GLOBAL PAYMENTS INC 10-Q

ITEM 1—FINANCIAL STATEMENTS GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Ended June 30, 2021 June 30, 2020 Revenues $ 2,137,437 $ 1,671,952 Operating expenses: Cost of service 936,310 893,740 Selling, general and administrative 838,569 670,638 1,774,879 1,564,378 Operating income 362,558 107,574 Interest and other income 5,455 2,787 Interest and other expense ( 80,556 ) ( 82,855 ) ( 75,101 ) ( 80,068 ) Income before income taxes and equity in income of equity method investments 287,457 27,506 Income tax expense 60,808 836 Income before equity in income of equity method investments 226,649 26,670 Equity in income of equity method investments, net of tax 40,164 12,774 Net income 266,813 39,444 Net income attributable to noncontrolling interests, net of tax ( 3,223 ) ( 2,113 ) Net income attributable to Global Payments $ 263,590 $ 37,331 Earnings per share attributable to Global Payments: Basic earnings per share $ 0.89 $ 0.12 Diluted earnings per share $ 0.89 $ 0.12 See Notes to Unaudited Consolidated Financial Statements. 3 Table of Contents GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) Six Months Ended June 30, 2021 June 30, 2020 Revenues $ 4,127,444 $ 3,575,550 Operating expenses: Cost of service 1,861,556 1,827,611 Selling, general and administrative 1,628,071 1,396,386 3,489,627 3,223,997 Operating income 637,817 351,553 Interest and other income 9,689 5,293 Interest and other expense ( 163,697 ) ( 175,499 ) ( 154,008 ) ( 170,206 ) Income before income taxes and equity in income of equity method investments 483,809 181,347 Income tax expense 81,483 16,338 Income before equity in income of equity method investments 402,326 165,009 Equity in income of equity method investments, net of tax 62,897 25,041 Net income 465,223 190,050 Net income attributable to noncontrolling interests, net of tax ( 4,952 ) ( 9,147 ) Net income attributable to Global Payments $ 460,271 $ 180,903 Earnings per share attributable to Global Payments: Basic earnings per share $ 1.56 $ 0.60 Diluted earnings per share $ 1.55 $ 0.60 See Notes to Unaudited Consolidated Financial Statements. 4 Table of Contents GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) Three Months Ended June 30, 2021 June 30, 2020 Net income $ 266,813 $ 39,444 Other comprehensive income (loss): Foreign currency translation adjustments 32,671 82,458 Income tax benefit related to foreign currency translation adjustments 4,242 154 Net unrealized losses on hedging activities ( 410 ) ( 5,630 ) Reclassification of net unrealized losses on hedging activities to interest expense 9,662 9,982 Income tax expense related to hedging activities ( 2,225 ) ( 1,057 ) Other, net of tax ( 1,549 ) 122 Other comprehensive income 42,391 86,029 Comprehensive income 309,204 125,473 Comprehensive income attributable to noncontrolling interests ( 5,948 ) ( 7,508 ) Comprehensive income attributable to Global Payments $ 303,256 $ 117,965 Six Months Ended June 30, 2021 June 30, 2020 Net income $ 465,223 $ 190,050 Other comprehensive income (loss): Foreign currency translation adjustments ( 895 ) ( 121,653 ) Income tax benefit related to foreign currency translation adjustments 4,991 1,160 Net unrealized gains (losses) on hedging activities 584 ( 53,526 ) Reclassification of net unrealized losses on hedging activities to interest expense 20,500 14,653 Income tax (expense) benefit related to hedging activities ( 5,089 ) 9,289 Other, net of tax 6,226 243 Other comprehensive income (loss) 26,317 ( 149,834 ) Comprehensive income 491,540 40,216 Comprehensive income attributable to noncontrolling interests ( 1,703 ) ( 7,888 ) Comprehensive income attributable to Global Payments $ 489,837 $ 32,328 See Notes to Unaudited Consolidated Financial Statements. 5 Table of Contents GLOBAL PAYMENTS INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) June 30, 2021 December 31, 2020 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,799,549 $ 1,945,868 Accounts receivable, net 878,431 794,172 Settlement processing assets 1,548,743 1,230,853 Prepaid expenses and other current assets 673,154 621,467 Total current assets 4,899,877 4,592,360 Goodwill 24,422,012 23,871,451 Other intangible assets, net 11,815,103 12,015,883 Property and equipment, net 1,642,283 1,578,532 Deferred income taxes 8,094 7,627 Other noncurrent assets 2,362,304 2,135,692 Total assets $ 45,149,673 $ 44,201,545 LIABILITIES AND EQUITY Current liabilities: Settlement lines of credit $ 487,538 $ 358,698 Current portion of long-term debt 52,611 827,357 Accounts payable and accrued liabilities 2,184,201 2,061,384 Settlement processing obligations 1,655,278 1,301,652 Total current liabilities 4,379,628 4,549,091 Long-term debt 10,216,979 8,466,407 Deferred income taxes 2,873,676 2,948,390 Other noncurrent liabilities 829,250 750,613 Total liabilities 18,299,533 16,714,501 Commitments and contingencies Equity: Preferred stock, no par value; 5,000,000 shares authorized and none issued — — Common stock, no par value; 400,000,000 shares authorized at June 30, 2021 and December 31, 2020; 293,702,910 issued and outstanding at June 30, 2021 and 298,332,459 issued and outstanding at December 31, 2020 — — Paid-in capital 24,201,763 24,963,769 Retained earnings 2,664,707 2,570,874 Accumulated other comprehensive loss ( 172,707 ) ( 202,273 ) Total Global Payments shareholders’ equity 26,693,763 27,332,370 Noncontrolling interests 156,377 154,674 Total equity 26,850,140 27,487,044 Total liabilities and equity $ 45,149,673 $ 44,201,545 See Notes to Unaudited Consolidated Financial Statements. 6 Table of Contents GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended June 30, 2021 June 30, 2020 Cash flows from operating activities: Net income $ 465,223 $ 190,050 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment 193,574 172,229 Amortization of acquired intangibles 654,042 628,264 Amortization of capitalized contract costs 43,975 38,070 Share-based compensation expense 80,490 62,805 Provision for operating losses and credit losses 50,802 66,921 Noncash lease expense 54,533 47,770 Deferred income taxes ( 91,177 ) ( 96,458 ) Equity in income of equity investments, net of tax ( 62,897 ) ( 25,041 ) Other, net 13,965 10,823 Changes in operating assets and liabilities, net of the effects of business combinations: Accounts receivable ( 91,580 ) 56,186 Settlement processing assets and obligations, net 25,312 136,453 Prepaid expenses and other assets ( 151,353 ) ( 97,653 ) Accounts payable and other liabilities ( 75,268 ) ( 230,130 ) Net cash provided by operating activities 1,109,641 960,289 Cash flows from investing activities: Business combinations and other acquisitions, net of cash acquired ( 943,108 ) ( 74,095 ) Capital expenditures ( 219,579 ) ( 208,384 ) Other, net 742 12,188 Net cash used in investing activities ( 1,161,945 ) ( 270,291 ) Cash flows from financing activities: Net borrowings from (repayments of) settlement lines of credit 134,245 ( 25,546 ) Proceeds from long-term debt 2,820,988 1,867,008 Repayments of long-term debt ( 1,830,258 ) ( 1,809,199 ) Payments of debt issuance costs ( 8,569 ) ( 8,006 ) Repurchases of common stock ( 1,072,934 ) ( 421,162 ) Proceeds from stock issued under share-based compensation plans 29,304 42,632 Common stock repurchased - share-based compensation plans ( 49,664 ) ( 39,226 ) Dividends paid ( 114,875 ) ( 116,591 ) Net cash used in financing activities ( 91,763 ) ( 510,090 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5,980 ) ( 32,556 ) (Decrease) increase in cash, cash equivalents and restricted cash ( 150,047 ) 147,352 Cash, cash equivalents and restricted cash, beginning of the period 2,089,771 1,678,273 Cash, cash equivalents and restricted cash, end of the period $ 1,939,724 $ 1,825,625 See Notes to Unaudited Consolidated Financial Statements. 7 Table of Contents GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except per share data) Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity Noncontrolling Interests Total Equity Balance at March 31, 2021 295,158 $ 24,403,323 $ 2,500,812 $ ( 212,373 ) $ 26,691,762 $ 150,429 $ 26,842,191 Net income 263,590 263,590 3,223 266,813 Other comprehensive income 39,666 39,666 2,725 42,391 Stock issued under share-based compensation plans 78 11,599 11,599 11,599 Common stock repurchased - share-based compensation plans ( 31 ) ( 8,900 ) ( 8,900 ) ( 8,900 ) Share-based compensation expense 43,325 43,325 43,325 Repurchases of common stock ( 1,502 ) ( 247,584 ) ( 42,393 ) ( 289,977 ) ( 289,977 ) Cash dividends declared ($ 0.195 per common share) ( 57,302 ) ( 57,302 ) ( 57,302 ) Balance at June 30, 2021 293,703 $ 24,201,763 $ 2,664,707 $ ( 172,707 ) $ 26,693,763 $ 156,377 $ 26,850,140 Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity Noncontrolling Interests Total Equity Balance at March 31, 2020 299,010 $ 25,525,184 $ 2,335,407 $ ( 539,780 ) $ 27,320,811 $ 199,622 $ 27,520,433 Net income 37,331 37,331 2,113 39,444 Other comprehensive income 80,634 80,634 5,395 86,029 Stock issued under share-based compensation plans 257 14,349 14,349 14,349 Common stock repurchased - share-based compensation plans ( 23 ) ( 3,934 ) ( 3,934 ) ( 3,934 ) Share-based compensation expense 34,983 34,983 34,983 Cash dividends declared ($ 0.195 per common share) ( 58,315 ) ( 58,315 ) ( 58,315 ) Balance at June 30, 2020 299,244 $ 25,570,582 $ 2,314,423 $ ( 459,146 ) $ 27,425,859 $ 207,130 $ 27,632,989 See Notes to Unaudited Consolidated Financial Statements. 8 Table of Contents GLOBAL PAYMENTS INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands, except per share data) Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity Noncontrolling Interests Total Equity Balance at December 31, 2020 298,332 $ 24,963,769 $ 2,570,874 $ ( 202,273 ) $ 27,332,370 $ 154,674 $ 27,487,044 Net income 460,271 460,271 4,952 465,223 Other comprehensive income (loss) 29,566 29,566 ( 3,249 ) 26,317 Stock issued under share-based compensation plans 1,081 29,304 29,304 29,304 Common stock repurchased - share-based compensation plans ( 253 ) ( 50,429 ) ( 50,429 ) ( 50,429 ) Share-based compensation expense 80,490 80,490 80,490 Repurchases of common stock ( 5,457 ) ( 821,371 ) ( 251,563 ) ( 1,072,934 ) ( 1,072,934 ) Cash dividends declared ($ 0.39 per common share) ( 114,875 ) ( 114,875 ) ( 114,875 ) Balance at June 30, 2021 293,703 $ 24,201,763 $ 2,664,707 $ ( 172,707 ) $ 26,693,763 $ 156,377 $ 26,850,140 Number of Shares Paid-in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Global Payments Shareholders’ Equity Noncontrolling Interests Total Equity Balance at December 31, 2019 300,226 $ 25,833,307 $ 2,333,011 $ ( 310,571 ) $ 27,855,747 $ 199,242 $ 28,054,989 Cumulative effect of adoption of new accounting standard ( 5,379 ) ( 5,379 ) ( 5,379 ) Net income 180,903 180,903 9,147 190,050 Other comprehensive loss ( 148,575 ) ( 148,575 ) ( 1,259 ) ( 149,834 ) Stock issued under share-based compensation plans 1,339 42,632 42,632 42,632 Common stock repurchased - share-based compensation plans ( 226 ) ( 41,721 ) ( 41,721 ) ( 41,721 ) Share-based compensation expense 62,805 62,805 62,805 Repurchase of common stock ( 2,095 ) ( 326,441 ) ( 77,521 ) ( 403,962 ) ( 403,962 ) Cash dividends declared ($ 0.39 per common share) ( 116,591 ) ( 116,591 ) ( 116,591 ) Balance at June 30, 2020 299,244 $ 25,570,582 $ 2,314,423 $ ( 459,146 ) $ 27,425,859 $ 207,130 $ 27,632,989 See Notes to Unaudited Consolidated Financial Statements. 9 Table of Contents NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business, consolidation and presentation - We are a leading payments technology company delivering innovative software and services to our customers globally. Our technologies, services and team member expertise allow us to provide a broad range of solutions that enable our customers to operate their businesses more efficiently across a variety of channels around the world. We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions, which are described in "Note 12—Segment Information." Global Payments Inc. and its consolidated subsidiaries are referred to herein collectively as "Global Payments," the "Company," "we," "our" or "us," unless the context requires otherwise. These unaudited consolidated financial statements include our accounts and those of our majority-owned subsidiaries, and all intercompany balances and transactions have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The consolidated balance sheet as of December 31, 2020 was derived from the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 but does not include all disclosures required by GAAP for annual financial statements. In the opinion of our management, all known adjustments necessary for a fair presentation of the results of the interim periods have been made. These adjustments consist of normal recurring accruals and estimates that affect the carrying amount of assets and liabilities. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. COVID-19 Update - Since early 2020, 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 spreads or has a resurgence in certain jurisdictions. Measures have been implemented by governments worldwide in an effort to contain the virus, including lockdowns, physical distancing, travel restrictions, limitations on public gatherings, work from home and restrictions on nonessential businesses. Certain government actions to gradually ease restrictions, provide economic stimulus and distribute vaccines have resulted in signs of economic recovery. However, the effects of the pandemic continue, and its ultimate severity and duration, and the implications on future global economic conditions, remain uncertain. Use of estimates - The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates. In particular, the future magnitude, duration and effects of the COVID-19 pandemic are difficult to predict at this time, and the ultimate effect could result in additional charges related to the recoverability of assets, including financial assets, long-lived assets and goodwill and other losses. These unaudited consolidated financial statements reflect the financial statement effects of COVID-19 based upon management’s estimates and assumptions utilizing the most currently available information. Recently adopted accounting pronouncements Accounting Standards Update ("ASU") 2019-12 — In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ," which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistency in application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. The adoption of ASU 2019-12 on January 1, 2021 did not have a material effect on our consolidated financial statements. 10 Table of Contents Recently issued pronouncements not yet adopted ASU 2020-04 — In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting ," which provides optional expedients and exceptions to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022 for which an entity has elected certain optional expedients and which are retained through the end of the hedging relationship. The amendments in this update also include a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. If elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant ASC Topic or Industry Subtopic that contains the guidance that otherwise would be required to be applied. The amendments in this update were effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. A portion of our indebtedness bears interest at a variable rate based on LIBOR. Furthermore, we have entered into hedging instruments to manage our exposure to fluctuations in the LIBOR benchmark interest rate. We are evaluating the effect of the discontinuance of LIBOR on our outstanding debt and hedging instruments and the related effect of ASU 2020-04 on our consolidated financial statements. NOTE 2— ACQUISITION On June 10, 2021, we acquired Zego, a real estate technology company that provides a comprehensive resident experience management software and digital commerce solutions to property managers, primarily in the United States. Zego’s real estate software and payments solutions support property managers and residents throughout the real estate lifecycle. This acquisition aligns with our technology-enabled, software driven strategy and expands our business into a new vertical market. We paid cash consideration of approximately $ 933 million, which we funded with cash on hand and by drawing on our revolving credit facility. This transaction was accounted for as a business combination, which generally requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date. Due to the timing of the acquisition, the ac counting for this acquisition was not complete as of June 30, 2021. The fair values of the assets acquired and the liabilities assumed have been determined provisionally and are subject to adjustment as we obtain additional information. In particular, additional time is needed to refine and review the results of the valuation of assets and liabilities and to evaluate the basis differences for assets and liabilities for financial reporting and tax purposes. 11 Table of Contents The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, including a reconciliation to the total purchase consideration, are as follows (in thousands): Cash and cash equivalents $ 67,374 Accounts receivable 1,033 Identifiable intangible assets 410,443 Property and equipment 3,634 Other assets 9,141 Accounts payable and accrued liabilities ( 65,753 ) Deferred income tax liabilities ( 10,709 ) Other liabilities ( 8,268 ) Total identifiable net assets 406,895 Goodwill 525,929 Total purchase consideration $ 932,824 Goodwill of $ 525.9 million arising from the acquisition, included in the Merchant Solutions operating segment, is attributable to expected growth opportunities, potential synergies from combining our existing businesses and an assembled workforce. We expect that a portion of the goodwill will be deductible for income tax purposes. We are still evaluating information to separately identify and value the intangible assets acquired. We expect such assets to primarily include customer-related intangible assets and acquired technology as well as other identifiable intangible assets that are similar to those we have identified in previous acquisitions. We estimate the amortization periods for the more significant intangible assets to be in a range of 7 to 14 years. 12 Table of Contents NOTE 3— REVENUES The following tables present a disaggregation of our revenues from contracts with customers by geography for each of our reportable segments for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, 2021 Merchant Solutions Issuer Solutions Business and Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 1,202,970 $ 379,121 $ 224,529 $ ( 16,768 ) $ 1,789,852 Europe 166,644 120,974 2,826 — 290,444 Asia Pacific 57,141 5,837 — ( 5,837 ) 57,141 $ 1,426,755 $ 505,932 $ 227,355 $ ( 22,605 ) $ 2,137,437 Three Months Ended June 30, 2020 Merchant Solutions Issuer Solutions Business and Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 862,927 $ 363,140 $ 216,722 $ ( 14,728 ) $ 1,428,061 Europe 102,460 105,263 — — 207,723 Asia Pacific 36,168 1,622 — ( 1,622 ) 36,168 $ 1,001,555 $ 470,025 $ 216,722 $ ( 16,350 ) $ 1,671,952 Six Months Ended June 30, 2021 Merchant Solutions Issuer Solutions Business and Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 2,283,440 $ 757,164 $ 465,163 $ ( 33,673 ) $ 3,472,094 Europe 299,578 238,386 5,778 — 543,742 Asia Pacific 111,609 10,633 — ( 10,634 ) 111,608 $ 2,694,627 $ 1,006,183 $ 470,941 $ ( 44,307 ) $ 4,127,444 Six Months Ended June 30, 2020 Merchant Solutions Issuer Solutions Business and Consumer Solutions Intersegment Eliminations Total (in thousands) Americas $ 1,887,433 $ 756,893 $ 420,668 $ ( 32,461 ) $ 3,032,533 Europe 238,459 213,626 — — 452,085 Asia Pacific 90,932 3,268 — ( 3,268 ) 90,932 $ 2,216,824 $ 973,787 $ 420,668 $ ( 35,729 ) $ 3,575,550 13 Table of Contents The following table presents a disaggregation of our Merchant Solutions segment revenues by distribution channel for the three and six months ended June 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Relationship-led $ 778,978 $ 566,414 $ 1,445,890 $ 1,242,935 Technology-enabled 647,777 435,141 1,248,737 973,889 $ 1,426,755 $ 1,001,555 $ 2,694,627 $ 2,216,824 ASC Topic 606, Revenues from Contracts with Customers ("ASC 606"), requires that we determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the three and six months ended June 30, 2021 and 2020, substantially all of our revenues were recognized over time. Supplemental balance sheet information related to contracts from customers as of June 30, 2021 and December 31, 2020 was as follows: Balance Sheet Location June 30, 2021 December 31, 2020 (in thousands) Assets: Capitalized costs to obtain customer contracts, net Other noncurrent assets $ 270,143 $ 253,780 Capitalized costs to fulfill customer contracts, net Other noncurrent assets 99,640 81,371 Liabilities: Contract liabilities, net (current) Accounts payable and accrued liabilities 216,331 217,938 Contract liabilities, net (noncurrent) Other noncurrent liabilities 49,610 52,944 Net contract assets were not material at June 30, 2021 or at December 31, 2020. Revenue recognized for the three months ended June 30, 2021 and 2020 from contract liability balances at the beginning of each period was $ 85.0 million and $ 86.7 million, respectively. Revenue recognized for the six months ended June 30, 2021 and 2020 from contract liability balances at the beginning of each period was $ 146.6 million and $ 159.9 million, respectively. ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations. The purpose of this disclosure is to provide additional information about the amounts and expected timing of revenue to be recognized from the remaining performance obligations in our existing contracts. The following table includes estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied or partially unsatisfied at June 30, 2021. However, as permitted, we have elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. Accordingly, the total amount of unsatisfied or partially unsatisfied performance obligations related to processing services is significantly higher than the amounts disclosed in the table below (in thousands): 14 Table of Contents Year Ending December 31, 2021 $ 502,058 2022 845,561 2023 627,756 2024 450,703 2025 354,058 2026 280,326 2027 and thereafter 446,815 Total $ 3,507,277 NOTE 4— GOODWILL AND OTHER INTANGIBLE ASSETS As of June 30, 2021 and December 31, 2020, goodwill and other intangible assets consisted of the following: June 30, 2021 December 31, 2020 (in thousands) Goodwill $ 24,422,012 $ 23,871,451 Other intangible assets: Customer-related intangible assets $ 9,476,680 $ 9,275,093 Acquired technologies 2,975,966 2,795,991 Contract-based intangible assets 2,003,166 1,981,260 Trademarks and trade names 1,286,627 1,239,925 15,742,439 15,292,269 Less accumulated amortization: Customer-related intangible assets 2,257,116 1,914,214 Acquired technologies 1,169,394 960,281 Contract-based intangible assets 151,556 120,631 Trademarks and trade names 349,270 281,260 3,927,336 3,276,386 $ 11,815,103 $ 12,015,883 The following table sets forth the changes by reportable segment in the carrying amount of goodwill for the six months ended June 30, 2021: Merchant Solutions Issuer Solutions Business and Consumer Solutions Total (in thousands) Balance at December 31, 2020 $ 13,548,690 $ 7,957,616 $ 2,365,145 $ 23,871,451 Goodwill acquired 563,232 — — 563,232 Effect of foreign currency translation ( 9,669 ) 2,907 ( 707 ) ( 7,469 ) Measurement period adjustments ( 5,202 ) — — ( 5,202 ) Balance at June 30, 2021 $ 14,097,051 $ 7,960,523 $ 2,364,438 $ 24,422,012 There were no accumulated impairment losses for goodwill as of June 30, 2021 or December 31, 2020. 15 Table of Contents NOTE 5— LONG-TERM DEBT AND LINES OF CREDIT As of June 30, 2021 and December 31, 2020, long-term debt consisted of the following: June 30, 2021 December 31, 2020 (in thousands) 3.800 % senior notes due April 1, 2021 $ — $ 752,199 3.750 % senior notes due June 1, 2023 559,722 562,258 4.000 % senior notes due June 1, 2023 562,634 565,930 2.650 % senior notes due February 15, 2025 993,954 993,110 1.200 % senior notes due March 1, 2026 1,091,057 — 4.800 % senior notes due April 1, 2026 803,674 809,324 4.450 % senior notes due June 1, 2028 480,391 482,588 3.200 % senior notes due August 15, 2029 1,237,215 1,236,424 2.900 % senior notes due May 15, 2030 989,611 989,025 4.150 % senior notes due August 15, 2049 739,967 739,789 Unsecured term loan facility 1,987,785 1,985,776 Unsecured revolving credit facility 717,000 36,000 Finance lease liabilities 72,539 75,989 Other borrowings 34,041 65,352 Total long-term debt 10,269,590 9,293,764 Less current portion 52,611 827,357 Long-term debt, excluding current portion $ 10,216,979 $ 8,466,407 The carrying amounts of our senior notes and term loan in the table above are presented net of unamortized discount and unamortized debt issuance costs, as applicable. At June 30, 2021, unamortized discount on senior notes was $ 9.0 million, and unamortized debt issuance costs on senior notes and the unsecured term loan facility were $ 51.4 million. At December 31, 2020, unamortized discount on senior notes was $ 8.5 million, and unamortized debt issuance costs on our senior notes and the unsecured term loan facility were $ 47.4 million. The portion of unamortized debt issuance costs related to revolving credit facilities is included in other noncurrent assets. At June 30, 2021, unamortized debt issuance costs on the unsecured revolving credit facility were $ 11.7 million, and, at December 31, 2020, unamortized debt issuance costs on the unsecured revolving credit facility were $ 13.8 million. At June 30, 2021, future maturities of long-term debt (excluding finance lease liabilities) are as follows by year (in thousands): Year Ending December 31, 2021 $ 25,638 2022 58,403 2023 1,300,000 2024 2,467,000 2025 1,000,000 2026 1,850,000 2027 and thereafter 3,450,000 Total $ 10,151,041 16 Table of Contents Senior Unsecured Notes On February 26, 2021, we issued $ 1.1 billion in aggregate principal amount of 1.200 % senior unsecured notes due March 2026. We incurred debt issuance costs of approximately $ 8.6 million, including underwriting fees, fees for professional services and registration fees, which were capitalized and reflected as a reduction of the related carrying amount of the notes in our consolidated balance sheet at June 30, 2021. Interest on the notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 2021. The notes are unsecured and unsubordinated indebtedness and rank equally in right of payment with all of our other outstanding unsecured and unsubordinated indebtedness. We used the net proceeds from this offering to fund the redemption in full of the 3.800 % senior unsecured notes due April 2021, to repay a portion of the outstanding indebtedness under our revolving credit facility and for general corporate purposes. As of June 30, 2021, our senior notes had a total carrying amount of $ 7.5 billion and an estimated fair value of $ 7.9 billion. The estimated fair value of our senior notes was based on quoted market prices in an active market and is considered to be a Level 1 measurement of the valuation hierarchy. The fair value of other long-term debt approximated its carrying amount at June 30, 2021. 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, 2021, 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, 2021. Derivative Agreements We have interest rate swap agreements with financial institutions to hedge changes in cash flows attributable to interest rate risk on a portion of our variable-rate debt instruments. Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since we have designated the interest rate swap agreements as portfolio cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recorded as components of other comprehensive income (loss). The fair values of our interest rate swaps were determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. These derivative instruments were classified within Level 2 of the valuation hierarchy. The table below presents information about our derivative financial instruments, designated as cash flow hedges, included in the consolidated balance sheets: Fair Values Derivative Financial Instruments Balance Sheet Location Weighted-Average Fixed Rate of Interest at June 30, 2021 Range of Maturity Dates at June 30, 2021 June 30, 2021 December 31, 2020 (in thousands) Interest rate swaps (Notional of $ 300 million at December 31, 2020) Accounts payable and accrued liabilities NA NA $ — $ 1,330 Interest rate swaps (Notional of $ 1,250 million at June 30, 2021 and December 31, 2020) Other noncurrent liabilities 2.73 % December 31, 2022 $ 48,474 $ 65,490 NA = not applicable. 17 Table of Contents The table below presents the effects of our interest rate swaps on the consolidated statements of income and statements of comprehensive income for the three and six months ended June 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Net unrealized gains (losses) recognized in other comprehensive income (loss) $ ( 410 ) $ ( 5,630 ) $ 584 $ ( 53,526 ) Net unrealized losses reclassified out of other comprehensive income (loss) to interest expense $ 9,662 $ 9,982 $ 20,500 $ 14,653 As of June 30, 2021, the amount of net unrealized losses in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was $ 38.4 million. Interest Expense Interest expense was $ 79.0 million and $ 81.1 million for the three months ended June 30, 2021 and 2020, respectively, and $ 160.5 million and $ 162.2 million for the six months ended June 30, 2021 and 2020, respectively. NOTE 6— INCOME TAX Our effective income tax rates for the three and six months ended June 30, 2021 were 21.2 % and 16.8 %, respectively. Our effective income tax rate for the three and six months ended June 30, 2021 differed from the U.S. statutory rate primarily as a result of foreign interest income not subject to tax, tax credits and the foreign-derived intangible income deduction, each favorably affecting the effective rate, and the effect of enacted tax law changes in the U.K. which required a remeasurement of deferred tax balances raising the effective rate. A change in the assessment of the need for a valuation allowance related to foreign tax credit carryforwards also had a favorable effect on the effective income tax rate for the six months ended June 30, 2021. Our effective income tax rates for three and six months ended June 30, 2020 were 3.0 % and 9.0 %, respectively. Our effective income tax rate for the three and six months ended June 30, 2020 differed from the U.S. statutory rate primarily as a result of tax credits, excess tax benefits of share-based awards and the foreign-derived intangible income deduction. The prior year effective tax rates were unusually low due to the effects of permanent differences on the lower income before income taxes. NOTE 7— SHAREHOLDERS’ EQUITY We repurchase our common stock mainly through open market repurchase plans and, at times, through accelerated share repurchase ("ASR") programs. During the three months ended June 30, 2021, we repurchased and retired 1,501,549 shares of our common stock at a cost, including commissions, of $ 290.0 million, or $ 193.12 per share. During the three months ended June 30, 2020, there were no repurchases. During the six months ended June 30, 2021 and 2020, we repurchased and retired 5,456,949 and 2,094,731 shares of our common stock at a cost, including commissions, of $ 1,072.9 million and $ 404.0 million, or $ 196.65 per share and $ 192.85 per share, respectively. The activity for the six months ended June 30, 2021 included the repurchase of a total of 2,491,161 shares at an average price of $ 200.71 per share under an ASR program. 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 A SR program purchase period, which ended on March 31, 2021. As of June 30, 2021, the remaining amount available under our share repurchase program was $ 611.0 million. On July 29, 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. 18 Table of Contents On July 29, 2021, our board of directors declared a dividend of $ 0.25 per share payable on September 24, 2021 to common shareholders of record as of September 10, 2021. NOTE 8— SHARE-BASED AWARDS AND STOCK OPTIONS The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) (in thousands) Share-based compensation expense $ 43,325 $ 34,983 $ 80,490 $ 62,805 Income tax benefit $ 9,972 $ 7,742 $ 18,371 $ 14,215 Share-Based Awards The following table summarizes the changes in unvested restricted stock and performance awards for the six months ended June 30, 2021: Shares Weighted-Average Grant-Date Fair Value (in thousands) Unvested at December 31, 2020 1,546 $ 176.71 Granted 853 197.96 Vested ( 663 ) 146.58 Forfeited ( 46 ) 184.69 Unvested at June 30, 2021 1,690 $ 184.16 The total fair value of restricted stock and performance awards vested during the six months ended June 30, 2021 and June 30, 2020 was $ 97.2 million and $ 76.0 million, respectively. For restricted stock and performance awards, we recognized compensation expense of $ 39.9 million and $ 30.8 million during the three months ended June 30, 2021 and 2020, respectively, and $ 73.3 million and $ 56.0 million during the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was $ 254.1 million of unrecognized compensation expense related to unvested restricted stock and performance awards that we expect to recognize over a weighted-average period of 2.2 years. 19 Table of Contents Stock Options The following table summarizes stock option activity for the six months ended June 30, 2021: Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term Aggregate Intrinsic Value (in thousands) (years) (in millions) Outstanding at December 31, 2020 1,253 $ 93.66 6.3 $ 152.6 Granted 112 196.06 Forfeited ( 1 ) 113.48 Exercised ( 180 ) 69.67 Outstanding at June 30, 2021 1,184 $ 106.82 6.3 $ 98.2 Options vested and exercisable at June 30, 2021 908 $ 86.25 5.6 $ 92.6 We recognized compensation expense for stock options of $ 1.8 million and $ 2.2 million during the three months ended June 30, 2021 and 2020, respectively, and $ 4.2 million and $ 4.1 million for the six months ended June 30, 2021 and 2020, respectively. The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2021 and 2020 was $ 23.1 million and $ 66.5 million, respectively. As of June 30, 2021, we had $ 11.9 million of unrecognized compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of 2.1 years. The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2021 and 2020 was $ 65.99 and $ 54.85 , respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions: Six Months Ended June 30, 2021 June 30, 2020 Risk-free interest rate 0.59 % 1.24 % Expected volatility 40 % 30 % Dividend yield 0.44 % 0.39 % Expected term (years) 5 5 The risk-free interest rate was based on the yield of a zero coupon U.S. Treasury security with a maturity equal to the expected life of the option from the date of the grant. Our assumption on expected volatility was based on our historical volatility. The dividend yield assumption was determined using our average stock price over the preceding year and the annualized amount of our most current quarterly dividend per share. We based our assumptions on the expected term of the options on our analysis of the historical exercise patterns of the options and our assumption on the future exercise pattern of options. NOTE 9— EARNINGS PER SHARE Basic earnings per share ("EPS") was computed by dividing net income attributable to Global Payments by the weighted-average number of shares outstanding during the period. Earnings available to common shareholders was the same as reported net income attributable to Global Payments for all periods presented. 20 Table of Contents Diluted EPS is computed by dividing net income attributable to Global Payments by the weighted-average number of shares outstanding during the period, including the effect of share-based awards that would have a dilutive effect on EPS. All stock options with an exercise price lower than the average market share price of our common stock for the period are assumed to have a dilutive effect on EPS. The dilutive share base for the three and six months ended June 30, 2021 excluded approximately 234,813 shares related to stock options that would have an antidilutive effect on the computation of diluted earnings per share. The dilutive share base for the three and six months ended June 30, 2020 excluded approximately 124,888 shares related to stock options that would have an antidilutive effect on the computation of diluted earnings per share. The following table sets forth the computation of diluted weighted-average number of shares outstanding for the three and six months ended June 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Basic weighted-average number of shares outstanding 294,914 299,140 295,665 299,264 Plus: Dilutive effect of stock options and other share-based awards 1,225 1,106 1,236 1,277 Diluted weighted-average number of shares outstanding 296,139 300,246 296,901 300,541 NOTE 10 - SUPPLEMENTAL BALANCE SHEET INFORMATION Cash, cash equivalents and restricted cash A reconciliation of cash, cash equivalents and restricted cash in the consolidated statements of cash flows as of June 30, 2021 and December 31, 2020 to the amounts in the consolidated balance sheets is as follows: June 30, 2021 December 31, 2020 (in thousands) Cash and cash equivalents $ 1,799,549 $ 1,945,868 Restricted cash included in prepaid expenses and other current assets 140,175 143,903 Cash, cash equivalents and restricted cash shown in the statement of cash flows $ 1,939,724 $ 2,089,771 Accounts payable and accrued liabilities At June 30, 2021 and December 31, 2020, accounts payable and accrued liabilities in the consolidated balance sheet included obligations totaling $ 17.4 million and $ 48.4 million, respectively, for employee termination benefits resulting from merger-related integration activities. During the three months ended June 30, 2021 and 2020, we recognized charges for employee termination benefits of $ 13.1 million and $ 24.1 million, which included $ 0.7 million and $ 1.7 million of share-based compensation expense, respectively. During the six months ended June 30, 2021 and 2020, we recognized charges for employee termination benefits of $ 38.3 million and $ 41.7 million, which included $ 1.2 million and $ 4.2 million of share-based compensation expense, respectively. As of June 30, 2021, the cumulative amount of recognized charges for employee termination benefits resulting from merger-related integration activities was $ 178.7 million, which included $ 25.2 million of share-based compensation expense. These charges are recorded within selling, general and administrative expenses in our consolidated statements of income and included within Corporate expenses for segment reporting purposes. New obligations may arise and related expenses may be incurred as merger-related integration activities continue in 2021. 21 Table of Contents NOTE 11— ACCUMULATED OTHER COMPREHENSIVE LOSS The changes in the accumulated balances for each component of other comprehensive income (loss) were as follows for the three and six months ended June 30, 2021 and 2020: Foreign Currency Translation Gains (Losses) Unrealized Gains (Losses) on Hedging Activities Other Accumulated Other Comprehensive Loss (in thousands) Balance at March 31, 2021 $ ( 141,070 ) $ ( 72,575 ) $ 1,272 $ ( 212,373 ) Other comprehensive income (loss) 34,188 7,027 ( 1,549 ) 39,666 Balance at June 30, 2021 $ ( 106,882 ) $ ( 65,548 ) $ ( 277 ) $ ( 172,707 ) Balance at March 31, 2020 $ ( 438,350 ) $ ( 102,198 ) $ 768 $ ( 539,780 ) Other comprehensive income 77,217 3,295 122 80,634 Balance at June 30, 2020 $ ( 361,133 ) $ ( 98,903 ) $ 890 $ ( 459,146 ) Other comprehensive income attributable to noncontrolling interests, which relates only to foreign currency translation, was $ 2.7 million and $ 5.4 million for the three months ended June 30, 2021 and 2020, respectively. Foreign Currency Translation Gains (Losses) Unrealized Gains (Losses) on Hedging Activities Other Accumulated Other Comprehensive Loss (in thousands) Balance at December 31, 2020 $ ( 114,227 ) $ ( 81,543 ) $ ( 6,503 ) $ ( 202,273 ) Other comprehensive income 7,345 15,995 6,226 29,566 Balance at June 30, 2021 $ ( 106,882 ) $ ( 65,548 ) $ ( 277 ) $ ( 172,707 ) Balance at December 31, 2019 $ ( 241,899 ) $ ( 69,319 ) $ 647 $ ( 310,571 ) Other comprehensive (loss) income ( 119,234 ) ( 29,584 ) 243 ( 148,575 ) Balance at June 30, 2020 $ ( 361,133 ) $ ( 98,903 ) $ 890 $ ( 459,146 ) Other comprehensive loss attributable to noncontrolling interests, which relates only to foreign currency translation, was $ 3.2 million and $ 1.3 million for the six months ended June 30, 2021 and 2020, respectively. NOTE 12— SEGMENT INFORMATION We operate in three reportable segments: Merchant Solutions, Issuer Solutions and Business and Consumer Solutions. We evaluate performance and allocate resources based on the operating income of each operating segment. The operating income of each operating segment includes the revenues of the segment less expenses that are directly related to those revenues. Operating overhead, shared costs and share-based compensation costs are included in Corporate. Interest and other income, interest and other expense, income tax expense and equity in income of equity method investments, net of tax, are not allocated to the individual segments. We do not evaluate the performance of or allocate resources to our operating segments using asset data. The accounting policies of the reportable operating segments are the same as those described in our Annual Report on Form 10-K for the year ended December 31, 2020 and our summary of significant accounting policies in "Note 1 - Basis of Presentation and Summary of Significant Accounting Policies." 22 Table of Contents Information on segments and reconciliations to consolidated revenues, consolidated operating income and consolidated depreciation and amortization was as follows for the three and six months ended June 30, 2021 and 2020: Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 (in thousands) Revenues : (1) Merchant Solutions $ 1,426,755 $ 1,001,555 $ 2,694,627 $ 2,216,824 Issuer Solutions 505,932 470,025 1,006,183 973,787 Business and Consumer Solutions 227,355 216,722 470,941 420,668 Intersegment eliminations ( 22,605 ) ( 16,350 ) ( 44,307 ) ( 35,729 ) Consolidated revenues $ 2,137,437 $ 1,671,952 $ 4,127,444 $ 3,575,550 Operating income (loss) (1)(2) : Merchant Solutions $ 437,293 $ 175,078 $ 777,283 $ 479,231 Issuer Solutions 74,806 58,027 143,262 117,331 Business and Consumer Solutions 42,283 48,195 104,205 79,307 Corporate ( 191,824 ) ( 173,726 ) ( 386,933 ) ( 324,316 ) Consolidated operating income $ 362,558 $ 107,574 $ 637,817 $ 351,553 Depreciation and amortization : (1) Merchant Solutions $ 248,503 $ 236,840 $ 499,099 $ 469,862 Issuer Solutions 145,691 136,254 290,300 272,991 Business and Consumer Solutions 21,938 24,114 43,858 47,755 Corporate 5,912 5,467 14,359 9,885 Consolidated depreciation and amortization $ 422,044 $ 402,675 $ 847,616 $ 800,493 (1) Revenues, operating income and depreciation and amortization reflect the effects of acquired businesses from the respective acquisition dates. For further discussion of our acquisitions, see "Note 2—Acquisitions." (2) Operating loss for Corporate included acquisition and integration expenses of $ 76.8 million and $ 80.7 million during the three months ended June 30, 2021 and 2020, respectively. Operating loss for Corporate included acquisition and integration expenses of $ 167.0 million and $ 150.4 million during the six months ended June 30, 2021 and 2020, respectively. NOTE 13— COMMITMENTS AND CONTINGENCIES Purchase Obligations We have contractual obligations related to service arrangements with suppliers for fixed or minimum amounts. Future minimum payments at June 30, 2021 for purchase obligations were as follows (in thousands): 23 Table of Contents Year Ending December 31: 2021 $ 285,278 2022 237,176 2023 181,545 2024 123,801 2025 151,300 2026 184,376 2027 and thereafter 754,025 Total future minimum payments $ 1,917,501 Legal Matters We are party to a number of claims and lawsuits incidental to our business. In our opinion, the liabilities, if any, which may ultimately result from the outcome of such matters, individually or in the aggregate, are not expected to have a material adverse effect on our financial position, liquidity, results of operations or cash flows. On September 23, 2019, a jury in the Superior Court of Dekalb County Georgia, awarded Frontline Processing Corp. ("Frontline") $ 135.2 million in damages, costs and attorney's fees (plus interest) following a trial of a breach of contract dispute between Frontline and Global Payments, wherein Frontline alleged that Global Payments violated provisions of the parties' Referral Agreement and Master Services Agreement. The Superior Court entered a final judgment on the verdict in favor of Frontline on September 30, 2019. We appealed the decision to the Georgia Court of Appeals. On June 30, 2021, a panel of the Georgia Court of Appeals unanimously reversed the judgment, including the entire damages award. We previously determined that it was not probable that a loss had been incurred under the applicable accounting standard (ASC Topic 450, Contingencies ); therefore, the reversal of the judgment did not affect our consolidated financial statements. 24 Table of Contents