pandemic, the availability and effectiveness of treatments or vaccines and the direction or extent of current or future restrictive actions that may be imposed by governments or public health authorities.

While we expect the COVID-19 pandemic will continue to have an adverse effect on our revenues and earnings in 2021, we do expect a steady and progressive recovery throughout the year.

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 “Item 1A – Risk Factors.”

Emerging Trends

For a further discussion of trends, uncertainties and other factors that could affect our continuing operating results, see the section entitled "Risk Factors" in Item 1A in this Annual Report on Form 10-K.

The payments technology 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.

continue to expand into new markets internationally and increase our scale and improve our competitiveness in existing markets by pursuing additional acquisitions and joint ventures.

We expect to continue to expand into new markets internationally and increase our scale and improve our competitiveness in existing markets by pursuing additional acquisitions and joint ventures.

The industry continues to grow as a result of wider merchant acceptance and increased use of credit and debit cards, advances in payment processing technology and migration to ecommerce, omnichannel and contactless payment solutions.

The proliferation of credit and debit cards, as well as other digital payment solutions, has made the acceptance of electronic payments a virtual necessity for many businesses, regardless of size, in order to remain competitive.

Further, the expanding digitization of the economy and availability and access to financial services increases the demand for cards and electronic payments, which in turn drives growth in acceptance and transaction volumes.

The outbreak of the COVID-19 virus in 2020 introduced numerous economic and operational challenges for many industries and businesses.

However, the outbreak has also accelerated the use of electronic payments, the need for development of technologies and electronic-based solutions and expansion of ecommerce, omnichannel and contactless payment solutions.

We believe that the number of 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 support such technologies to increase materially from our current level of spending.

We also believe new markets will continue to develop in areas that have been previously dominated by paper-based transactions.

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Results of Operations

Prior to the completion of the Merger, we operated in three reportable segments:

North America, Europe and Asia-Pacific.

In the fourth quarter of 2019, as a result of the Merger, we realigned our executive management and organizational structures.

Based on an evaluation performed in accordance with the guidance provided in Accounting Standards Codification Topic 280, Segment Reporting , we determined that our new reportable segments as of December 31, 2019 were:

Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions.

In connection with the organizational realignment, the legacy Global Payments businesses are included in the Merchant Solutions segment, with the exception of a small portion of our European business that is included in the Issuer Solutions segment.

Certain operating expenses, that prior to the Merger were considered "enterprise-wide" expenses and reported in Corporate, are now reflected in the Merchant Solutions segment.

For further information about our reportable segments, see "Item 1.

Business—Business Segments" and "Note 15—Segment Information" in the notes to the accompanying consolidated financial statements, incorporated herein by reference.

The following discussion of our results recasts our segments for prior periods to conform to our new segment presentation.

For a discussion of our results of operations for fiscal 2018 compared to fiscal 2017, refer to "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 21, 2019.

Merchant Solutions.

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These revenues depend upon a number of factors, such as demand for and price of our services, the technological competitiveness of our offerings, our reputation for providing timely and reliable service, competition within our industry and general economic conditions.

We provide payment technology and software solutions to customers and fund settlement either directly, in markets where we have direct membership with the payment networks, or through our relationship with a member financial institution in markets where we are sponsored.

Revenues are recognized in the amount of customer billing, net of interchange fees and payment network fees.

We market our services through a variety of sales channels, including a direct sales force, trade associations, agent and enterprise software providers and referral arrangements with value-added resellers ("VARs"), which we generally refer to as "direct distribution." We also sell services to ISOs and financial institutions through our wholesale channel.

In certain of these contracts, the ISO receives a share of the customer profitability in the form of a monthly residual payment, which is reflected as a component of selling, general and administrative expenses in the consolidated statements of income.

markets where we are sponsored.

Revenues are generally recognized in the amount of customer billing, net of interchange fees and payment network fees.

We market our services through a variety of relationship-led and technology enabled distribution channels, including a direct sales force, trade associations, agent and enterprise software providers and referral arrangements with value-added resellers ("VARs").

We also sell services to ISOs and financial institutions.

In certain of these arrangements, the ISO receives a share of the customer profitability in the form of a monthly residual payment, which is reflected as a component of selling, general and administrative expenses in the consolidated statements of income.

Issuer Solutions.

Issuer Solutions segment revenues are derived from long-term processing contracts with financial institutions and other financial services providers.

Payment processing services revenues are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements generated and/or mailed, managed services, cards embossed and mailed, and other processing services for cardholders accounts on file.

Most of these contracts have prescribed annual minimums, penalties for early termination, and service level agreements that may affect contractual fees if specific service levels are not achieved.

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they are reported in the caption "Corporate." Similarly, we refer to "operating margin" regarding segment operations, which is calculated by dividing segment operating income by segment revenues.

Equity in Income of Equity Method Investments

As a result of the Merger, we have equity method investments, including a 45% investment in China UnionPay Data Co., Ltd., which we account for using the equity method of accounting.

Equity in income of equity method investments reflects our proportional share of earnings from these investments.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

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The income statement data for the years ended December 31, 2020 and 2019 are derived from the accompanying consolidated financial statements included in "Item 8 - Financial Statements and Supplementary Data."

Year Ended December 31,

(dollar amounts in thousands)

% of Revenue (1)

Year Ended December 31, Year Ended December 31,

(dollar amounts in thousands) 2020 % of Revenue (1)

2019 % of Revenue (1)

Change % Change

Revenues (2) :

Merchant Solutions $ 4,688,335 63.2 % $ 4,098,580 83.4 % $ 589,755 14.4 %

Issuer Solutions

Business and Consumer Solutions

Segment revenues

intersegment revenues

Issuer Solutions 1,981,435 26.7 % 604,654 12.3 % 1,376,781 NM

Business and Consumer Solutions 829,505 11.2 % 227,440 4.6 % 602,065 NM

Intersegment eliminations (75,717) (1.0) % (18,782) (0.4) % (56,935) NM

Consolidated revenues $ 7,423,558 100.0 % $ 4,911,892 100.0 % $ 2,511,666 51.1 %

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Merchant Solutions $ 1,162,741 15.7 % $ 1,148,975 23.4 % $ 13,766 1.2 %

Issuer Solutions

Business and Consumer Solutions

Issuer Solutions 277,651 3.7 % 82,172 1.7 % 195,479 NM

Business and Consumer Solutions 138,630 1.9 % 19,473 0.4 % 119,157 NM

Corporate (685,069) (9.2) % (459,203) (9.3) % (225,866) 49.2 %

Operating income $ 893,953 12.0 % $ 791,417 16.1 % $ 102,536 13.0 %

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(1) Percentage amounts may not sum to the total due to rounding.

(2) Revenues, operating expenses, operating income and operating margin reflect the effects of acquired businesses from the respective dates of acquisition.

(2) Revenues, consolidated operating expenses, operating income (loss) and operating margin reflect the effects of acquired businesses from the respective acquisition dates.

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

(3) During the year ended December 31, 2019, operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $56.1 million .

Operating loss for Corporate included acquisition and integration expenses of $199.5 million and $56.1 million , respectively, during the years ended December 31, 2019 and 2018.

Acquisition and integration expenses for 2019 were primarily related to the Merger.

Consolidated revenues for the year ended December 31, 2019 increased by 45.9% to $4,911.9 million , compared to $3,366.4 million for the prior-year period, primarily due to additional revenues from the acquired operations of TSYS.

For the year ended

December 31, 2019 , currency exchange rate fluctuations reduced our consolidated revenues by approximately $44 million , compared to the prior-year period, calculated by converting revenues for the current year, excluding revenues from current year acquisitions, in local currencies using exchange rates for the prior-year period.

The effect of exchange rate fluctuations on our revenues was almost exclusively in our Merchant Solutions segment.

(3) During the years ended December 31, 2020 and 2019, operating income for our Merchant Solutions segment reflected the effect of acquisition and integration expenses of $7.0 million and $56.1 million.

Operating loss for Corporate included acquisition and integration expenses of $313.0 million and $199.5 million during the years ended December 31, 2020 and 2019, respectively.

Acquisition and integration expenses were primarily related to the Merger.

Consolidated revenues for the year ended December 31, 2020 increased by 51.1% to $7,423.6 million, compared to $4,911.9 million for the prior year, primarily due to additional revenues from the acquired operations of TSYS.

Revenues from the acquired operations of TSYS were $4,205.2 million for the year ended December 31, 2020, compared to $1,215.0 million for the prior year.

Starting in mid-March 2020, COVID-19 had an unfavorable effect on our revenues;

however, we saw improvements throughout the latter half of 2020.

Merchant Solutions Segment.

Revenues from our Merchant Solutions segment increased by 22.5% to $4,098.6 million , compared to $3,345.2 million for the prior-year period, primarily due to additional revenues from the acquired operations of TSYS.

Issuer Solutions and Business and Consumer Solutions Segments.

Revenues from our Issuer Solutions and Business and Consumer Solutions segments resulted primarily from the additional revenues from the acquired operations of TSYS.

Revenues from our Merchant Solutions segment increased to $4,688.3 million, compared

to $4,098.6 million for the prior year, primarily due to additional revenues from the acquired operations of TSYS.

Starting in mid-March, COVID-19 had an unfavorable effect on our revenues as a result of a reduction in spending and transaction volumes and closures of certain of our customer businesses throughout North America, Europe and Asia Pacific.

We saw improvement in our financial results during the latter half of 2020 as state and local governments in the United States and governments abroad began to gradually ease pandemic-related restrictions and spending increased.

While we continue to see signs of economic recovery, the rate of recovery has been affected by the reinstatement of restrictions in certain jurisdictions due to a resurgence of the virus during the fourth quarter.

Issuer Solutions Segment.

Revenues from our Issuer Solutions segment for the year ended December 31, 2020 was $1,981.4 million, compared to $604.7 million for the prior year, primarily reflecting revenues from the acquired operations of TSYS.

Starting in mid-March, COVID-19 had an unfavorable effect on our revenues as a result of lower transaction volumes, particularly related to the processing of commercial cards.

Business and Consumer Solutions Segment.

Revenues from our Business and Consumer Solutions segment for the year ended December 31, 2020 was $829.5 million, compared to $227.4 million for the prior year, reflecting revenues from the acquired operations of TSYS.

Our Business and Consumer Solutions segment experienced an unfavorable effect on revenues starting in mid-March due to reduced consumer spending as a result of COVID-19;

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

Additionally, we saw improvement in our financial results throughout the latter half of 2020 from increases in consumer spending as state and local governments in the United States began to gradually ease restrictions.

Additional stimulus payment distributions in 2021 to provide relief from the effect of the COVID-19 pandemic could have a positive effect on our revenues;

however, the ultimate timing and magnitude is difficult to predict.

Operating Expenses

Cost of Service.

Cost of service for the year ended December 31, 2019 increased by 89.4% to $2,073.8 million , compared to $1,095.0 million for the prior-year period, primarily due to additional costs associated with the acquired operations of TSYS.

Cost of service for the year ended December 31, 2019 reflects amortization of acquired intangibles of $667.1 million , compared to $377.7 million for the prior-year period, and integration expenses of $41.8 million primarily related to the Merger.

Cost of service as a percentage of revenues increased to 42.2% for the year ended December 31, 2019 , compared to 32.5% for the prior-year period, primarily due to the increase in amortization of acquired intangibles of $289.5 million .

Cost of service for the year ended December 31, 2020 increased by 76.0% to $3,650.7 million, compared to $2,073.8 million for the prior year, primarily due to additional costs associated with the acquired operations of TSYS, including the amortization of intangibles.

Cost of service for the year ended December 31, 2020 reflects amortization of acquired intangibles of $1,256.9 million, compared to $667.1 million for the prior year.

The year ended December 31, 2019 also reflects integration expenses of $41.8 million.

Cost of service as a percentage of revenues increased to 49.2% for the year ended December 31, 2020, compared to 42.2% for the prior year, primarily due to the increase in amortization of acquired intangibles.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses for the year ended December 31, 2019 increased by 33.4% to $2,046.7 million , compared to $1,534.3 million for the prior-year period.

The increase in selling, general and administrative expenses was primarily due to additional costs associated with the acquired operations of TSYS.

In addition, selling, general and administrative expenses for the year ended December 31, 2019 reflect acquisition and integration expenses of $213.8 million , primarily related to the Merger, compared to $56.1 million for the prior-year period.

Selling, general and administrative expenses as a percentage of revenues was 41.7% for the year ended December 31, 2019 , compared to 45.6% for the prior-year period.

Corporate expenses increased by $242.0 million to $459.2 million for the year ended December 31, 2019 , compared to $217.2 million for the prior-year period, 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 years ended December 31, 2019 and 2018 , operating loss for Corporate included acquisition and integration expenses of $199.5 million and $56.1 million , respectively.

Selling, general and administrative expenses for the year ended December 31, 2020 increased by 40.7% to $2,878.9 million, compared to $2,046.7 million for the prior year.

The increase in selling, general and administrative expenses 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 $319.5 million, compared to $213.8 million for the prior year.

Selling, general and administrative expenses as a percentage of revenues decreased to 38.8% for the year ended December 31, 2020, compared to 41.7% for the prior year, primarily due to the favorable effects of Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic.

Corporate expenses increased by $225.9 million to $685.1 million for the year ended December 31, 2020, compared to $459.2 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 years ended December 31, 2020 and 2019, Corporate expenses included acquisition and integration expenses of $313.0 million and $199.5 million, respectively.

Certain of these Merger-related integration activities resulted in the recognition of one-time employee termination benefits.

During the year ended December 31, 2019 , we recognized charges of $57.1 million for actions taken to date, which included $17.3 million of share-based compensation expense based on accelerated vesting periods for equity awards held by terminated employees.

In addition, we wrote-off capitalized software and other assets of $40.2 million for legacy Global Payments technology that will no longer be utilized for the combined company.

During the years ended December 31, 2020 and 2019, Corporate expenses included charges for employee termination benefits of $83.3 million and $57.1 million, respectively, which included $6.7 million and $17.3 million, respectively, of share-based compensation expense.

In addition, during the year ended December 31, 2019, we wrote-off capitalized software and other assets of $40.2 million for legacy Global Payments technology that will no longer be utilized for the combined company.

We expect to incur additional charges as Merger-related integration activities continue in 2021.

Operating Income and Operating Margin

Consolidated operating income for the year ended December 31, 2019 increased to $791.4 million , compared to $737.1 million for the prior year due to additional income from TSYS of $78.7 million .

For the year ended December 31, 2019 , currency exchange rate fluctuations reduced our consolidated operating income by approximately $21 million , compared to the prior-year period, calculated by converting operating income for the current year, excluding operating income from current year acquisitions, in local currencies using exchange rates for the prior-year period.

The effect of exchange rate fluctuations on our operating income was almost exclusively in our Merchant Solutions segment.

Operating margin for the year ended December 31, 2019 decreased to 16.1% , compared to 21.9% for the prior-year period.

Consolidated operating income for the year ended December 31, 2019 reflects an increase in acquisition and integration expenses of $199.5 million , primarily due to the Merger, compared to the prior-year period, which was the primary reason for the decrease in operating margin from the prior-year period.

Consolidated operating income for the year ended December 31, 2020 increased to $894.0 million, compared to $791.4 million for the prior year.

Operating margin for the year ended December 31, 2020 decreased to 12.0%, compared to 16.1% for the prior year.

Consolidated operating income for the year ended December 31, 2020 includes income from the acquired operations of TSYS of $538.0 million compared to $78.7 million for the prior year.

Consolidated operating income for the year ended December 31, 2020 reflects an increase in amortization of acquired intangibles and acquisition and integration expenses of $589.8 million and $64.4 million, respectively, compared to the prior year.

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

We saw improvement in our financial results and positive trends throughout the latter half of 2020 as a result of the recovery seen across our markets.

Further, Merger-related cost synergies and cost-saving actions taken to mitigate the financial effects of the COVID-19 pandemic had a favorable effect on operating income and operating margin for the year ended December 31, 2020.

Merchant Solutions Segment .

Operating income in our Merchant Solutions segment was $1,162.7 million for the year ended December 31, 2020, compared to $1,149.0 million for the prior year.

Operating income and operating margin in our Merchant Solutions segment reflect additional income from the acquired operations of TSYS, partially offset by the unfavorable effects of COVID-19 on our revenues, which negatively affected operating income and operating margin during 2020.

We saw improvement in our financial results and positive trends throughout the latter half of 2020 as a result of the recovery seen across our geographic markets.

Issuer Solutions and Business and Consumer Solutions Segments .

Operating income in our Issuer Solutions and Business and Consumer Solutions segments primarily reflects the additional income from the acquired operations of TSYS.

Other Income/Expense, Net

Interest and other income for the year ended December 31, 2019 increased by $10.7 million to $31.4 million , compared to the prior-year period, as a result of interest earned on the net proceeds from the issuance of our unsecured senior notes while they were in escrow.

Interest and other income for the year ended December 31, 2018 included a gain of $9.6 million recognized on the reorganization of a debit network association of which we were a member through one of our Canadian subsidiaries.

Interest and other expense for the year ended December 31, 2019 increased by $109.3 million to $304.9 million , compared to the prior-year period, as a result of the increase in our long-term debt, including debt of $3,295.3 million that we assumed in the Merger.

Further, we incurred fees and charges of $30.4 million in connection with financing activities related to the Merger, which were included in interest expense for the year ended December 31, 2019 .

Interest and other income for the year ended December 31, 2020 increased by $12.1 million to $43.6 million, compared to the prior year, primarily due to a gain of $27.7 million in connection with the release and conversion of a portion of our Visa convertible preferred shares.

See "Note 7—Other Assets" in the notes to the accompanying consolidated financial statements for further discussion of this transaction.

Interest and other income for the year ended December 31, 2019 included interest earned on the net proceeds from the issuance of our unsecured senior notes while they were in escrow.

Interest and other expense for the year ended December 31, 2020 increased by $38.6 million to $343.5 million, compared to the prior year, as a result of the increase in our average outstanding borrowings.

Interest expense for the year ended December 31, 2019 included fees and charges of $30.4 million 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 the credit facility that was extinguished prior to the completion of the Merger.

Income Tax Expense

Our effective income tax rates for the years ended December 31, 2019 and 2018 were 12.0% and 13.8% , respectively.

Our effective tax rate for the year ended December 31, 2019 reflects the effects of the Merger on our state tax expense, foreign-derived intangible income deduction and tax credits.

Our effective tax rate for the year ended December 31, 2018 reflects the reduction of our estimated transition tax liability associated with the U.S.

Tax Cuts and Jobs Act of 2017.

Equity in Income of Equity Method Investments, Net of Tax

As a result of the Merger, we have a 44.56% investment in China UnionPay Data Co., Ltd.

("CUP Data"), which we account for using the equity method of accounting.

Equity in income of equity method investments, net of tax, primarily reflects our proportional share of earnings from our investment in CUP Data.

Our effective income tax rate for the years ended December 31, 2020 and 2019 was 13.0% and 12.0%, respectively.

Our effective tax rate for the year ended December 31, 2020 reflects the benefit of tax credits, foreign interest income not subject to tax, excess tax benefits from equity awards and the foreign-derived intangible income deduction.

Our effective tax rate for the year ended December 31, 2019 reflects the effect of the discrete benefits 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 a benefit from the foreign-derived intangible income deduction and tax credits.

Net Income Attributable to Global Payments

Net income attributable to Global Payments increased to $584.5 million compared to $430.6 million for the prior-year period, reflecting the change in operating income and additional equity in income of equity method investments.

Diluted Earnings per Share

Diluted earnings per share was $1.95 compared to $2.16 for the prior year.

Diluted earnings per share for the year ended December 31, 2020 reflects the additional income from the acquired operations of TSYS.

Additionally, diluted earnings per share for the year ended December 31, 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.

Liquidity and Capital Resources

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In addition, 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.

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 temporarily implemented measures to preserve liquidity, 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 of 2020.

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.

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Settlement-related cash balances are not restricted;

however, these funds are generally paid out in satisfaction of settlement processing obligations the following day.

however, these funds are generally paid out in satisfaction of a processing obligation the following day.

Merchant Reserves serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant's agreement.

While this cash is not restricted in its use, we believe that designating this cash to collateralize Merchant Reserves strengthens our fiduciary standing with our member sponsors and is in accordance with the guidelines set by the card networks.

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

Funds held for customers and the corresponding liability include amounts collected prior to remittance to or at the direction of our customers.

We also had restricted cash of $143.9 million as of December 31, 2020, representing amounts deposited by customers for prepaid card transactions.

These balances are considered cardholder funds held and are subject to local regulatory restrictions requiring appropriate segregation and restriction in their use.

Operating activities provided net cash of $2,314.2 million and $1,391.3 million for the years ended December 31, 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, and by the effects of businesses we acquire that have different working capital requirements.

Fluctuations in operating assets and liabilities are affected primarily by timing of month-end and transaction volume, including changes in settlement processing assets and obligations, and by the effects of businesses we acquire that have different working capital requirements.

Changes in settlement processing assets and obligations increased operating cash flows by $125.9 million and $213.7 million during the years ended December 31, 2020 and 2019, respectively.

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

The increase in cash flows from operating activities from the prior year was primarily due to the increase in net earnings before certain noncash items, including amortization of acquired intangibles and depreciation and amortization of property and equipment, primarily as a result of the additional income from the acquired operations of TSYS.

We used net cash in investing activities of $438.3 million and $917.1 million during the years ended December 31, 2020 and 2019, respectively.

Cash used for investing activities primarily represents cash used to fund acquisitions, net of cash acquired, and capital expenditures.

During the year ended December 31, 2019 , we used cash of $1,093.6 million for acquisitions, including $703.6 million for the repayment of TSYS' unsecured revolving credit facility (including accrued interest and fees) and for cash paid to TSYS shareholders in lieu of fractional shares, all of which was partially offset by cash acquired in the Merger and other acquisitions of $448.9 million .

During the year ended December 31, 2018, we used cash of $1,274.9 million for acquisitions, which was partially offset by cash acquired of $15.2 million .

Cash used for investing activities primarily represents cash used to fund acquisitions, net of cash and restricted cash acquired, and capital expenditures.

During the year ended December 31, 2020, we used cash of $167.9 million for acquisitions, and recorded a cash inflow of $119.4 million from restricted cash balances acquired during the year.

the year ended December 31, 2019, we used cash of $1,093.6 million for acquisitions.

Cash from investing activities for the year ended December 31, 2020 also reflects cash received from the sale of Visa common shares of $27.7 million.

We made capital expenditures of $436.2 million and $307.9 million to purchase property and equipment during the years ended December 31, 2020 and 2019, respectively.

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

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.

We will continue to make significant capital investments in the business, and we anticipate capital expenditures and other investments in the business will slowly return to near pre-COVID levels.

However, we continue to monitor the effects of COVID-19 and adjust our future level of capital investments accordingly.

Financing activities include borrowings and repayments made 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 7 —Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, as well as cash distributions made to noncontrolling interests and our shareholders.

We used net cash in financing activities of $28.7 million during the year ended December 31, 2019 , and cash flows from financing activities provided net cash of $286.9 million during the year ended December 31, 2018.

In connection with financing activities associated with the Merger, we received proceeds of $2,973.2 million from the issuance of senior unsecured notes and $2,868.0 million from our senior unsecured term loan and revolving credit facilities.

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

Our borrowing arrangements are further described in "Note 8—Long-Term Debt and Lines of Credit" in the notes to the accompanying consolidated financial statements and below under "Long-Term Debt and Lines of Credit." Financing activities also include cash flows associated with common stock repurchase programs and share-based compensation programs, cash distributions made to our shareholders, and cash distributions to or purchase of shares from noncontrolling interests.

Cash flows from financing activities used net cash of $1,546.1 million and $28.7 million during the years ended December 31, 2020 and 2019, respectively.

Proceeds from long-term debt were $2,401.1 million and $7,203.9 million for the years ended December 31, 2020 and 2019, respectively.

Repayments of long-term debt were $2,342.1 million and $6,484.7 million for the years ended December 31, 2020 and 2019, respectively.

Repayments of long-term debt consist of 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.

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 in aggregate principal 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 year ended December 31, 2019, in connection with financing activities associated with the Merger, we received proceeds of $2,973.2 million 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' 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.

During the year ended December 31, 2019, repayments of long-term debt also included $5,127.5 million for the repayment of all outstanding principal under our secured term loan and revolving credit facility, which we extinguished in connection with the Merger.

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

During the year ended December 31, 2019 , we had net repayments of settlement lines of credit of $236.5 million , and during the year ended December 31, 2018 , we had net borrowings from settlement lines of credit of $70.8 million .

From time to time, we repurchase our common stock, mainly through open market repurchase plans.

During the years ended December 31, 2020 and 2019, we had net repayments of settlement lines of credit of $133.3 million and $236.5 million, respectively.

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

During the years ended December 31, 2020 and 2019, we used cash of $631.1 million and $311.4 million, respectively, to repurchase shares of our common stock.

We temporarily suspended repurchases of our common stock during the second and third quarters of 2020, and reactivated our repurchase program in the fourth quarter of 2020.

As of December 31, 2020, we had $1,020.0 million of share repurchase authority remaining under a share repurchase program authorized by our board of directors.

On January 28, 2021, our board of directors approved an increase to our existing share repurchase program authorization, which raised the total available authorization to $1.5 billion.

On February 10, 2021, we entered into an ASR agreement with a financial institution to repurchase an aggregate of $500 million of our common stock.

In exchange for an up-front payment of $500 million, the financial institution committed to deliver a number of shares during the ASR program purchase period, which will end on March 31, 2021.

On February 12, 2021, 2,090,713 shares were initially delivered to us.

We paid dividends to our common shareholders in the amounts of $233.2 million and $63.5 million during the years ended December 31, 2020 and 2019.

During the year ended December 31, 2019, we funded assumed dividends payable (declared by TSYS' board of directors prior to consummation of the Merger) to former TSYS shareholders in the amount of $23.2 million.

years ended December 31, 2019 and 2018 , we made distributions to noncontrolling interest in the amounts of $31.6 million and $5.7 million , respectively.

During the years ended December 31, 2020 and 2019, we made distributions to noncontrolling interest in the amounts of $26.2 million and $31.6 million, respectively.

During the year ended December 31, 2020, we paid $578.2 million to noncontrolling interest holders to increase our controlling financial interest in Comercia Global Payments Entidad de Pago, S.L.

(“Comercia”) from 51% to 80%.

We funded the transaction with a combination of available cash resources and borrowings on our unsecured revolving credit facility.

Long-Term Debt and Lines of Credit

Bridge Facility

On May 27, 2019 , in connection with our entry into the merger agreement with TSYS, we obtained commitments for a $2.75 billion , 364 -day senior unsecured bridge facility (the "Bridge Facility").

On July 9, 2019 , upon our entry into the senior unsecured term loan and revolving credit facilities described below, the aggregate commitments under the Bridge Facility were reduced to approximately $2.1 billion .

Concurrently with the issuance of our senior unsecured notes, the remaining aggregate commitments under the Bridge Facility were reduced to zero and terminated.

During the year ended December 31, 2019 , we recognized $11.7 million of fees associated with the Bridge Facility in interest expense.

Senior Unsecured Credit Facilities

On July 9, 2019 , we entered into a term loan credit agreement ("Term Loan Credit Agreement") and a revolving credit agreement ("Unsecured Revolving Credit Agreement") in each case with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents.

The Term Loan Credit Agreement provides for a senior unsecured $2.0 billion term loan facility, and the Unsecured Revolving Credit Agreement provides for a senior unsecured $3.0 billion revolving credit facility.

Borrowings under the term loan facility were made in U.S.

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

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

Borrowings in U.S.

dollars and certain other 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 or (3) the highest of (a) the federal funds effective rate plus 0.5% , (b) the rate of interest as publicly announced by Bank of America as its "prime rate" or (c) LIBOR plus 1.0% , in each case, plus an applicable margin.

As of December 31, 2019 , borrowings outstanding under the term loan facility and the revolving credit facility were $2.0 billion and $903.0 million , respectively.

As of December 31, 2019 , the interest rates on the term loan facility and the revolving credit facility were 3.2% and 3.0% , respectively.

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

Beginning on December 31, 2022 , and at the end of each quarter thereafter, the term loan facility must be repaid in quarterly installments in the amount of 2.50% of original principal through the maturity date with the remaining principal balance due upon maturity in September 2024 .

The revolving credit facility also matures in September 2024 .

We may issue standby letters of credit of up to $250 million in the aggregate under the revolving credit facility.

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

The total available commitments under the revolving credit facility at December 31, 2019 were $2,077.5 million .

Senior Unsecured Notes

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 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 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 December 31, 2020.

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

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

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

On August 14, 2019, we completed the public offering and issuance of $3.0 billion aggregate principal amount of senior unsecured notes, consisting of the following:

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For the 3.750% senior notes due 2023, the 4.000% senior notes due 2023 and the 4.450% senior notes due 2028, interest is payable semi-annually each June 1 and December 1.

Prior Credit Facility

Prior to completion of the Merger, we were party to a credit facility agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents.

The credit facility provided for secured financing comprised of (i) a $1.50 billion revolving credit facility;

(ii) a $1.5 billion term loan;

(iii) a $1.37 billion term loan;

(iv) a $1.140 billion term loan;

and (v) a $500.0 million term loan.

Upon the consummation of the Merger, all borrowings outstanding and other amounts due under the credit facility were repaid and this credit facility was terminated.

Senior Unsecured Credit Facilities

We have a term loan credit agreement ("Term Loan Credit Agreement") and a revolving credit agreement ("Unsecured Revolving Credit Agreement") in each case with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions, as lenders and other agents.

Borrowings under the term loan facility were made in U.S.

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

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

Borrowings in U.S.

dollars and certain other 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 or (3) the highest of (a) the federal funds effective rate plus 0.5%, (b) the rate of interest as publicly announced by Bank of America as its "prime rate" or (c) LIBOR plus 1.0%, in each case, plus an applicable margin.

As of December 31, 2020, borrowings outstanding under the term loan facility and the revolving credit facility were $2.0 billion and $36.0 million, respectively.

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 any future financing activities.

As of December 31, 2020, the interest rates on the term loan facility and the revolving credit facility were 1.52% and 1.48%, respectively .

Beginning on December 31, 2022, and at the end of each quarter thereafter, the term loan facility must be repaid in quarterly installments in the amount of 2.50% of original principal through the maturity date with the remaining principal balance due upon maturity in September 2024.

The revolving credit facility also matures in September 2024.

We may issue standby letters of credit of up to $250 million in the aggregate under the revolving credit facility.

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

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

As of December 31, 2020, the total available commitments under the revolving credit facility were $2.1 billion.

Bridge Facility

On May 27, 2019, in connection with our entry into the merger agreement with TSYS, we obtained commitments for a $2.75 billion, 364-day senior unsecured bridge facility (the "Bridge Facility").

On July 9, 2019, upon our entry into the senior unsecured term loan and revolving credit facilities described below, the aggregate commitments under the Bridge Facility were reduced to approximately $2.1 billion.

Concurrently with the issuance of our senior unsecured notes, the remaining aggregate commitments under the Bridge Facility were reduced to zero and terminated.

During the year ended December 31, 2019, we recognized $11.7 million of fees associated with the Bridge Facility in interest expense.

Compliance with Covenants

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

As of December 31, 2019 and 2018 , a total of $74.5 million and $70.6 million , respectively, of cash on deposit was used to determine the available credit.

As of December 31, 2019 , we had $463.2 million outstanding under these lines of credit with additional capacity to fund settlement of $981.8 million .

During the year ended December 31, 2019 , the maximum and average outstanding balances under these lines of credit were $882.6 million and $423.2 million , respectively.

As of December 31, 2020 and 2019, a total of $64.5 million an d $74.5 million, respectively, of cash on deposit was used to determine the available credit.

As of December 31, 2020, w e had $358.7 million outs tanding under these lines of credit with additional capacity to fund settlement of $1,507.6 million.

During the year ended December 31, 2020, the maximum and average outstanding balances under these lines of credit wer e $752.5 million and $341.4 million, respectively.

The weighted-average interest rate on these borrowings was 2.35% at December 31, 2020.

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Payments Due by Future Period

Less than 1 Year

More Than 5 Years

Total Less than 1 Year 1-3 Years 3-5 Years More Than 5 Years

(in thousands)

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Interest on long-term debt (1)

2,300,558 307,243 533,413 371,469 1,088,433

Operating lease obligations (2)

633,190 122,002 183,476 122,817 204,895

Settlement lines of credit 358,698 358,698 — — —

Purchase obligations (3)

Finance lease liabilities

1,279,965 292,865 290,096 169,504 527,500

Finance lease obligations (2)

80,653 25,841 36,296 18,516 —

(1) Interest on long-term debt is based on effective rates and amounts borrowed as of December 31, 2020 and includes the estimated effect of interest rate swaps.

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(2) Operating lease obligations did not include approximately $147.5 million for operating leases that had not yet commenced at December 31, 2020.

Finance lease obligations did not include approximately $18.1 million for finance leases that has not yet commenced as of December 31, 2020.

(3) Includes an estimate of future payments for noncancelable contractual obligations related to service arrangements with suppliers for fixed or minimum amounts.

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Therefore, the following descriptions of our critical accounting policies are forward-looking statements, and actual results could differ materially from the results anticipated by these forward-looking statements.

You should read the following in conjunction with "Note 1 —Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the accompanying consolidated financial statements and the risk factors contained in "Item 1A - Risk Factors" of this Annual Report on Form 10-K.

You should read the following in conjunction with "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" of the notes to the accompanying

consolidated financial statements and the risk factors contained in "Item 1A - Risk Factors" of this Annual Report on Form 10-K.

Business Combinations

From time to time, we make strategic acquisitions that may have a material effect on our consolidated results of operations or financial position.

We record the assets acquired and the liabilities assumed in a business combination at estimated fair value as of the acquisition date.

The excess amount of the total consideration paid over the estimated fair value of the net identifiable assets acquired is recorded as goodwill.

From time to time, we make strategic acquisitions that may have a material effect on our consolidated results of operations and financial position.

The measurement principle for the assets acquired and the liabilities assumed in a business combination is at estimated fair value as of the acquisition date, with certain exceptions.

The excess of the total consideration transferred over the amount of the net identifiable assets acquired determined in accordance with the measurement guidance for such items is recorded as goodwill.

The estimates we use to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments.

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The estimated fair values of customer-related and contract-based intangible assets are generally determined using the income approach, which is based on projected cash flows discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows.

The discount rates used represented the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

The discount rates used represented a risk adjusted market participant weighted-average cost of capital, derived using customary market metrics.

These measures of fair value also require considerable judgments about future events, including forecasted revenue growth rates, forecasted customer attrition rates, contract renewal estimates and technology changes.

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Upon the conclusion of the measurement period, any subsequent adjustments are recorded to our consolidated statements of income.

We are also required to estimate the useful lives of intangible assets to determine the amount of acquisition-related intangible asset amortization expense to record in future periods.

The determination of asset lives affects our results of operations as different types of assets have different useful lives and certain assets may be considered to have indefinite useful lives.

We are also required to estimate the useful lives of intangible assets to determine the period over which to recognize the amount of acquisition-related intangible assets as an expense.

Certain assets may be considered to have indefinite useful lives.

We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.

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If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.

Prior to the Merger, our reporting units consisted of:

North America Payments, Integrated Solutions and Vertical Markets, United Kingdom, Asia-Pacific, Central and Eastern Europe, Russia and Spain.

As of October 1, 2019 , we elected to perform a quantitative assessment of impairment for each of these reporting units, and determined on the basis of those assessments that the

fair value of each reporting unit is equal to or greater than its respective carrying amount.

As of October 1, 2019 , we had not allocated goodwill associated with the Merger to any of our reporting units;

however, no indicators of impairment existed that warranted further evaluation of the provisional goodwill.

After October 1, 2019 , as a result of the Merger, we realigned our reporting units based on new executive management and organizational structures so that they consisted of:

The quantitative assessment compares the fair value of the reporting unit to its carrying amount, and recognizes an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit.

When applying the quantitative assessment, we determine the fair value of our reporting units based on a weighted average of multiple valuation techniques, principally a combination of an income approach and a market approach.

The income approach calculates a value based upon the present value of estimated future cash flows, while the market approach uses earnings multiples of similarly situated guideline public companies.

Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating margins used to calculate estimated future cash flows, risk-adjusted discount rates and future economic and market conditions .

Our reporting units consist of the following:

North America Payment Solutions, Integrated Solutions, Vertical Market Software Solutions, Europe Merchant Solutions, Spain Merchant Solutions, Asia-Pacific Merchant Solutions, Issuer Solutions and Business and Consumer Solutions.

After the reorganization of our reporting units, we performed a quantitative assessment of impairment for each of our new reporting units, and determined on the basis of those assessments that the fair value of each reporting unit is equal to or greater than its respective carrying amount.

As of October 1, 2020, we performed a quantitative assessment of impairment for our Issuer Solutions and Business and Consumer Solutions reporting units and a qualitative assessment for all other reporting units.

We determined on the basis of the quantitative assessment of our Issuer Solutions and Business and Consumer Solutions reporting units that the fair value of each reporting unit is equal to or greater than its respective carrying amount.

Additionally, we determined on the basis of the qualitative factors that the fair value of other reporting units was not more likely than not less than the respective carrying amounts.

Our current year assessments also included consideration of the expected near term effects of the COVID-19 pandemic on revenues and our cost mitigation efforts, as well as longer term performance expectations.

We believe that the fair value of each of our reporting units is substantially in excess of its carrying amount, except for Issuer Solutions and Business and Consumer Solutions for which the respective carrying amounts approximate fair value since they were recently acquired in the Merger.

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The useful lives of contract-based intangible assets are equal to the terms of the agreements.

The useful lives of amortizable trademarks and trade names are based on our plans to phase out the trademarks and trade names in the applicable markets.

The useful lives of amortizable trademarks and trade names are based on an estimate of the period over which we will earn revenues for the related brands, including contemplation of any future plans to phase out the trademarks and trade names in the applicable markets.

We use the straight-line method of amortization for our amortizable acquired technologies, trademarks and trade names and contract-based intangibles.

Amortization for most of our customer-related intangible assets is determined using an accelerated method.

The first step in determining the amortization expense for any period is that we calculate the expected cash flows for that period that were used in determining the acquisition-date fair value of the asset divided by the expected total cash flows over the estimated life of the asset.

We then multiply that percentage by the initial carrying amount of the asset to arrive at the amortization expense for that period.

Under this accelerated method, the first step in determining the amortization expense for any period is that we divide the expected cash flows for that period that were used in determining the acquisition-date fair value of the asset divided by the expected total cash flows over the estimated life of the asset.

We then multiply that ratio by the initial carrying amount of the asset to arrive at the amortization expense for that period.

If the cash flow patterns that we experience differ significantly from our initial estimates, we adjust the amortization schedule prospectively.

These cash flow patterns are derived using certain assumptions and cost allocations due to a significant number of asset interdependencies that exist in our business.

We believe that our accelerated method reflects the expected pattern of the benefit to be derived from the acquired customer relationships.

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The preliminary project stage consists of the conceptual formulation of alternatives, the evaluation of alternatives, the determination of existence of needed technology and the final selection of alternatives.

Costs incurred during the preliminary project stage are expensed as incurred.

Costs incurred during the preliminary project stage are recognized as expense as incurred.

Currently unforeseen circumstances in software development, such as a significant change in the manner in which the software is intended to be used, obsolescence or a significant reduction in revenues due to merchant attrition, could require us to implement alternative plans with respect to a particular effort, which could result in the impairment of previously capitalized software development costs.

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Revenue Recognition

We adopted Accounting Standards Update 2014-09, "Revenues from Contracts with Customers" as well as other clarifications and technical guidance issued by the Financial Accounting Standards Board related to this new revenue standard ("ASC 606") and ASC Subtopic 340-40:

"Other Assets and Deferred Costs - Contracts with Customers" on January 1, 2018.

We apply judgment in the determination of performance obligations in accordance with ASC 606, in particular related to large customer contracts within the Issuer Solutions segment.

In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), we apply judgment in the determination of performance obligations, in particular related to large customer contracts within the Issuer Solutions segment.

Performance obligations in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract.

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Effect of New Accounting Pronouncements - Recently Issued Pronouncements Not Yet Adopted

Refer to "Note 1 —Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying consolidated financial statements for information on recently issued accounting pronouncements not yet adopted.

From 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.

Refer to "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying consolidated financial statements for a discussion of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted.

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-K

Item 7. Management’s Discussion and Analysis