Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our 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" of this Annual Report. See "Cautionary Notice Regarding Forward-Looking Statements" located above "Item 1 - Business."

You should read the following discussion and analysis in conjunction with "Item 6 - Selected Financial Data" and "Item 8 - Financial Statements and Supplementary Data" appearing elsewhere in this Annual Report.

General

We are a leading worldwide provider of payment technology services delivering innovative solutions to our customers globally. Our technologies, partnerships and employee expertise enable us to provide a broad range of services that allow our customers to accept various payment types. We distribute our services across a variety of channels to merchants and partners in 30 countries throughout North America, Europe, the Asia-Pacific region and Brazil and operate in three reportable segments: North America, Europe and Asia-Pacific.

We were incorporated in Georgia as Global Payments Inc. in 2000 and spun-off from our former parent company in 2001. Including our time as part of our former parent company, we have been in the payment technology services business since 1967. Since our spin-off in 2001, we have grown our annual revenues from $353 million to $2.9 billion, through internal expansion of existing operations and through acquisitions. In particular, we recently completed our largest business combination to date when we merged with Heartland Payment Systems, Inc. ("Heartland") in April 2016.

Headquartered in Atlanta, Georgia, we are a member of the Standard & Poor's 500 Index ("S&P 500"), and our common stock is traded on the New York Stock Exchange under the symbol "GPN." Global Payments Inc. and its consolidated subsidiaries are referred to collectively as "Global Payments," the "Company," "we," "our" or "us," unless the context requires otherwise.

Our payment solutions are similar around the world in that we enable our merchant customers to accept card, electronic, check and digital-based payments at the point of sale. Our comprehensive offerings include terminal sales and deployment, authorization processing, settlement and funding processing, customer support and help desk functions, chargeback resolution, industry compliance, Payment Card Industry ("PCI") security, consolidated billing and statements and on-line reporting.

The majority of merchant services revenues is generated by services priced as a percentage of transaction value or a specified fee per transaction, depending on the card type or the vertical. We also earn other fees based on specific services that are unrelated to the number or value of transactions.

Our primary business model is to actively market and provide our payment services directly to merchants through a variety of distribution channels. We offer high touch services that provide our merchants with reliable and secure payment solutions coupled with high quality and responsive support services.

We also provide our services through a wholesale distribution channel where we do not maintain the face-to-face relationship with the merchant. Through our wholesale channel, we provide payment processing services through third-party sales groups referred to as independent sales organizations ("ISOs"). The ISOs act as a third-party sales group selling merchant acquiring services, with the majority of Global Payments' ISOs marketing direct merchant acquiring.

We seek to leverage the continued shift to electronic payments by expanding market share in our existing markets through our distribution channels or through acquisitions in North America, the Asia-Pacific region and Europe, and investing in and leveraging technology and people, thereby maximizing shareholder value. We also seek to enter new markets through acquisitions in Europe, the Asia-Pacific region and the Latin America region.

Our business does not have pronounced seasonality in which more than 30% of our revenues occur in one fiscal quarter. However, each geographic channel has somewhat higher and lower quarters given the nature of the portfolio. While there is some variation in seasonality across markets, the first and fourth fiscal quarters are generally the strongest, and the third fiscal quarter tends to be the weakest due to lower volumes processed in the months of January and February.

Executive Overview

We experienced strong business and financial performance around the world during the year ended May 31, 2016 ("fiscal 2016"). Highlights related to our financial condition and results of operations for fiscal 2016 include the following:

•	We completed the most significant business combination in our history when we merged with Heartland in April 2016. As a result of the merger, we now have more than 8,500 employees worldwide and service nearly 2.5 million merchants in 30 countries.

•	Consolidated revenues increased 4.5% to $2,898.2 million from $2,773.7 million in the year ended May 31, 2015 ("fiscal 2015"), reflecting growth in each of our operating segments and additional revenues from acquired businesses, despite the unfavorable effect of fluctuations in foreign currency exchange rates of $117.0 million.

•

Net income attributable to Global Payments was $271.7 million in fiscal 2016 compared to $278.0 million in the prior year primarily as a result of expenses of $51.3 million associated with our merger with Heartland and the unfavorable effect of fluctuations in foreign currency on our operating income of $43.6 million. Diluted earnings per share was $2.04 in fiscal 2016 compared to $2.06 in fiscal 2015.

•	We completed a 2-for-1 stock split in the form of a stock dividend, and our split-adjusted share price increased 49% during fiscal 2016, while the S&P 500 was flat.

•	We joined the S&P 500 during fiscal 2016. Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's.

Acquisitions

On December 15, 2015, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Heartland pursuant to which we merged with Heartland on April 22, 2016 in a transaction valued at $4.4 billion, including assumed debt of $0.4 billion. Prior to the merger, Heartland was one of the largest payment services companies in the United States, delivering merchant acquiring services and offering integrated commerce, point-of-sale ("POS"), ecommerce, marketing, payroll and other solutions that are highly complementary to the services offered by Global Payments. The merger significantly expanded our small and medium-sized enterprise distribution, merchant base and vertical reach in the United States, adding a 1,400-person direct sales force, over 300,000 merchants and $130 billion in annual payments volume. We intend to leverage our scalable, worldwide infrastructure to drive revenue enhancements and technological and operational synergies. See "Note 2 - Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of our merger with Heartland.

In connection with our merger with Heartland, we entered into an amendment to our existing credit facilities to provide for secured financing of up to $4.78 billion, the incremental proceeds of which were used, among other things, to repay certain portions of Heartland’s existing indebtedness and to finance, in part, the cash consideration and the merger-related costs. See "Liquidity and Capital Resources-Long-Term Debt and Credit Facilities" below for further discussion of our credit facilities.

On June 1, 2015, we acquired certain assets of Certegy Check Services, Inc., a wholly-owned subsidiary of Fidelity National Information Services, Inc. ("FIS"). Under the purchase arrangement, we acquired substantially all of the assets of its gaming business related to licensed gaming operators (the "FIS Gaming Business"), including approximately 260 gaming client locations, for $237.5 million, funded from borrowings on our revolving credit facility and cash on hand.

On March 25, 2015, we acquired Pay and Shop Limited for €110.2 million in cash ($118.9 million equivalent as of the acquisition date) funded by borrowings on our revolving credit facility. Pay and Shop Limited, which does business as Realex Payments, is a leading European online payment gateway technology provider based in Dublin, Ireland. This transaction furthers our strategy to provide omni-channel solutions that combine gateway services, payment service provisioning and merchant acquiring across Europe.

On October 10, 2014, we completed the acquisition Ezi Holdings Pty Ltd ("Ezidebit") for AUD302.6 million in cash ($266.0 million equivalent as of the acquisition date). This acquisition was funded by a combination of cash on hand and borrowings on our revolving credit facility. Ezidebit is a leading integrated payments company focused on recurring payments verticals in Australia and New Zealand. Ezidebit markets its services through a network of integrated software vendors and direct channels to numerous vertical markets. We acquired Ezidebit to establish a direct distribution channel in Australia and New Zealand and to further enhance our existing integrated solutions offerings.

See "Note 2 - Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of these and other acquisitions.

Visa Europe

Through certain of our subsidiaries in Europe, we were a member and shareholder of Visa Europe Limited ("VE"). The carrying amount of our member interests in VE at May 31, 2016 was approximately €30, the cost of obtaining the membership interests. On June 21, 2016, Visa Inc. ("Visa") acquired all of the membership interests in VE, including ours. In exchange, we received up-front consideration comprised of approximately €33.5 million ($37.7 million equivalent at June 21, 2016) in cash and Series B and C convertible preferred shares whose initial conversion ratio equates to Visa common shares valued at $22.9 million as of June 21, 2016. On the third anniversary of the closing of the acquisition, we will receive €3.1 million ($3.4 million at June 21, 2016) of deferred consideration (plus compounded interest at a rate of 4.0% per annum). The preferred shares will convert into Visa common shares at periodic intervals over a 12-year period. Based on the outcome of potential litigation involving VE in the United Kingdom and elsewhere in Europe, the conversion factor of the preferred shares could be adjusted down such that the number of Visa common shares ultimately received could be as low as zero, and approximately €25.6 million ($28.8 million equivalent at June 21, 2016) of the cash consideration could be refundable.

Results of Operations

Commencing with fiscal 2016, we began reporting based on realigned segments (North America, Europe and Asia-Pacific) due to international investment and a realigned management structure. As a result, we have presented prior year segment data in a manner that conforms to our current year presentation.

Revenues

The majority of merchant services revenues is generated by services priced as a percentage of transaction value or a specified fee per transaction, depending on card type. We also charge other fees based on specific services that are unrelated to the number or value of transactions. These revenues depend upon a number of factors, such as demand for and price of our services, the technological competitiveness of our offerings, our reputation for providing timely and reliable service, competition within our industry and general economic conditions.

In direct merchant acquiring, we provide payment services to merchants and fund settlement either directly, in markets where we have direct membership with the payment networks, or through our relationship with a member bank in markets where we are sponsored. Revenues for direct merchant services are recognized in the amount of merchant billing net of interchange. We market our direct merchant 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, which we generally refer to as "direct distribution." We also sell through our ISO channel, where the ISO receives a share of the merchant 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.

In indirect merchant acquiring, the partner, typically a financial institution or an ISO, is our customer. We provide payment services to the indirect customer's merchants, but do not provide sponsorship or funds settlement. We bill the indirect customer fees for transactions and various other services, which are recognized as revenue.

Operating Expenses

Cost of Service

Cost of service consists primarily of salaries, wages and related expenses paid to operations and technology-related personnel, including those who monitor our transaction processing systems and settlement functions; assessments and other fees paid to card networks; the cost of transaction processing systems, including third-party services; the cost of network telecommunications capability; depreciation and occupancy costs associated with the facilities performing these functions; amortization of intangible assets and provisions for operating losses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries, wages, commissions and related expenses paid to sales personnel, customer support functions other than those supporting revenue, administrative employees and management; commissions paid to ISOs, independent contractors and other third parties; other selling expenses; occupancy costs of leased space directly related to these functions; share-based compensation expense and advertising costs.

Operating Income and Operating Margin

For the purpose of discussing segment operations, we refer to "operating income," which is calculated by subtracting segment direct expenses from segment revenues. Overhead and shared expenses, including share-based compensation, are not allocated to segment operations; they are reported in the caption "Corporate." Similarly, we refer to "operating margin" regarding segment operations, which is calculated by dividing segment operating income by segment revenues.

Fiscal Year Ended May 31, 2016 Compared to Fiscal Year Ended May 31, 2015

The following table sets forth key selected financial data for the years ended May 31, 2016 and 2015, this data as a percentage of total revenues, and the changes between fiscal years in dollars and as a percentage of the prior year amount.

(dollar amounts in thousands)	2016				% of Revenue(1)			2015				% of Revenue(1)			Change				% Change
Revenues:
North America	$	2,052,623			70.8	%		$	1,968,890			71.0	%		$	83,733			4.3	%
Europe	631,900				21.8	%		615,966				22.2	%		15,934				2.6	%
Asia-Pacific	213,627				7.4	%		188,862				6.8	%		24,765				13.1	%
Total revenues	$	2,898,150			100.0	%		$	2,773,718			100.0	%		$	124,432			4.5	%
Consolidated operating expenses:
Cost of service	$	1,147,639			39.6	%		$	1,022,107			36.8	%		$	125,532			12.3	%
Selling, general and administrative	1,325,567				45.7	%		1,295,014				46.7	%		30,553				2.4	%
Operating expenses	$	2,473,206			85.3	%		$	2,317,121			83.5	%		$	156,085			6.7	%
Operating income (loss):
North America	$	307,626						$	293,139						$	14,487			4.9	%
Europe	244,837							240,014							4,823				2.0	%
Asia-Pacific	50,743							39,697							11,046				27.8	%
Corporate	(178,262		)					(116,253		)					(62,009		)		53.3	%
Operating income	$	424,944			14.7	%		$	456,597			16.5	%		$	(31,653	)		(6.9	)%
Operating margin:
North America	15.0		%					14.9		%					0.1		%
Europe	38.7		%					39.0		%					(0.3		)%
Asia-Pacific	23.8		%					21.0		%					2.8		%

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

Revenues

For fiscal 2016, revenues increased 4.5% to $2,898.2 million compared to the prior year, reflecting growth in each of our operating segments, in spite of the unfavorable effect of fluctuations in foreign currency exchange rates. For the year ended May 31, 2016, currency exchange rate fluctuations reduced our revenues by $117.0 million compared to the prior year, calculated by converting fiscal 2016 revenues in local currency using fiscal 2015 exchange rates.

North America Segment. For fiscal 2016, revenues from our North America segment increased by $83.7 million, or 4.3%, compared to the prior year to $2,052.6 million. The increase was due to growth of $124.4 million, primarily in our U.S. business, partially offset by the unfavorable effect of currency fluctuations in Canada of $40.7 million. The growth in revenue included additional revenues from our merger with Heartland and the acquisition of the FIS Gaming Business as well as organic growth in our direct distribution business.

Europe Segment. For fiscal 2016, Europe revenues increased by $15.9 million, or 2.6%, compared to the prior year to $631.9 million. The increase reflects revenue growth in local currencies, generally due to an increase in the number of card transactions and volume growth in the United Kingdom and Spain, partially offset by the unfavorable effect of currency fluctuations in Europe of $62.6 million.

Asia-Pacific Segment. For fiscal 2016, Asia-Pacific revenues increased by $24.8 million, or 13.1%, compared to the prior year to $213.6 million. The increase was primarily due to additional revenues of $29.6 million associated with recent acquisitions and organic growth, partially offset by the unfavorable effect of currency fluctuations.

Operating Expenses

Cost of Service. Cost of service increased by 12.3% to $1,147.6 million during fiscal 2016 compared to the prior year. As a percentage of revenues, cost of service increased to 39.6% for fiscal year 2016 compared to 36.8% in the prior year. The increase in cost of service for fiscal 2016 was driven primarily by an increase in the variable costs associated with our revenue growth. The increase in cost of service as a percentage of revenues is due to additional intangible asset amortization of $41.1 million related to acquisitions.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 2.4% to $1,325.6 million during fiscal 2016 compared to the prior year. As a percentage of revenues, selling, general and administrative expenses decreased to 45.7% for fiscal year 2016 from 46.7% in the prior year. The increase in selling, general and administrative expenses for fiscal 2016 was due to additional costs to support the growth of our business, including expenses of $51.3 million associated with our merger with Heartland.

Operating Income and Operating Margin for Segments

North America Segment. Operating income in our North America segment increased by 4.9% to $307.6 million for fiscal 2016 compared to the prior year despite the effect of unfavorable currency fluctuations of $20.5 million. The operating margin was 15.0% and 14.9% for the fiscal years 2016 and 2015, respectively. The increase in operating income was primarily due to revenue growth in our U.S. business, partially offset by additional intangible asset amortization related to our acquisitions and the effect of unfavorable currency fluctuations.

Europe Segment. Operating income in our Europe segment increased by 2.0% to $244.8 million for fiscal 2016 compared to the prior year despite the effect of unfavorable currency fluctuations of $19.7 million. The operating margin was 38.7% and 39.0% for the fiscal years 2016 and 2015, respectively. The increase in operating income was primarily driven by revenue growth, partially offset by the effect of unfavorable currency fluctuations.

Asia-Pacific Segment. Operating income in our Asia segment increased by 27.8% to $50.7 million for fiscal 2016 compared to the prior year despite the effect of unfavorable currency fluctuations in the Asia-Pacific region of $3.4 million. The operating margin was 23.8% and 21.0% for the fiscal years 2016 and 2015, respectively. The increases in operating income and operating margin were due to incremental revenues from the acquisition and subsequent organic growth of Ezidebit, which generates a higher operating margin than our legacy business in the region.

Corporate. Corporate expenses increased to $178.3 million for fiscal 2016 compared to the prior year due primarily to expenses of $51.3 million associated with our merger with Heartland.

Other Income/Expense, Net

Interest and other expense increased by $24.9 million for fiscal 2016 compared to the prior year primarily due to an increase in borrowings outstanding under our long-term debt facilities, most of which related to new borrowings associated with our merger with Heartland.

Provision for Income Taxes

The provision for income taxes decreased by $37.3 million for fiscal 2016 compared to the prior year due to a decrease in income before income taxes, largely due to expenses of $51.3 million in the U.S. associated with our merger with Heartland, and a lower effective income tax rate. The decrease in our effective income tax rate from 25.9% to 19.6% was primarily due to a higher percentage of the earnings before income taxes derived from foreign operations with lower income tax rates (primarily as a result of the merger-related expenses incurred in the United States) as well as the elimination of certain net deferred tax liabilities associated

with undistributed earnings from Canada as a result of management’s plans to reinvest these earnings outside of the United States indefinitely.

Fiscal Year Ended May 31, 2015 Compared to Fiscal Year Ended May 31, 2014

The following table shows key selected financial data for the years ended May 31, 2015 and 2014, this data as a percentage of total revenues, and the changes between fiscal years in dollars and as a percentage of the prior year amount.

(dollar amounts in thousands)	2015				% of Revenue (1)			2014				% of Revenue (1)			Change				% Change
Revenues:
North America	$	1,968,890			71.0	%		$	1,808,992			70.8	%		$	159,898			8.8	%
Europe	615,966				22.2	%		587,463				23.0	%		28,503				4.9	%
Asia-Pacific	188,862				6.8	%		157,781				6.2	%		31,081				19.7	%
Total revenues	$	2,773,718			100.0	%		$	2,554,236			100.0	%		$	219,482			8.6	%
Consolidated operating expenses:
Cost of service	$	1,022,107			36.8	%		$	952,225			37.3	%		$	69,882			7.3	%
Selling, general and administrative	1,295,014				46.7	%		1,196,512				46.8	%		98,502				8.2	%
Operating expenses	$	2,317,121			83.5	%		$	2,148,737			84.1	%		$	168,384			7.8	%
Operating income (loss):
North America	$	293,139						$	272,251						$	20,888			7.7	%
Europe	240,014							209,334							30,680				14.7	%
Asia-Pacific	39,697							30,845							8,852				28.7	%
Corporate	(116,253		)					(106,931		)					(9,322		)		8.7	%
Operating income	$	456,597			16.5	%		$	405,499			15.9	%		$	51,098			12.6	%
Operating margin for segments:
North America	14.9		%					15.0		%					(0.1		)%
Europe	39.0		%					35.6		%					3.4		%
Asia-Pacific	21.0		%					19.5		%					1.5		%

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

Revenues

For fiscal 2015, revenues increased by 8.6% to $2,773.7 million compared to the prior year, reflecting growth in most of our markets, partially offset by the unfavorable effect of fluctuations in foreign currency exchange rates. For the year ended May 31, 2015, currency exchange rate fluctuations decreased our revenues by $78.4 million compared to the prior year, calculated by converting fiscal 2015 revenues in local currency using fiscal 2014 rates.

North America Segment. For fiscal 2015, revenues from our North America segment increased by 8.8% to $1,968.9 million compared to the prior year despite the effect of the unfavorable effect of currency fluctuations in Canada. U.S. revenue growth was driven by growth in our direct distribution channels, including our integrated solutions business, which reflects the addition of Payment Processing, Inc. ("PayPros").

For fiscal 2015, revenues in Canada decreased by 2.3% to $313.0 million due to the unfavorable effect of changes in exchange rates, which outweighed revenue growth achieved in local currency resulting from stable business performance and selective pricing initiatives.

Europe Segment. For fiscal 2015, Europe segment revenues increased by $28.5 million, or 4.9%, to $616.0 million compared to the prior year. The increase reflected growth in local currencies primarily due to growth in the number of card transactions and volume growth, partially offset by the unfavorable effect of currency fluctuations of $50.7 million.

Asia-Pacific Segment. For fiscal 2015, Asia-Pacific segment revenues increased by $31.1 million, or 19.7%, to $188.9 million compared to the prior year primarily due to the acquisition of Ezidebit.

Operating Expenses

Cost of Service. Cost of service increased by 7.3% during fiscal 2015 compared to the prior year. As a percentage of revenues, cost of service decreased to 36.8% for fiscal year 2015 compared to 37.3% in the prior year. The increase in cost of service for fiscal 2015 was driven primarily by an increase in the variable costs associated with revenue growth and additional intangible asset amortization and other incremental cost of service associated with our acquisitions of PayPros and Ezidebit, partially offset by favorable effects of changes in exchange rates.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 8.2% during fiscal 2015 compared to the prior year. As a percentage of revenues, selling, general and administrative expenses was 46.7% for fiscal year 2015 and 46.8% in the prior year. The increase in selling, general and administrative expenses for fiscal 2015 was primarily due to an increase in commission payments to third-party sales partners and incremental costs related to our acquisitions of PayPros and Ezidebit.

Operating Income and Operating Margin for Segments

North America Segment. Operating income in our North America segment increased 7.7% to $293.1 million for fiscal 2015 compared to the prior year despite the effect of unfavorable currency fluctuations in Canada. The increase in operating income was primarily due to growth in our U.S. direct distribution channels, including the addition of PayPros to our integrated solutions business, partially offset by intangible asset amortization and other incremental operating costs associated with PayPros and the unfavorable effect of exchange rate fluctuations in Canada. The operating margin was 14.9% and 15.0% for the fiscal years 2015 and 2014, respectively.

Europe Segment. Operating income in our Europe segment increased by 14.7% to $240.0 million for fiscal 2015 compared to the prior year due to the effects of the revenue growth, in spite of the unfavorable effect of currency fluctuations of $13.9 million. The operating margin improved to 39.0% for fiscal 2015 compared to the prior year.

Asia-Pacific Segment. Operating income in our Asia-Pacific segment increased 28.7% to $39.7 million for fiscal 2015 compared to the prior year. The operating margin increased to 21.0% for fiscal 2015 compared to 19.5% for the prior year. The increase in operating income and improvement in operating margin for the Asia-Pacific segment were largely due to our acquisition of Ezidebit.

Corporate. Our corporate expenses increased 8.7% to $116.3 million for fiscal 2015 compared to the prior year primarily due to settlement of a legal claim in Europe during fiscal 2015 and a credit of $7.0 million associated with the fiscal 2012 processing system intrusion recorded in fiscal 2014.

Operating Income

During fiscal 2015, our consolidated operating income increased 12.6% to $456.6 million from $405.5 million in the prior year. The increase was primarily due to revenue growth in all reportable segments partially offset by higher variable costs of services associated with revenue growth, higher intangible asset amortization and other incremental operating costs associated with PayPros and Ezidebit and the unfavorable effect of exchange rate fluctuations. Operating income for fiscal 2014 also reflects the effect of the processing system intrusion credit of $7.0 million.

Other Income/Expense, Net

Other expense, net, increased to $39.5 million for fiscal 2015 compared to $28.1 million in the prior year. The increase is primarily due to a $10.5 million increase in interest expense on our long-term debt and other credit facilities, resulting from an

increase in average balances outstanding under those debt facilities, and an increase in equity method losses on investments in unconsolidated entities, partially offset by a reversal of interest expense of $3.6 million that had been accrued related to an unrecognized tax benefit. As of May 31, 2015, we eliminated the liability for an unrecognized tax benefit and reduced Interest and other expense in the year ended May 31, 2015 in our accompanying consolidated statement of income. See "Note 9 - Income Tax" in the notes to the accompanying consolidated financial statements for further discussion.

During fiscal 2014, we recorded a loss on extinguishment of debt of $2.1 million in connection with the refinancing of our term loan and revolving credit facilities. In addition, during fiscal 2014, we made a final dividend payment to HSBC Asia in the amount of $3.3 million related to a redeemable noncontrolling interest that HSBC Asia held in Global Payments Asia-Pacific. The dividend was reflected as interest expense in our consolidated statements of income. During fiscal 2014, we recorded a $2.1 million gain in connection with the sale of 50% of our subsidiary in Brazil.

Provision for Income Taxes

Our effective tax rates were 25.9% and 28.5% for the years ended May 31, 2015 and 2014, respectively. The effective tax rates for fiscal year 2014 reflects the reduction to the carrying amount of certain U.K. deferred tax assets due to enacted corporate tax rate reductions in the United Kingdom of 3 percentage points. Our effective tax rate differs from the U.S. statutory rate primarily due to income generated in international jurisdictions with lower tax rates.

Liquidity and Capital Resources

In the ordinary course of our business, a significant portion of our liquidity comes from operating cash flows. Cash flow from operations is used to make planned capital investments in our business, to pursue acquisitions that meet our corporate objectives, to pay dividends, and to pay down debt and repurchase shares of our common stock. Accumulated cash balances are invested in high-quality, marketable short-term instruments.

Our capital plan objectives are to support our operational needs and strategic plan for long-term growth while maintaining a low cost of capital. We use our financing, such as our revolving credit facility and our term loans, for general corporate purposes and to fund acquisitions. In addition, specialized lines of credit are also used in certain of our markets to pre-fund settlement. We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future, either through the issuance of debt, equity or otherwise.

On December 15, 2015, we entered into the Merger Agreement with Heartland in a cash-and-stock transaction. The merger is described in the "Executive Overview" section and in "Note 2— Acquisitions" in the notes to the accompanying consolidated financial statements. On February 26, 2016, we amended our existing credit facilities to provide for secured financing of up to $4.78 billion, the incremental proceeds of which were used, among other things, to repay certain portions of Heartland’s existing indebtedness and to finance, in part, the cash consideration and the merger-related costs.

At May 31, 2016, we had cash and cash equivalents totaling $1,044.7 million. Of this amount, we consider $369.3 million to be available cash. Available cash excludes (1) settlement-related cash reserve balances, (2) funds held for collateral for merchant losses ("Merchant Reserves") and (3) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. At May 31, 2016, our cash and cash equivalents include $497.1 million for settlement-related cash balances. Certain of our funds collected from our merchants serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. At May 31, 2016, our cash and cash equivalents included $155.3 million related to Merchant Reserves. 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. At May 31, 2016, cash and cash equivalents included funds held for customers of $189.1 million.

Our available cash balance includes $248.9 million of cash held by foreign subsidiaries whose earnings are considered indefinitely reinvested outside the United States. These cash balances reflect our capital investments in these subsidiaries and the accumulation of cash flows generated by their operations, net of cash flows used to service debt locally and fund acquisitions outside

of the United States. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the earnings of these foreign subsidiaries. If we were to repatriate some or all of the cash held by such foreign subsidiaries, we do not believe that the associated income tax liabilities would have a significant effect on our liquidity.

Operating activities provided net cash of $585.0 million during fiscal 2016 compared to $424.7 million in the prior year. The increase in cash flow from operating activities of $160.3 million was primarily due to a decrease in the change in net settlement processing assets of $296.9 million, partially offset by payments of acquisition-related costs of approximately $80 million associated with our merger with Heartland, including costs of $40 million incurred by Heartland that were included in liabilities we assumed as of the acquisition date and paid by us during the fourth quarter of fiscal 2016. Fluctuations in settlement processing assets and obligations are largely due to timing of month-end and transaction volume.

Net cash used in investing activities was $2,127.2 million during fiscal 2016 compared to $440.9 million in the prior year. During fiscal 2016, we invested net cash of $2,035.7 million to complete business acquisitions, including our merger with Heartland. In the prior year, we invested cash of $359.2 million to complete the acquisitions of Realex Payments and Ezi Holdings Pty Ltd.

We made capital expenditures of $91.6 million and $92.6 million during fiscal 2016 and 2015, respectively, including $36.5 million and $35.1 million of internal-use capitalized software development costs. During fiscal 2017, we expect capital expenditures to approximate $140.0 million.

Financing activities provided net cash of $1,965.5 million during fiscal 2016 compared to $141.4 million in the prior year. The increase is due primarily to additional borrowings of $1,780.0 million under new long-term debt facilities made in connection with our merger with Heartland in April 2016. The incremental proceeds from the new loans were used, among other things, to repay certain portions of Heartland’s existing indebtedness and to finance, in part, the cash consideration and the merger-related costs. In July 2015, we refinanced our then-existing credit facilities and used the proceeds of approximately $2.0 billion to repay the then-outstanding balances on our previously existing term loan and revolving credit facilities. These activities are further discussed below under "Long-Term Debt and Credit Facilities."

We used cash of $136.0 million and $372.4 million during fiscal 2016 and fiscal 2015, respectively, to repurchase shares of our common stock.

On June 21, 2016, in exchange for all of our membership interest in VE, Visa transferred up-front consideration, including cash of approximately €33.5 million ($37.7 million equivalent at June 21, 2016), to us. Based on the outcome of potential litigation in the United Kingdom and elsewhere in Europe, a portion of the cash consideration could be refundable.

We believe that our current level of cash and borrowing capacity under our debt facilities described below, together with future cash flows from operations will be sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future.

Long-Term Debt and Credit Facilities

July 2015 Refinancing. On July 31, 2015, we entered into a second amended and restated term loan agreement (the "2015 Term Loan Agreement") and a second amended and restated credit agreement (the "2015 Revolving Credit Facility Agreement" and collectively, the "2015 Credit Facility Agreements") to provide for a $1.75 billion term loan (the "Term A Loan") and a $1.25 billion revolving credit facility (the "Revolving Credit Facility"), each with a syndicate of financial institutions. We used the proceeds of approximately $2.0 billion to repay the then-outstanding balances on our previously existing term loan and revolving credit facility.

February 2016 Refinancing. In connection with the Merger Agreement on February 26, 2016, we entered into the 2015 Credit Facility Agreements (as amended, the "2016 Credit Facility Agreement") to, among other things, (i) accelerate our repayment schedule for Term A Loan, effective as of February 26, 2016, and (ii) provide security for Term A Loan and the Revolving Credit Facility and modify the applicable financial covenants and interest rate margins. In addition, the 2016 Credit Facility Agreement provided for a new $735 million delayed draw term loan facility (the "Delayed Draw Facility").

We also entered into a new $1.045 billion term B loan ("Heartland Incremental Term B Loan Lender Rejoinder Agreement" or "Term B Loans"). The Delayed Draw Facility and Term B Loans were issued on April 22, 2016 in connection with our merger

with Heartland, resulting in total financing of approximately $4.78 billion as contemplated by the debt commitment letter. The incremental proceeds from the new loans were used, among other things, to repay certain portions of Heartland’s existing indebtedness and to finance, in part, the cash consideration and the merger-related costs.

Pursuant to the 2016 Credit Facility Agreement, the Term A Loan must be repaid in equal quarterly installments of $43.8 million commencing in November 2016 and ending in May 2020, with the remaining principal balance due upon maturity in July 2020. The Delayed Draw Facility must be repaid in equal quarterly installments of $1.7 million commencing in August 2016, increasing to $8.6 million in August 2018, and ending in May 2020, with the remaining principal balance due upon maturity in July 2020. The Term B Loans must be repaid in equal quarterly installments of $2.6 million commencing in September 2016 and ending in March 2023, with the remaining principal balance due upon maturity in April 2023.

As of May 31, 2016, the outstanding balance on the Revolving Credit Facility was $1,037.0 million. The 2016 Credit Facility Agreement allows us to issue standby letters of credit of up to $100 million in the aggregate under the Revolving Credit Facility. Outstanding letters of credit under the Revolving Credit Facility reduce the amount of borrowings available to us. Borrowings available to us under the Revolving Credit Facility are further limited by the covenants described below under "Compliance with Covenants." At May 31, 2016 and 2015, we had outstanding issued standby letters of credit under the Revolving Credit Facility of $8.5 million and $7.6 million, respectively. The total available commitments under the Revolving Credit Facility at May 31, 2016 and 2015 were $204.5 million and $484.3 million, respectively. The Revolving Credit Facility expires in July 2020.

The 2015 Credit Facility, the Delayed Draw Facility, 2016 Credit Facility and the Term B Loans were combined in evaluating the accounting treatment for fees and expenses incurred. We incurred fees and expenses associated with the 2015 Credit Facility, Delayed Draw Facility, 2016 Credit Facility Agreement and the Term B Loans of approximately $63.5 million. The portion of the debt issuance costs related to the 2015 and 2016 Revolving Credit Facility Agreements are included in other noncurrent assets, and the portion of the debt issuance costs related to the 2015 and 2016 Term Loan Agreement are reported as a reduction to the carrying amount of the debt at May 31, 2016. Debt issuance costs are amortized as an adjustment to interest expense over the terms of the respective facilities.

Settlement Lines of Credit

We have lines of credit with banks in the United States and Canada as well as several countries in Europe and in the Asia-Pacific region where we do business. The lines of credit, which are restricted for use in funding settlement, generally have variable interest rates and are subject to annual review. The credit facilities are generally denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. For certain of our lines of credit, the available credit is increased by the amount of cash we have on deposit in specific accounts with the lender. Accordingly, the amount of the outstanding line of credit may exceed the stated credit limit. As of May 31, 2016 a total of $42.9 million of cash on deposit was used to determine the available credit.

As of May 31, 2016 and 2015, respectively, we had $378.4 million and $592.6 million outstanding under these lines of credit with additional capacity as of May 31, 2016 of $733.2 million to fund settlement. During the year ended May 31, 2016, the maximum and average outstanding balances under these borrowings were $659.1 million and $302.6 million, respectively.

Compliance with Covenants

The 2016 Credit Facility Agreement contains customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and fixed charge coverage ratios. Financial covenants require a leverage ratio no greater than (i)5.00 to 1.00, as of the end of any fiscal quarter ending during the period from April 22, 2016 through August 31, 2016, (ii) 4.75 to 1.00 as of the end of any fiscal quarter ending during the period from September 1, 2016 through February 28, 2017, (iii) 4.50 to 1.00 as of the end of any fiscal quarter ending during the period from March 1, 2017 through August 31, 2017, (iv) 4.25 to 1.00 as of the end of any fiscal quarter ending during the period from September 1, 2017 through February 28, 2018 and (v) 4.00 to 1.00 as of the end of any fiscal quarter ending thereafter. The fixed charge coverage ratio is required to be no less than 2.25 to 1.00. The 2016 Credit Facility Agreement and settlement lines of credit also include various other covenants that are customary in such borrowings. The 2016 Credit Facility Agreement includes covenants, subject in each case to exceptions and qualifications, that may restrict certain payments, including, in certain circumstances, repurchasing our common stock and paying cash dividends in excess of our current rate of $0.01 per share per quarter.

The 2016 Credit Facility Agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. We were in compliance with all applicable covenants as of and for the year ended May 31, 2016.

See "Note 7 - Long-Term Debt and Credit Facilities" in the notes to the accompanying consolidated financial statements for further discussion of our borrowing arrangements.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market, or credit risk support other than the guarantee services described under "Critical Accounting Policies" below.

BIN/ICA Agreements

We have entered into sponsorship or depository and processing agreements with certain banks. These agreements allow us to use the banks' identification numbers, referred to as Bank Identification Number ("BIN") for Visa transactions and Interbank Card Association ("ICA") number for MasterCard transactions, to clear credit card transactions through Visa and MasterCard. Certain of such agreements contain financial covenants, and we were in compliance with all such covenants as of May 31, 2016.

Commitments and Contractual Obligations

The following table summarizes our contractual obligations and commitments as of May 31, 2016:

	Payments Due by Future Period
	Total				Less than 1 Year				1-3 Years				3-5 Years				5+ Years
	(in thousands)
Long-term debt	$	4,567,000			$	145,938			$	412,000			$	3,013,700			$	995,362
Interest on long-term debt(1)	692,041				152,760				281,384				182,856				75,041
Settlement lines of credit	378,436				378,436				—				—				—
Operating lease obligations(2)	172,594				34,373				52,291				33,562				52,368
Purchase obligations(3)	230,414				81,019				76,881				25,514				47,000

(1) Interest on long-term debt is based on rates effective and amounts borrowed as of May 31, 2016. The estimated effect of interest rate swaps is included in interest on long-term debt. Since the contractual rates for our long-term debt and settlements on our interest rate swaps are variable, actual cash payments may differ from the estimates provided.

(2) Includes future minimum lease payments for noncancelable operating leases at May 31, 2016.

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

The table above excludes other obligations that we may have, such as employee benefit obligations and other noncurrent liabilities reflected in our consolidated balance sheet, because the timing of the related payments is not determinable or because there is no contractual obligation associated with the underlying obligations.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, which often require the judgment of management in the selection and application of certain accounting principles and methods. We consider the following accounting policies to be critical to understanding our consolidated financial statements because the application of these policies requires significant judgment on the part of management, and as a result, actual future developments may be different from those expected at the time that we make these critical judgments. We have discussed these critical accounting policies with the Audit Committee of the Board of Directors.

Accounting estimates necessarily require subjective determinations about future events and conditions. Therefore, the following descriptions of our critical accounting 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.

Reserve for Operating Losses

We experience losses in our card processing services when we are unable to collect amounts from merchant customers for any charges properly reversed by the card issuing bank. When we are not able to collect these amounts from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, we may be liable for the reversed charges. We require cash deposits, guarantees, letters of credit and other types of collateral by certain merchants to minimize any such contingent liability, and we also utilize a number of systems and procedures to manage merchant risk. We experience check guarantee losses when we are unable to collect the full amount of a guaranteed check from the checkwriter. We refer to both merchant credit losses and check guarantee losses as "operating losses."

We record an estimated liability for operating losses comprised of estimated known losses and estimated incurred but not reported losses. Estimated known losses arise from specific instances of, for example, merchant bankruptcies, closures or fraud of which we are aware at the balance sheet date but for which the ultimate amount of associated loss will not be determined until after the balance sheet date. Estimated known loss accruals are recorded when it is probable that we have incurred a loss and the loss is reasonably estimable. Estimated known losses are calculated at the merchant level based on chargebacks received to date, processed volume, and historical chargeback ratios. The estimate is reduced for the value of any collateral that we hold. Accruals for estimated known losses are evaluated periodically and adjusted as appropriate based on actual loss experience. Incurred but not reported losses result from transactions that we process before the balance sheet date for which we have not yet received chargeback notification. We estimate incurred but not reported losses by applying historical loss ratios to our direct merchant credit card and signature debit card sales volumes processed, or processed volume. Historically, this estimation process has been materially accurate.

For the years ended May 31, 2016, 2015 and 2014, our processed volume for direct merchant acquiring was $216.0 billion, $207.2 billion, and $201.2 billion, respectively. For these same periods, the provision for merchant losses was $3.7 million, $4.9 million, and $8.7 million, respectively. As a percentage of processed volume, these charges were 0.0017%, 0.0024%, and 0.0043%, respectively, during the corresponding periods. For these same years, we experienced actual losses of $2.6 million, $5.4 million, and $9.3 million, respectively. We believe that our estimation process has been materially accurate on a historical basis. A 10% increase or decrease in our provision for merchant losses as a percentage of processed volume for the year ended May 31, 2016 would have resulted in a decrease or increase in pretax income of $0.4 million. Further, if our provision for merchant losses as a percentage of processed volume for fiscal 2016 had equaled our actual merchant losses as a percentage of processed volume of 0.0024% for the same prior year period, our income before income taxes would have decreased by $1.4 million. As of May 31, 2016 and 2015, $2.5 million and $1.3 million, respectively, were recorded for merchant losses and were included in settlement processing obligations in the accompanying consolidated balance sheets.

In our check guarantee service offering, we charge our merchants a percentage of the gross amount of the check and guarantee payment of the check to the merchant in the event the check is not honored by the checkwriter's bank. We have the right to collect the full amount of the check from the checkwriter, but have not historically recovered 100% of the guaranteed checks. We record a liability for estimated losses on returned checks and estimated incurred but not reported losses. We estimate the loss on returned checks by applying historical collection rates to our claims receivable balance. We estimate incurred but not reported losses by applying historical loss ratios to the face value of our guaranteed checks. For the years ended May 31, 2016, 2015 and 2014, we guaranteed total check face values of $2.4 billion, $2.5 billion and $2.6 billion, respectively. For those same periods, we recorded provisions for check guarantee losses of $22.8 million, $9.6 million, and $11.9 million, respectively. As a percentage of the total guaranteed check face value, these charges were 0.95%, 0.38%, and 0.46%, respectively. For these same years, we experienced actual losses of $20.6 million, $9.9 million, and $12.1 million, respectively. We believe that our estimation process has been materially accurate on a historical basis. A 10% increase in our projected loss rate for the year ended May 31, 2016 would have resulted in a decrease in income before income taxes of $2.3 million. Further, if our guarantee loss as a percentage of guarantee volume for fiscal 2016 had equaled our guarantee loss as a percentage of guarantee volume of 0.38% for the same prior year period, our income before income taxes would have increased by $13.7 million. As of May 31, 2016 and 2015, the liabilities for check guarantee losses were

$4.9 million and $2.7 million, respectively, which were included as a valuation allowance against claims receivable in the accompanying consolidated balance sheets.

We derive our projected loss rate assumptions primarily based on a rolling six to twelve month analysis of historic loss activity. These assumptions, however, bear the risk of change, which may occur as a result of several qualitative factors. For merchant losses, these factors include the following: a change in the creditworthiness of our merchant customers; a change in the levels of credit card fraud affecting our merchant customers; and a change in the effectiveness of our internal credit, risk management, and collection departments. For check guarantee losses, these factors include a change in the levels of dishonored consumer checks presented to our guarantee service merchant customers and a change in the effectiveness of our internal check guarantee procedures, customer acceptance and retention policies, or collection protocols. Application of our percentage assumptions involve uncertainty regarding changes in any of the factors above, especially those that are outside of our control, such as the financial health of the economies in the United States, Canada, the United Kingdom, Spain, the Asia-Pacific region and the Russian Federation at a regional or national level and the related impact on our customers.

Goodwill

Goodwill is tested for impairment at the reporting unit level. We test goodwill for impairment annually as of January 1 and more often if an event occurs or circumstances change that would indicate the fair value of a reporting unit is below its carrying amount. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit.

Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying value, a two-step quantitative test is required. In the first step, the reporting unit's carrying amount, including goodwill, is compared to its fair value. If the carrying amount of the reporting unit is greater than its fair value, step two must be performed. Step two measures the impairment loss, if any, by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by assigning the fair value of the reporting unit to all the assets and liabilities of that unit (including unrecognized intangibles) as if the reporting unit had been acquired in a business combination. The excess of the fair value over the amounts assigned to the assets and liabilities of the reporting unit is the implied fair value of the goodwill. The excess of the carrying amount over the implied fair value of the goodwill is the impairment loss.

Our assessment of qualitative factors involves significant judgments about expected future business performance and general market conditions. In a quantitative assessment, we estimate the fair value of the reporting unit using a combination of the income approach and the market approach. This requires various assumptions about a reporting unit’s future financial results and cost of capital including discount rates.

We have six reporting units: North America merchant services, U.K. merchant services, Asia-Pacific merchant services, Central and Eastern Europe merchant services, Russia merchant services and Spain merchant services. As of January 1, 2016, we elected to perform a quantitative assessment of impairment for each of our reporting units. Based on this quantitative assessment, we determined that goodwill of each of our reporting units was not impaired.

Intangible and Long-lived Assets

Other intangible assets primarily represent customer-related intangible assets (such as customer lists and merchant contracts), contract-based intangible assets (such as non-compete agreements, referral agreements and processing rights), acquired technology and trademarks associated with acquisitions. Customer-related intangible assets, contract-based intangible assets and trademarks are amortized over their estimated useful lives. The useful lives for customer-related intangible assets are determined based primarily on forecasted cash flows, which include estimates for the revenues, expenses, and customer attrition associated with the assets. The useful lives of contract-based intangible assets are equal to the terms of the agreements. The useful lives of amortizable trademarks and trade names are based on our plans to phase out the trademarks and trade names in the applicable markets. Acquired technology is amortized on a straight-line basis over its estimated useful life.

Amortization for most of our customer-related intangible assets is calculated using an accelerated method. In determining amortization expense under our accelerated method for any given period, we calculate the expected cash flows for that period that were used in determining the acquired value of the asset and divide that amount by the expected total cash flows over the estimated life of the asset. We multiply that percentage by the initial carrying amount of the asset to arrive at the amortization expense for that period. If the cash flow patterns that we experience differ significantly from our initial estimates, we adjust the amortization schedule prospectively. These cash flow patterns are derived using certain assumptions and cost allocations due to a significant amount of asset interdependencies that exist in our business. During fiscal 2016, we did not adjust the amortization schedules.

We believe that our accelerated method better approximates the distribution of cash flows generated by our acquired customer relationships. We use the straight-line method of amortization for our contract-based intangibles and amortizable trademarks.

We regularly evaluate whether events and circumstances have occurred that indicate the carrying amount of property and equipment and finite-life intangible assets may not be recoverable. When factors indicate that these long-lived assets should be evaluated for possible impairment, we assess the potential impairment by determining whether the carrying amount of such long-lived assets will be recovered through the future undiscounted cash flows expected from use of the asset and its eventual disposition. If the carrying amount of the asset is determined not to be recoverable and exceeds its fair value, an impairment loss is recorded, measured as the difference between the fair value and the carrying amount. Fair values are determined based on quoted market prices or discounted cash flow analysis as applicable. We regularly evaluate whether events and circumstances have occurred that indicate the useful lives of property and equipment and finite-life intangible assets may warrant revision.

Capitalization of Internally Developed Software

We develop software that is used in providing processing services to customers. Capitalization of internally developed software, primarily associated with operating platforms, occurs when we have completed the preliminary project stage, management authorizes the project, management commits to funding the project, it is probable the project will be completed and the project will be used to perform the function intended. The preliminary project stage consists of the conceptual formulation of alternatives, the evaluation of alternatives, the determination of existence of needed technology and the final selection of alternatives. Costs incurred during the preliminary project stage are expensed 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. The carrying amount of internally developed software, including work in progress, at May 31, 2016 was $226.5 million. Costs capitalized during fiscal 2016, 2015 and 2014 totaled $36.5 million, $35.1 million, and $39.1 million, respectively. Internally developed software is amortized over its estimated useful life, which is typically 2 to 10 years.

Our most recently developed front-end merchant authorization processing platform, which was placed into service in fiscal 2010, is replacing several legacy platforms. As of May 31, 2016, we have placed into service $104.5 million of hardware and software associated with our authorization platform, $3.5 million of which was placed in service during fiscal 2016. Depreciation associated with these costs is calculated based on transactions processed during the period as a percentage of the transactions expected to be processed over the life of the platform. We believe that this method is more representative of the platform's use than the straight-line method. We are currently processing transactions on this authorization platform in nine markets in our Asia-Pacific region and for a limited number of U.S. merchants. Depreciation expense will increase as we complete migrations of other merchants to this authorization platform.

Income Taxes

We determine our provision for income taxes using management's judgments, estimates and the interpretation and application of complex tax laws in each of the jurisdictions in which we operate. Judgment is also required in assessing the timing and amounts of deductible and taxable items. These differences result in deferred tax assets and liabilities in our consolidated balance sheet. We believe our tax return positions are fully supportable; however, we recognize the benefit for tax positions only when it is more likely than not that the position will be sustained based on its technical merits. Issues raised by a tax authority may be resolved at an amount different than the related benefit recognized. When facts and circumstances change (including an effective settlement of an issue or statute of limitations expiration), the effect is recognized in the period of change. A portion of the unrecognized tax benefits that exist at May 31, 2016 would affect our provision for income taxes in the future if recognized. Judgment is required to determine whether or not some portion or all of our deferred tax assets will not be realized. To the extent we determine that we will not realize the benefit of some or all of our deferred tax assets, then these deferred tax assets are adjusted through our provision for income taxes in the period in which this determination is made.

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

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