Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Global Payments Inc.

Atlanta, Georgia

We have audited the internal control over financial reporting of Global Payments Inc. and subsidiaries (the "Company") as of May 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control over Financial Reporting, management excluded from its assessment a portion of the internal control over financial reporting at Heartland Payment Systems Inc. ("Heartland"), which was acquired on April 22, 2016, and whose financial statements constituted approximately 4% of consolidated revenues, 21% of consolidated total assets (excluding goodwill related to the Heartland transaction which was integrated into the Company's systems and control environment), and less than 0.5% of consolidated net income, as of and for the year ended May 31, 2016. Accordingly, our audit did not include the portion of internal control over financial reporting at Heartland Payment Systems Inc. that is excluded from management’s assessment. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended May 31, 2016 of the Company and our report dated July 28, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

July 28, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Global Payments Inc.

Atlanta, Georgia

We have audited the accompanying consolidated balance sheets of Global Payments Inc. and subsidiaries (the "Company") as of May 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended May 31, 2016. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Global Payments Inc. and subsidiaries as of May 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of May 31, 2016, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 28, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

July 28, 2016

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Year Ended May 31,
	2016				2015				2014
Revenues	$	2,898,150			$	2,773,718			$	2,554,236
Operating expenses:
Cost of service	1,147,639				1,022,107				952,225
Selling, general and administrative	1,325,567				1,295,014				1,196,512
	2,473,206				2,317,121				2,148,737
Operating income	424,944				456,597				405,499
Interest and other income	5,284				4,949				13,663
Interest and other expense	(69,316		)		(44,436		)		(41,812		)
	(64,032		)		(39,487		)		(28,149		)
Income before income taxes	360,912				417,110				377,350
Provision for income taxes	(70,695		)		(107,995		)		(107,398		)
Net income	290,217				309,115				269,952
Less: Net income attributable to noncontrolling interests	(18,551		)		(31,075		)		(24,666		)
Net income attributable to Global Payments	$	271,666			$	278,040			$	245,286
Earnings per share attributable to Global Payments:
Basic earnings per share	$	2.05			$	2.07			$	1.70
Diluted earnings per share	$	2.04			$	2.06			$	1.69

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Year End May 31,
	2016				2015				2014
Net income	$	290,217			$	309,115			$	269,952
Other comprehensive (loss) income:
Foreign currency translation adjustments	(55,858		)		(220,641		)		17,034
Income tax benefit related to foreign currency translation adjustments	—				12,152				3,133
Unrealized losses on hedging activities	(12,859		)		(10,116		)		—
Reclassification of losses on hedging activities to interest expense	8,240				3,958				—
Income tax benefit related to hedging activities	1,738				2,284				—
Other	(1,382		)		(691		)		236
Income tax benefit (expense) related to other	534				241				(63		)
Other comprehensive (loss) income	(59,587		)		(212,813		)		20,340
Comprehensive income	230,630				96,302				290,292
Less: comprehensive income attributable to noncontrolling interests	(19,022		)		(2,478		)		(31,720		)
Comprehensive income attributable to Global Payments	$	211,608			$	93,824			$	258,572

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	May 31, 2016				May 31, 2015
ASSETS
Current assets:
Cash and cash equivalents	$	1,044,728			$	650,739
Accounts receivable, net of allowances for doubtful accounts of $353 and $468, respectively	281,612				202,390
Claims receivable, net of allowances for doubtful accounts of $4,868 and $2,684, respectively	6,799				548
Settlement processing assets	1,336,326				2,394,822
Prepaid expenses and other current assets	181,848				41,416
Total current assets	2,851,313				3,289,915
Goodwill	4,829,405				1,491,833
Other intangible assets, net	2,264,708				560,136
Property and equipment, net	493,678				374,143
Deferred income taxes	22,719				30,428
Other noncurrent assets	48,129				32,846
Total assets	$	10,509,952			$	5,779,301
LIABILITIES AND EQUITY
Current liabilities:
Settlement lines of credit	$	378,436			$	592,629
Current portion of long-term debt	135,542				61,784
Accounts payable and accrued liabilities	696,414				326,875
Settlement processing obligations	1,220,315				2,033,900
Total current liabilities	2,430,707				3,015,188
Long-term debt	4,379,744				1,678,283
Deferred income taxes	744,862				202,855
Other noncurrent liabilities	77,235				19,422
Total liabilities	7,632,548				4,915,748
Commitments and contingencies
Equity:
Preferred stock, no par value; 5,000,000 shares authorized and none issued	—				—
Common stock, no par value; 200,000,000 shares authorized; 154,421,585 issued and outstanding at May 31, 2016 and 130,557,676 issued and outstanding at May 31, 2015	—				—
Paid-in capital	1,976,715				148,742
Retained earnings	1,015,811				795,226
Accumulated other comprehensive loss	(246,050		)		(185,992		)
Total Global Payments shareholders’ equity	2,746,476				757,976
Noncontrolling interests	130,928				105,577
Total equity	2,877,404				863,553
Total liabilities and equity	$	10,509,952			$	5,779,301

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended May 31,
	2016				2015				2014
Cash flows from operating activities:
Net income	$	290,217			$	309,115			$	269,952
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	74,192				64,918				60,124
Amortization of acquired intangibles	113,689				72,587				61,945
Share-based compensation expense	30,809				21,056				29,793
Provision for operating losses and bad debts	27,202				14,506				20,574
Deferred income taxes	(18,162		)		81,079				(1,799		)
Other, net	9,257				3,073				(1,484		)
Changes in operating assets and liabilities, net of the effects of acquisitions:
Accounts receivable	(14,542		)		1,248				(18,539		)
Claims receivable	(29,078		)		(9,317		)		(11,569		)
Settlement processing assets and obligations, net	218,061				(78,794		)		(241,431		)
Prepaid expenses and other assets	(35,138		)		14,743				23,788
Accounts payable and other liabilities	(81,506		)		(69,513		)		2,744
Net cash provided by operating activities	585,001				424,701				194,098
Cash flows from investing activities:
Business, intangible and other asset acquisitions, net of cash acquired	(2,035,657		)		(359,187		)		(426,524		)
Capital expenditures	(91,591		)		(92,550		)		(81,411		)
Other	—				10,816				6,265
Net cash used in investing activities	(2,127,248		)		(440,921		)		(501,670		)
Cash flows from financing activities:
Net borrowings (repayments) on settlement lines of credit	(206,009		)		198,884				252,667
Proceeds from issuance of long-term debt	6,078,230				2,496,842				2,690,000
Principal payments of long-term debt	(3,691,608		)		(2,148,907		)		(2,260,597		)
Payment of debt issuance costs	(63,382		)		—				(5,961		)
Repurchase of common stock	(135,954		)		(372,387		)		(447,307		)
Proceeds from stock issued under share-based compensation plans	8,480				22,550				31,727
Common stock repurchased - share-based compensation plans	(12,236		)		(15,690		)		(5,681		)
Tax benefit from share-based compensation plans	7,889				5,176				6,475
Purchase of subsidiary shares from noncontrolling interest	(7,550		)		—				—
Proceeds from sale of subsidiary shares to noncontrolling interest	16,374				—				—
Distributions to noncontrolling interests	(23,308		)		(39,753		)		(36,670		)
Dividends paid	(5,439		)		(5,340		)		(5,757		)
Net cash provided by financing activities	1,965,487				141,375				218,896
Effect of exchange rate changes on cash	(29,251		)		(56,288		)		(9,922		)
Increase (decrease) in cash and cash equivalents	393,989				68,867				(98,598		)
Cash and cash equivalents, beginning of the period	650,739				581,872				680,470
Cash and cash equivalents, end of the period	$	1,044,728			$	650,739			$	581,872

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

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 May 31, 2015	130,558			$	148,742			$	795,226			$	(185,992	)		$	757,976			$	105,577			$	863,553
Net income								271,666								271,666				18,551				290,217
Other comprehensive (loss) income												(60,058		)		(60,058		)		471				(59,587		)
Stock issued under share-based compensation plans	612			8,480												8,480								8,480
Common stock repurchased - share-based compensation plans	(220	)		(12,193		)										(12,193		)						(12,193		)
Tax benefit from share-based compensation plans				7,889												7,889								7,889
Share-based compensation expense				30,809												30,809								30,809
Issuance of common stock in connection with a business combination	25,644			1,879,458												1,879,458								1,879,458
Purchase of subsidiary shares from noncontrolling interest				(11		)										(11		)		(7,539		)		(7,550		)
Sale of subsidiary shares to noncontrolling interest				—												—				16,374				16,374
Distributions to noncontrolling interests																—				(23,308		)		(23,308		)
Contribution of subsidiary shares to noncontrolling interest related to a business combination				3,853												3,853				20,802				24,655
Repurchase of common stock	(2,152	)		(90,312		)		(45,642		)						(135,954		)						(135,954		)
Dividends paid ($0.04 per share)								(5,439		)						(5,439		)						(5,439		)
Balance at May 31, 2016	154,442			$	1,976,715			$	1,015,811			$	(246,050	)		$	2,746,476			$	130,928			$	2,877,404

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

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 May 31, 2014	137,692			$	183,023			$	815,980			$	(1,776	)		$	997,227			$	135,572			$	1,132,799
Net income								278,040								278,040				31,075				309,115
Other comprehensive loss												(184,216		)		(184,216		)		(28,597		)		(212,813		)
Stock issued under share-based compensation plans	2,065			22,550												22,550								22,550
Common stock repurchased - share-based compensation plans	(197	)		(7,435		)										(7,435		)						(7,435		)
Tax benefit from share-based compensation plans				5,176												5,176								5,176
Share-based compensation expense				21,056												21,056								21,056
Distributions to noncontrolling interest																—				(39,753		)		(39,753		)
Noncontrolling interest from business combination																—				7,280				7,280
Repurchase of common stock	(9,002	)		(75,628		)		(293,454		)						(369,082		)						(369,082		)
Dividends paid ($0.04 per share)								(5,340		)						(5,340		)						(5,340		)
Balance at May 31, 2015	130,558			$	148,742			$	795,226			$	(185,992	)		$	757,976			$	105,577			$	863,553

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

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 May 31, 2013	150,852			$	202,396			$	958,751			$	(15,062	)		$	1,146,085			$	140,522			$	1,286,607
Net income								245,286								245,286				24,666				269,952
Other comprehensive income												13,286				13,286				7,054				20,340
Stock issued under share-based compensation plans	3,017			31,727												31,727								31,727
Common stock repurchased - share-based compensation plans	(503	)		(14,498		)										(14,498		)						(14,498		)
Tax benefit from share-based compensation plans				6,351												6,351								6,351
Share-based compensation expense				29,793												29,793								29,793
Distributions to noncontrolling interest																—				(36,670		)		(36,670		)
Repurchase of common stock	(15,674	)		(72,746		)		(382,300		)						(455,046		)						(455,046		)
Dividends paid ($0.04 per share)								(5,757		)						(5,757		)						(5,757		)
Balance at May 31, 2014	137,692			$	183,023			$	815,980			$	(1,776	)		$	997,227			$	135,572			$	1,132,799

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business, consolidation and presentation— 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 in 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. 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.

These 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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and present our financial position, results of operations and cash flows.

Merger with Heartland — On December 15, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Heartland Payment Systems, Inc. ("Heartland"), pursuant to which we merged with Heartland in a cash-and-stock transaction which we completed on April 22, 2016. See "Note 2—Acquisitions" for further information.

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.

Revenue recognition— We provide payment solutions for credit cards, debit cards, electronic payments and check-related services. Revenue is recognized when such services are performed. Revenue for services provided directly to merchants is recorded net of interchange fees charged by card issuing banks. Our primary business model provides payment services directly to merchants as our customers. We also provide similar services indirectly through financial institutions and a limited number of independent sales organizations ("ISOs"). The majority of merchant services revenue is generated on 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 of transactions or the transaction value. Revenue from credit cards and signature debit cards is generally based on a percentage of transaction value along with other related fees, while revenue from PIN-based debit cards is typically based on a fee per transaction.

Cash and cash equivalents— Cash and cash equivalents include cash on hand and all liquid investments with a maturity of three months or less when purchased. We consider certain portions of our cash and cash equivalents to be unrestricted but not available for general purposes. 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 surplus 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. Certain funds collected from our merchants serve as collateral to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. We record a corresponding liability in settlement processing assets and settlement processing obligations in our consolidated balance sheet. While this cash is not restricted in its use, we believe that designating this cash as Merchant Reserves strengthens our fiduciary standing with banks that sponsor us and is in accordance with guidelines set by the card networks. See "Note 3 - Settlement Processing Assets and Obligations" and discussion below for further information. Funds held for customers and the corresponding liability that we record in customer deposits include amounts collected prior to remittance on our customers' behalf.

Settlement processing assets and obligations— Settlement processing assets and obligations represent intermediary balances arising in our settlement process for direct merchants. In accordance with Accounting Standards Codification ("ASC") Subtopic 210-20, Offsetting, we apply offsetting to our settlement processing assets and obligations where a right of setoff exists. See "Note 3 - Settlement Processing Assets and Obligations" for further information.

Reserve for operating losses— Our merchant customers are liable for any charges or losses that occur under the merchant agreement. 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 banks. 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 or Merchant Reserves, guarantees, letters of credit and other types of collateral from 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 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. The estimated known losses and the estimated incurred but not reported losses are subject to the risk that actual amounts may differ significantly from estimates recorded.

As of May 31, 2016 and 2015, the estimated liability for operating losses from merchant card processing services was $2.5 million and $1.3 million, respectively, and was included in settlement processing obligations in the consolidated balance sheets. For the years ended May 31, 2016, 2015 and 2014, the provision for merchant losses was $3.7 million, $4.9 million and $8.7 million, respectively, and was included in cost of service in the consolidated statements of income.

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 always 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. As of May 31, 2016 and 2015, the liabilities for check guarantee losses were $4.9 million and $2.7 million, respectively, which are included as a valuation allowance against claims receivable in the consolidated balance sheets. For the years ended May 31, 2016, 2015 and 2014, we recorded related expenses of $22.8 million, $9.6 million and $11.9 million, respectively, which were included in cost of service in the consolidated statements of income. The estimated check returns and recovery amounts are subject to the risk that actual amounts returned and recovered in the future may differ significantly from the estimated valuation allowance.

As the potential for merchants’ failure to settle individual reversed charges from consumers in our merchant card processing offering and the timing of individual checks clearing the payors’ banks in our check guarantee offering are not predictable, it is not practicable to calculate the maximum amounts for which we could be liable under the guarantees issued under the merchant card processing and check guarantee service offerings. It is also not practicable to estimate the extent to which merchant collateral or subsequent collections of dishonored checks, respectively, would offset these exposures due to these same uncertainties.

Property and equipment— Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method, except for certain technology assets discussed below. Leasehold improvements are amortized over the lesser of the remaining term of the lease and the useful life of the asset.

We develop software that is used in providing processing services to customers. Capitalization of internally developed software for our internal use, primarily associated with operating platforms, occurs when we have completed the preliminary

project stage, management authorizes the project, management commits to funding the project, and it is probable the project will be completed and 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.

As of May 31, 2016, we had placed into service $104.5 million of hardware and software associated with our most recently developed authorization platform. This platform serves as a front-end operating environment for merchant processing and is intended to replace a number of legacy platforms. Depreciation and amortization 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 pattern of the benefit to be derived from 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 and amortization expense will increase as we complete migrations of additional merchants to this authorization platform.

Goodwill— We test goodwill for impairment at the reporting unit level annually as of January 1 and more often if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Macroeconomic factors such as general economic conditions, fluctuations in foreign currency exchange rates and other developments in equity and credit markets are monitored for indications that goodwill assigned to one of our reporting units may be impaired. We have the option of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. The decision of whether to perform a qualitative assessment is made annually by reporting unit.

When conducting a qualitative assessment, we consider factors including general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, 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 amount, a two-step quantitative test is required. In the first step, the reporting unit's carrying amount, including goodwill, is compared to its estimated fair value. If the carrying amount of the reporting unit is greater than its fair value, step two must be performed to measure the amount of the impairment loss, if any. Step two measures the amount of the impairment loss 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, if any, of the carrying amount over the implied fair value of the goodwill would be the amount of the impairment loss.

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.

Other intangible assets— Other intangible assets primarily represent customer-related intangible assets (such as customer lists and merchant contracts), contract-based intangible assets (such as noncompete agreements, referral agreements and processing rights), acquired technologies, trademarks and trade names associated with acquisitions. Customer-related intangible assets, contract-based intangible assets, acquired technologies, trademarks and trade names 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 cash inflows, cash outflows 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 acquired technologies are based on our expectations for the remaining useful life of developed technology before it becomes substantially obsolete. 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.

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 acquisition-date fair 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 number of asset interdependencies that exist in our business. We believe that our accelerated method reflects the pattern of the benefit to be derived from the acquired customer relationships.

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

Impairment of long-lived assets— 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, a write-down to fair value is recorded. 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. The carrying amounts of our long-lived assets, including property and equipment and finite-life intangible assets, were not impaired at May 31, 2016 or May 31, 2015.

Accrued buyout liability— Certain members of our direct sales force are paid residual commissions based on the gross margin generated by certain merchants. We have the right, but not the obligation, to buy out some or all of these commissions and intend to do so periodically. Such purchases of the commissions are at a fixed multiple of the last 12 months' commissions. Because of our intent and ability to execute purchases of the residual commissions, and the mutual understanding between us and our salespersons, we have accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. We therefore record the amount that we would have to pay (the "settlement cost") to buy out non-servicing related commissions in their entirety from vested salespersons, and an estimated amount for unvested salespersons, based on their progress towards vesting and the expected percentage that will become vested based on historical experience. As noted above, as the liability increases over the first year of the related merchant contract, we record a related asset for currently vested salespersons. Subsequent changes in the estimated accrued buyout liability due to merchant attrition, same-store sales growth or contraction and changes in gross margin are included in the selling, general and administrative expense in the consolidated statement of income.

The accrued buyout liability is based on merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior 12 months, and the contractual buyout multiple. The liability related to a new merchant is therefore zero when the merchant is installed, and increases over the 12 months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect our estimate of the percentage of unvested salespersons that will become vested.

The classification of the accrued buyout liability between current and noncurrent on the consolidated balance sheet is based upon our estimate of the amount of the accrued buyout liability that we reasonably expect to pay over the next 12 months.

Income taxes— Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Derivative instruments— We may use interest rate swaps or other derivative instruments to manage a portion of our exposure to the variability in interest rates. Our objective in managing our exposure to fluctuation in interest rates is to better control this element of cost and to mitigate the earnings and cash flow volatility associated with changes in applicable rates. We have established policies and procedures that encompass risk-management philosophy and objectives, guidelines for derivative instrument usage, counterparty credit approval, and the monitoring and reporting of derivative activity. We do not enter into derivative instruments for the purpose of speculation.

We formally designate and document instruments at inception that qualify for hedge accounting of underlying exposures. When qualified for hedge accounting, these financial instruments are recognized at fair value in our consolidated balance sheets, and changes in fair value are recognized as a component of other comprehensive income and included in accumulated other

comprehensive income within equity in our consolidated balance sheets. Cash flows resulting from settlements are presented as a component of cash flows from operating activities within our consolidated statements of cash flows.

We formally assess, both at inception and at least quarterly, whether the financial instruments used in hedging transactions are effective at offsetting changes in cash flows of the related underlying exposure. Fluctuations in the value of these instruments generally are offset by changes in the cash flows of the underlying exposures being hedged. This offset is driven by the high degree of effectiveness between the exposure being hedged and the hedging instrument. We designated each of our interest rate swap agreements as a cash flow hedge of interest payments on variable rate borrowings. Any ineffective portion of a change in the fair value of a qualifying instrument would be immediately recognized in earnings. See "Note 7 - Long-Term Debt and Credit Facilities" for more information about our interest rate swaps.

Fair value measurements — Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. GAAP establishes a fair value hierarchy that categorizes the inputs to valuation techniques into three broad levels. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that are observable such as interest rates and yield curves. Level 3 inputs are developed from unobservable data reflecting our assumptions and include situations where there is little or no market activity for the asset or liability.

Fair value of financial instruments— The carrying amounts of cash and cash equivalents, receivables, settlement lines of credit, accounts payable and accrued liabilities, approximate their fair value given the short-term nature of these items. Our long-term debt includes variable interest rates based on the London Interbank Offered Rate ("LIBOR"), the Federal Funds Effective Rate (as defined in the debt agreements) or the prime rate, plus a margin based on our leverage position. At May 31, 2016, the carrying amount of our long-term debt exclusive of debt issuance costs approximates fair value, which is calculated using Level 2 inputs. The fair values of our swap agreements 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, and classified within Level 2 of the valuation hierarchy. See "Note 7 – Long-Term Debt and Credit Facilities" for further information.

Foreign currencies— We have significant operations in a number of foreign subsidiaries whose functional currency is the local currency. The assets and liabilities of subsidiaries whose functional currency is a foreign currency are translated at the period-end rate of exchange. Income statement items are translated at the weighted-average rates prevailing during the period. The resulting translation adjustment is recorded as a component of other comprehensive income and is included in accumulated comprehensive income within equity in our consolidated balance sheets.

Gains and losses on transactions denominated in currencies other than the functional currency are generally included in determining net income for the period. For the years ended May 31, 2016, 2015 and 2014, our transaction gains and losses were insignificant. Transaction gains and losses on intercompany balances of a long-term investment nature are recorded as a component of other comprehensive income and included in accumulated comprehensive income within equity in our consolidated balance sheets.

Stock split— Our board of directors declared a two-for-one stock split effected in the form of a stock dividend of one additional share of common stock for each outstanding share of common stock (the "Stock Split"), and the stock dividend was paid on November 2, 2015 to all shareholders of record as of October 21, 2015. Common share and per share data for prior periods in the consolidated financial statements and in the notes to our consolidated financial statements have been adjusted to reflect the Stock Split, except for authorized common shares, which were not affected.

Earnings per share— Basic earnings per share is computed by dividing reported net income attributable to Global Payments by the weighted-average number of shares outstanding during the period. Earnings available to common shareholders is the same as reported net income attributable to Global Payments for all periods presented.

Diluted earnings per share 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 earnings per share. 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 earnings per share. There were no such antidilutive stock options that would have an antidilutive effect on the computation of diluted earnings per share for the years ended May 31, 2016, 2015, and 2014.

The following table sets forth the computation of the diluted weighted-average number of shares outstanding for the years ended May 31, 2016, 2015 and 2014:

	2016			2015			2014
	(in thousands)
Basic weighted-average number of shares outstanding	132,284			134,072			144,238
Plus: Dilutive effect of stock options and other share-based awards	883			850			1,138
Diluted weighted-average number of shares outstanding	133,167			134,922			145,376

Repurchased shares— We account for the retirement of repurchased shares using the par value method under which the repurchase price is charged to paid-in capital up to the amount of the original issue proceeds of those shares. When the repurchase price is greater than the original issue proceeds, the excess is charged to retained earnings. We use a last-in, first-out cost flow assumption to identify the original issue proceeds of the shares repurchased.

Recently Adopted Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" to simplify the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. We adopted this ASU during the year ended May 31, 2016 and, as a result, have presented prior-period amounts for deferred income taxes in a manner that conforms to the current-period presentation. The adoption of this standard was not material to our balance sheets and did not affect our results of operations or cash flows in either the period of adoption or the previous periods.

In September 2015, the FASB issued ASU 2015-16, "Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments." The update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, including the cumulative effect of the change in provisional amount as if the accounting had been completed at the acquisition date. The adjustments related to prior reporting periods since the acquisition date must be disclosed by income statement line item either on the face of the income statement or in the notes to the financial statements. We adopted this ASU during the year ended May 31, 2016. The adoption of this standard was not material to our balance sheets and did not affect our results of operations or cash flows in either the period of adoption or the previous periods. See "Note 2 - Acquisitions" for more information regarding adjustments to provisional amounts that occurred during the year ended May 31, 2016.

In April 2015, the FASB issued ASU 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. In August 2015, the FASB issued ASU 2015-15, "Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting," to clarify that an entity may elect to present debt issuance costs related to a line-of-credit arrangement as an asset, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted both ASUs during the year ended May 31, 2016, electing to continue to present debt issuance costs related to our revolving credit facilities as an asset, and as a result, have presented prior-period amounts for debt issuance costs related to our term loans in a manner that conforms to the current-period presentation. The adoption of these standards was not material to our balance sheets and did not affect our results of operations or cash flows in either the period of adoption or the previous periods. See "Note 7 - Long-Term Debt and Credit Facilities" for more information about the presentation of debt issuance costs.

Recently Issued Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial instruments." The amendments in this update change how companies measure and recognize credit impairment for many financial assets. The new expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets (including trade receivables) that are in the scope of

the standard. The update also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The guidance will be effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for annual and interim periods in fiscal years beginning after December 15, 2018. We are evaluating the effect of ASU 2016-13 on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The amendments in this update will change how companies account for certain aspects of share-based payments to employees. Entities will be required to recognize the income tax effects of awards in the statement of income when the awards vest or are settled. This update also changes the guidance on employers’ accounting for an employee’s use of shares to satisfy the employer’s statutory income tax withholding obligation, and permits entities to elect to recognize forfeitures based on actuals or estimates. Finally, the update eliminates the hypothetical APIC pool, permits stock option deductions even if not realized in the current year on a return, requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity and potentially has a dilutive effect on EPS to the extent that excess tax benefits have historically been included in the calculation of diluted EPS. The amendments in this update will be effective for annual periods beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. We are evaluating the effect of ASU 2016-09 on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases." The amendments in this update require lessees to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. Accounting by lessors will remain largely unchanged. The guidance will be effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Adoption will require a modified retrospective transition where the lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented. We are evaluating the effect of ASU 2016-02 on our consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this update address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through earnings. Equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this update. The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Except for specific aspects of this pronouncement, early adoption of the amendments in this update is not permitted. We are evaluating the effect of ASU 2016-01 on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." The amendments in this update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance will not change GAAP for a customer’s accounting for service contracts. The amendments will be effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. We will adopt ASU 2015-05 as of June 1, 2016. The adoption of this standard is not expected to be material to our balance sheet and/or our results of operations or cash flows in either the period of adoption or the previous periods.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most existing revenue recognition guidance in GAAP and permits the use of either the retrospective or cumulative effect transition method. The standard requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. ASU 2014-09, as amended by ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," is effective for fiscal

years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2016. We are evaluating the effect of ASU 2014-09, as well as other clarifications and technical guidance issued by the FASB related to this new revenue standard, on our consolidated financial statements.

NOTE 2— ACQUISITIONS

Fiscal 2016

Heartland

On December 15, 2015, we entered into the Merger Agreement with Heartland, pursuant to which we merged with Heartland in a cash-and-stock transaction that we completed on April 22, 2016. In accordance with the terms and subject to the conditions set forth in the Merger Agreement, as a result of the transaction, each outstanding share of Heartland common stock was converted into the right to receive $53.28 in cash and 0.6687 shares of our common stock, which as of the closing date represented total purchase consideration of $3.9 billion. 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 "Note 7 - Long-Term Debt and Credit Facilities" for further discussion of our credit facility agreements.

The following table summarizes the components of the consideration transferred on April 22, 2016 (in thousands):

Cash consideration paid to Heartland's stockholders		$	2,043,362
Fair value of Global Payments common stock issued to Heartland's stockholders		1,879,458
Total purchase consideration		$	3,922,820

The merger date fair value of common stock issued to Heartland stockholders and equity award holders was determined based on 38.4 million shares of Heartland common stock, including common stock outstanding and equity awards accelerated in accordance with the Merger Agreement, multiplied by the exchange ratio of 0.6687 and the closing share price of Global Payments common stock as of April 22, 2016 of $73.29 per share, as shown in the table below (in thousands, except share data):

Shares of Heartland common stock		38,350
Exchange ratio		0.6687
Shares of Global Payments common stock issued		25,645
Price per share of Global Payments common stock		$	73.29
Fair value of Global Payments common stock issued to Heartland's stockholders		$	1,879,458

This transaction was accounted for as a business combination, which requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date. The initial accounting for these acquisitions is not complete as of May 31, 2016. 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. Additional time is needed particularly 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. 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	$	304,747
Accounts receivable	68,548
Prepaid expenses and other assets	106,450
Identified intangible assets	1,639,040
Property and equipment	112,222
Debt	(437,933		)
Accounts payable and accrued liabilities	(453,550		)
Settlement processing obligations	(20,978		)
Deferred income taxes	(553,432		)
Other liabilities	(58,542		)
Total identifiable net assets	706,572
Goodwill	3,216,248
Total purchase consideration	$	3,922,820

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, 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. Goodwill of $3.2 billion arising from the merger, included in the North America segment, was attributable to expected growth opportunities, potential synergies from combining our existing businesses and an assembled workforce, and is not deductible for income tax purposes. Due to the timing of our merger with Heartland, we are still in the process of assigning goodwill to our reporting units. During the year ended May 31, 2016, we incurred transaction costs in connection with the merger of $24.4 million, which are recorded in selling, general and administrative expenses in the consolidated statements of income.

The following reflects the preliminary estimated fair values of the identified intangible assets (in thousands):

Customer-related intangible assets		$	977,400
Acquired technology		457,000
Trademarks and trade names		176,000
Covenants-not-to-compete		28,640
Total estimated acquired intangible assets		$	1,639,040

The preliminary estimated fair value of customer-related intangible assets was determined using the income approach, which is based on projected cash flows discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. Other significant assumptions include terminal value margin rates, future capital expenditures and future working capital requirements. Acquired technology was valued using the replacement cost method, which required us to estimate the cost to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Trademarks and trade names were valued using the relief-from-royalty approach. This method assumes that trade marks and trade names have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method required us to

estimate the future revenue for the related brands, the appropriate royalty rate and the weighted-average cost of capital. The discount rate used is the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

The weighted-average estimated amortization period for the total estimated acquired intangible assets is approximately 11 years. The customer-related intangible assets have an estimated amortization period range of 7-20 years. The acquired technology has an estimated amortization period of 5 years. The trademarks and trade names have an estimated amortization period of 7 years. Covenants-not-to-compete have an estimated amortization period range of 1-4 years.

Heartland's revenues and operating income represented approximately 4% and less than 0.5% of our total consolidated revenues and operating income, respectively, for the year ended May 31, 2016. The following unaudited pro forma information shows the results of our operations for the years ended May 31, 2016 and May 31, 2015 as if our merger with Heartland had occurred on June 1, 2014. The unaudited pro forma information reflects the effects of applying our accounting policies and certain pro forma adjustments to the combined historical financial information of Global Payments and Heartland. The pro forma adjustments include incremental amortization and depreciation expense, incremental interest expense associated with new long-term debt, a reduction of revenues and operating expenses associated with fair value adjustments made in applying the acquisition-method of accounting and the elimination of nonrecurring transaction costs directly related to the merger.

The unaudited pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the merger had been made as of that date. The unaudited pro forma information is also not intended to be a projection of future results due to the integration of the acquired business.

	Year Ended May 31,
	Unaudited
	2016				2016				2015				2015
	(Actual)				(Pro forma)				(Actual)				(Pro forma)
	(in thousands, except per share data)
Total revenues	$	2,898,150			$	3,993,974			$	2,773,718			$	3,668,851
Net income attributable to Global Payments	$	271,666			$	234,632			$	278,040			$	149,900

FIS Gaming Business

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. We acquired the FIS Gaming Business to expand our direct distribution and service offerings in the gaming industry. This transaction was accounted for as a business combination. We recorded the assets acquired and liabilities assumed at their estimated fair values as of the merger date. Transaction costs associated with this business combination were not material. Measurement-period adjustments, which are reflected in the table below, had no material effect on earnings or other comprehensive income for the current or prior periods.

The revenue and earnings of the FIS Gaming Business for the year ended May 31, 2016 were not material nor were the historical revenue and earnings of the FIS Gaming Business material for the purpose of presenting pro forma information for the current or prior-year periods.

The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as originally determined and as revised for measurement period adjustments, including a reconciliation to the total purchase consideration, are as follows:

	As Previously Determined				Measurement Period Adjustments				Revised
	(in thousands)
Customer-related intangible assets	$	135,200			$	8,200			$	143,400
Liabilities	(150		)		—				(150		)
Total identifiable net assets	135,050				8,200				143,250
Goodwill	102,450				(8,200		)		94,250
Total purchase consideration	$	237,500			$	—			$	237,500

Goodwill arising from the acquisition, included in the North America segment, was attributable to expected growth opportunities, including cross-selling opportunities at existing and acquired gaming client locations, operating synergies in the gaming business and assembled workforce. Goodwill associated with this acquisition is deductible for income tax purposes. The customer-related intangible assets have an estimated amortization period of 15 years.

Fiscal 2015

Realex Payments

On March 25, 2015, we acquired approximately 95% of the outstanding shares of Pay and Shop Limited for €110.2 million in cash ($118.9 million equivalent as of the acquisition date) funded from borrowings on our revolving credit facility. Pay and Shop Limited, which does business as Realex Payments ("Realex"), 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. This transaction was accounted for as a business combination. We recorded the assets acquired, liabilities assumed and noncontrolling interest at their estimated fair values as of the acquisition date. In connection with the acquisition of Realex, we paid a transaction-related tax of $1.2 million. Other acquisition costs were not material. The revenue and earnings of Realex for the year ended May 31, 2015 were not material nor were the historical revenue and earnings of Realex material for the purpose of presenting pro forma information for the current or prior-year periods.

The estimated acquisition date fair values of the assets acquired, liabilities assumed and the noncontrolling interest, including a reconciliation to the total purchase consideration, are as follows (in thousands):

Cash		$	4,082
Customer-related intangible assets		16,079
Acquired technology		39,820
Trade name		3,453
Other intangible assets		399
Other assets		6,213
Liabilities		(3,479		)
Deferred income tax liabilities		(7,216		)
Total identifiable net assets		59,351
Goodwill		66,809
Noncontrolling interest		(7,280		)
Total purchase consideration		$	118,880

Goodwill of $66.8 million arising from the acquisition, included in the Europe segment, was attributable to expected growth opportunities in Europe, potential synergies from combining our existing business with gateway services and payment service

provisioning in certain markets and an assembled workforce to support the newly acquired technology. Goodwill associated with this acquisition is not deductible for income tax purposes. The customer-related intangible assets have an estimated amortization period of 16 years. The acquired technology has an estimated amortization period of 10 years. The trade name has an estimated amortization period of 7 years.

On October 5, 2015, we paid €6.7 million ($7.5 million equivalent as of October 5, 2015) to acquire the remaining shares of Realex after which we own 100% of the outstanding shares.

Ezidebit

On October 10, 2014, we completed the acquisition of 100% of the outstanding stock of 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. This transaction was accounted for as a business combination. We recorded the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. Certain adjustments to estimated fair value were recorded during the year ended May 31, 2016 based on new information obtained that existed as of the acquisition date. During the measurement period, management determined that deferred income taxes should be reflected for certain nondeductible intangible assets. Measurement-period adjustments, which are reflected in the table below, had no material effect on earnings or other comprehensive income for the current or prior periods. The revenue and earnings of Ezidebit for the year ended May 31, 2015 were not material nor were the historical revenue and earnings of Ezidebit material for the purpose of presenting pro forma information for the current or prior-year periods. Transaction costs associated with this business combination were not material.

The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as originally determined and as revised for measurement period adjustments, including a reconciliation to the total purchase consideration, are as follows:

	As Previously Determined				Measurement Period Adjustments				Revised
	(in thousands)
Cash	$	45,826			$	—			$	45,826
Customer-related intangible assets	42,721				—				42,721
Acquired technology	27,954				—				27,954
Trade name	2,901				—				2,901
Other assets	2,337				—				2,337
Deferred income tax assets (liabilities)	1,815				(11,603		)		(9,788		)
Other liabilities	(49,797		)		—				(49,797		)
Total identifiable net assets	73,757				(11,603		)		62,154
Goodwill	192,225				11,603				203,828
Total purchase consideration	$	265,982			$	—			$	265,982

Goodwill of $203.8 million arising from the acquisition, included in the Asia-Pacific segment, was attributable to expected growth opportunities in Australia and New Zealand, as well as growth opportunities and operating synergies in integrated payments in our existing Asia-Pacific and North America markets. Goodwill associated with this acquisition is not deductible for income tax purposes. The customer-related intangible assets have an estimated amortization period of 15 years. The acquired technology has an estimated amortization period of 15 years. The trade name has an estimated amortization period of 5 years.

Fiscal 2014

PayPros

On March 4, 2014, we completed the acquisition of 100% of the outstanding stock of Payment Processing, Inc. ("PayPros") for $426.5 million in cash. We funded the acquisition with a combination of cash on hand and borrowings under our long-term debt facilities. PayPros is a provider of fully-integrated payment solutions for small-to-medium sized merchants in the United States. PayPros delivers its services through a network of technology-based enterprise software partners to vertical markets that are complementary to the markets served by Accelerated Payment Technologies, which we acquired in October 2012. We acquired PayPros to expand our direct distribution capabilities in the United States and to further enhance our existing integrated solutions offerings. This transaction was recorded as a business combination. We recorded the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. Transaction costs associated with this business combination were not material.

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date (in thousands):

Property and equipment		$	1,680
Customer-related intangible assets		147,500
Contract-based intangible assets		30,200
Acquired technology		10,800
Other assets		3,872
Deferred income tax liabilities		(38,478		)
Total identifiable net assets		155,574
Goodwill		270,878
Total purchase consideration		$	426,452

Goodwill of $270.9 million arising from the acquisition, included in the North America segment, was attributable primarily to operating synergies with the services offered and markets served by PayPros. The goodwill associated with the acquisition is not deductible for income tax purposes. The customer-related intangible assets and the contract-based intangible assets have estimated amortization periods of 13 years. The acquired technology has an estimated amortization period of 7 years.

The following unaudited pro forma information shows the results of our operations for year ended May 31, 2014 as if the PayPros acquisition had occurred June 1, 2012. The unaudited pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of that date. The unaudited pro forma information is also not intended to be a projection of future results due to the integration of the acquired business.

	Year Ended May 31,
	Unaudited
	2014				2014
	(Actual)				(Pro forma)
	(in thousands, except per share data)
Total revenues	$	2,554,236			$	2,628,547
Net income attributable to Global Payments	$	245,286			$	241,272

NOTE 3—SETTLEMENT PROCESSING ASSETS AND OBLIGATIONS

Funds settlement refers to the process of transferring funds for sales and credits between card issuers and merchants. For transactions processed on our systems, we use our internal network to provide funding instructions to financial institutions that in turn fund the merchants. We process funds settlement under two models, a sponsorship model and a direct membership model.

Under the sponsorship model, we are designated as a Merchant Service Provider by MasterCard and an Independent Sales Organization by Visa, which means that member clearing banks ("Member") sponsor us and require our adherence to the standards of the payment networks. In certain markets, we have sponsorship or depository and clearing agreements with financial institution sponsors. These agreements allow us to route transactions under the Members' control and identification numbers to clear credit card transactions through MasterCard and Visa. In this model, the standards of the payment networks restrict us from performing funds settlement or accessing merchant settlement funds, and, instead, require that these funds be in the possession of the Member until the merchant is funded.

Under the direct membership model, we are members in various payment networks, allowing us to process and fund transactions without third-party sponsorship. In this model, we route and clear transactions directly through the card brand’s network and are not restricted from performing funds settlement. Otherwise, we process these transactions similarly to how we process transactions in the sponsorship model. We are required to adhere to the standards of the payment networks in which we are direct members. We maintain relationships with financial institutions, which may also serve as our Member sponsors for other card brands or in other markets, to assist with funds settlement.

Timing differences, interchange fees, Merchant Reserves and exception items cause differences between the amount received from the payment networks and the amount funded to the merchants. These intermediary balances arising in our settlement process for direct merchants are reflected as settlement processing assets and obligations on our consolidated balance sheets. Settlement processing assets and obligations include the components outlined below:

•	Interchange reimbursement - our receivable from merchants for the portion of the discount fee related to reimbursement of the interchange fee.

•	Receivable from Members - our receivable from the Members for transactions in which we have advanced funding to the Members to fund merchants in advance of receipt of funding from networks.

•	Receivable from networks - our receivable from a payment network for transactions processed on behalf of merchants where we are a direct member of that particular network.

•	Exception items - items such as customer chargeback amounts received from merchants.

•	Merchant Reserves - reserves held to minimize contingent liabilities associated with losses that may occur under the merchant agreement.

•	Liability to Members - our liability to the Members for transactions for which funding from the payment network has been received by the Members but merchants have not yet been funded.

•	Liability to merchants - our liability to merchants for transactions that have been processed but not yet funded where we are a direct member of a particular payment network.

•	Reserve for operating losses - our allowance for charges or losses that we are not able to collect from the merchants due to merchant fraud, insolvency, bankruptcy or any other merchant-related reason.

•	Reserve for sales allowances.

We apply offsetting to our settlement processing assets and obligations where a right of setoff exists. In the sponsorship model, we apply offsetting by Member agreement because the Member is ultimately responsible for funds settlement. With these Member transactions, we do not have access to the gross proceeds of the receivable from the payment networks and, thus, do not have a direct obligation or any ability to satisfy the payable to fund the merchant. In these situations, we apply offsetting to determine a net position for each Member agreement. If that net position is an asset, we reflect the net amount in settlement processing assets on our consolidated balance sheet, and we present the individual components in the settlement processing assets table below. If that net position is a liability, we reflect the net amount in settlement processing obligations on our consolidated balance sheet, and we present the individual components in the settlement processing obligations table below. In the direct membership model, offsetting is not applied, and the individual components are presented as an asset or obligation based on the nature of that component.

As of May 31, 2016 and 2015, settlement processing assets and obligations consisted of the following:

	2016				2015
	(in thousands)
Settlement processing assets:
Interchange reimbursement	$	150,644			$	186,660
(Liability to) receivable from Members	(14,997		)		294,837
Receivable from networks	1,203,308				1,919,148
Exception items	3,003				4,920
Merchant Reserves	(5,632		)		(10,743		)
	$	1,336,326			$	2,394,822
Settlement processing obligations:
Interchange reimbursement	$	193,989			$	68,444
Liability to Members	(261,945		)		(628		)
Liability to merchants	(1,005,009		)		(1,931,390		)
Exception items	5,827				5,331
Merchant Reserves	(149,667		)		(169,442		)
Reserve for operating losses	(2,460		)		(1,286		)
Reserve for sales allowances	(1,050		)		(4,929		)
	$	(1,220,315	)		$	(2,033,900	)

NOTE 4—PROPERTY AND EQUIPMENT

As of May 31, 2016 and 2015, property and equipment consisted of the following:

	Range of Useful Lives (Years)		2016				2015
			(in thousands)
Land	N/A		$	6,221			$	1,571
Buildings	25-38		62,901				26,236
Equipment	2-10		209,201				197,186
Software	2-10		290,997				248,137
Leasehold improvements	3-15		40,452				20,458
Furniture and fixtures	3-7		17,489				3,705
			627,261				497,293
Less accumulated depreciation and amortization			(200,669		)		(179,932		)
Work in progress			67,086				56,782
			$	493,678			$	374,143

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

As of May 31, 2016 and 2015, goodwill and other intangible assets consisted of the following:

	2016				2015
	(in thousands)
Goodwill	$	4,829,405			$	1,491,833
Other intangible assets:
Customer-related intangible assets	$	1,864,709			$	718,011
Acquired technologies	549,293				93,194
Trademarks and trade names	188,763				10,777
Contract-based intangible assets	159,890				130,874
	2,762,655				952,856
Less accumulated amortization on:
Customer-related intangible assets	414,979				342,488
Acquired technologies	26,403				8,509
Trademarks and trade names	7,830				4,437
Contract-based intangible assets	48,735				37,286
	497,947				392,720
	$	2,264,708			$	560,136

The following table sets forth the changes in the carrying amount of goodwill for the years ended May 31, 2016 and 2015:

	North America				Europe				Asia-Pacific				Total
	(in thousands)
Balance at May 31, 2014	$	786,655			$	491,038			$	59,592			$	1,337,285
Goodwill acquired	4,794				67,220				192,225				264,239
Effect of foreign currency translation	(11,715		)		(72,337		)		(25,639		)		(109,691		)
Balance at May 31, 2015	779,734				485,921				226,178				1,491,833
Goodwill acquired	3,318,768				—				53,402				3,372,170
Effect of foreign currency translation	(3,872		)		(13,737		)		(15,397		)		(33,006		)
Measurement-period adjustments	(8,200		)		(411		)		7,019				(1,592		)
Balance at May 31, 2016	$	4,086,430			$	471,773			$	271,202			$	4,829,405

There was no accumulated impairment loss as of May 31, 2016, May 31, 2015 or May 31, 2014.

Customer-related intangible assets, acquired technologies and trademarks and trade names acquired during the year ended May 31, 2016 had weighted-average amortization periods of 13.9 years, 5.0 years and 7.0 years, respectively. Customer-related intangible assets, acquired technologies and trademarks and trade names acquired during the year ended May 31, 2015 had weighted-average amortization periods of 15.1 years, 9.1 years and 6.1 years, respectively. Amortization expense of acquired intangibles was $113.7 million, $72.6 million, and $61.9 million for fiscal 2016, 2015 and 2014, respectively.

The estimated amortization expense of acquired intangibles as of May 31, 2016 for the next five fiscal years, calculated using the exchange rate at the date of acquisition, if applicable, is as follows (in thousands):

2017	$	321,802
2018	301,258
2019	294,294
2020	275,560
2021	256,312

NOTE 6—OTHER ASSETS

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 interest. 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.

NOTE 7—LONG-TERM DEBT AND CREDIT FACILITIES

As of May 31, 2016 and 2015, long-term debt consisted of the following:

	2016				2015
	(in thousands)
Term loans (face amounts of $3,530,000 and $1,234,375 at May 31, 2016 and 2015, respectively, less unamortized debt issuance costs of $51,770 and $2,433 at May 31, 2016 and 2015, respectively)	$	3,478,230			$	1,231,942
Revolving credit facility	1,037,000				508,125
Capital lease obligations	56				—
Total long-term debt	4,515,286				1,740,067
Less current portion of long-term debt (face amounts of $145,938 and $62,500 at May 31, 2016 and 2015, respectively, less unamortized debt issuance costs of $10,442 and $716 at May 31, 2016 and 2015, respectively) and current portion of capital lease obligations of $46	135,542				61,784
Long-term debt, excluding current portion	$	4,379,744			$	1,678,283

Maturity requirements on long-term debt as of May 31, 2016 by fiscal year are as follows (in thousands):

2017	$	145,938
2018	192,300
2019	219,700
2020	219,700
2021 and thereafter	3,789,362
Total	$	4,567,000

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 an amendment to the 2015 Credit Facility Agreements (as amended, the "2016 Credit Facility Agreement") to, among other things, (i) accelerate our repayment schedule for the Term A Loan, effective as of February 26, 2016, and (ii) provide security for the 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. Substantially all of the assets of our domestic subsidiaries are pledged as collateral under the 2016 Credit Facility Agreement.

The 2016 Credit Facility Agreement provides for an interest rate, at our election, of either LIBOR or a base rate, in each case plus a leverage-based margin. As of May 31, 2016, the interest rates on the Term A Loan, the Term B Loans and the Delayed Draw Facility were 2.95%, 3.94% and 2.91%, respectively.

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 quarterly installments of $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. As of May 31, 2016, the interest rate on the Revolving Credit Facility was 2.91%. In addition, we are required to pay a quarterly commitment fee on the unused portion of the Revolving Credit Facility. 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 $63.4 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. The weighted-average interest rate on these borrowings was 1.8% and 1.5%, at May 31, 2016 and 2015, respectively.

During the year ended May 31, 2016, the maximum and average outstanding balances under these lines of credit 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 1.00as 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, the payment of 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.

Interest Rate Swap 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. A $500 million notional interest rate swap agreement, which became effective on October 31, 2014, effectively converted $500 million of our variable-rate debt to a fixed rate of 1.52% plus a leverage-based margin and will mature on February 28, 2019. A $250 million notional interest rate swap, which became effective on August 28, 2015, effectively converted $250 million of our variable-rate debt to a fixed rate of 1.34% plus a leverage-based margin and will mature on July 31, 2020.

Net amounts to be received or paid under the swap agreements are reflected as adjustments to interest expense. Since we have designated the interest rate swap agreements as portfolio cash flow hedges, unrealized gains or losses resulting from adjusting the swaps to fair value are recorded as components of other comprehensive income, except for any ineffective portion of the change in fair value, which would be immediately recorded in interest expense. During the years ended May 31, 2016 and 2015, there was no ineffectiveness. The fair values of the interest rate swaps were determined based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. These derivative instruments were classified within Level 2 of the valuation hierarchy.

The table below presents the fair values of our derivative financial instruments designated as cash flow hedges included within accounts payable and accrued liabilities in the consolidated balance sheets (in thousands):

		2016				2015
Interest rate swaps ($750 million notional)		$	10,775			$	6,157

The table below presents the effects of our interest rate swaps on the consolidated statements of income and comprehensive income for the years ended May 31, 2016 and 2015 (in thousands):

		2016				2015
Amount of loss recognized in other comprehensive loss		$	12,859			$	10,116
Amount of loss recognized in interest expense		$	8,240			$	3,958

At May 31, 2016, the amount in accumulated other comprehensive loss related to our interest rate swaps that is expected to be reclassified into interest expense during the next 12 months was approximately $5.9 million.

Interest Expense

Interest expense was $67.9 million, $39.9 million and $37.5 million for the years ended May 31, 2016, 2015 and 2014, respectively.

NOTE 8—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of May 31, 2016 and 2015, accounts payable and accrued liabilities consisted of the following:

	2016				2015
	(in thousands)
Customer deposits	$	225,067			$	45,333
Compensation and benefits	90,658				57,238
Fees and assessments from card networks	54,234				39,417
Unearned revenue	42,027				5,239
Commissions payable to third parties	37,589				63,737
Trade accounts payable	25,195				22,836
Current portion of accrued buyout liability(1)	20,400				—
Third party processing fees	16,985				4,399
Other	184,259				88,676
	$	696,414			$	326,875

(1)Noncurrent portion of accrued buyout liability of $49.1 million is included in other noncurrent liabilities on the consolidated balance sheet as of May 31, 2016.

NOTE 9—INCOME TAX

The provision for income taxes for the years ended May 31, 2016, 2015 and 2014 consisted of the following:

	2016				2015				2014
	(in thousands)
Current income tax expense (benefit):
Federal	$	26,493			$	25,022			$	49,178
State	5,454				3,905				3,856
Foreign	56,689				(10,346		)		48,075
	88,636				18,581				101,109
Deferred income tax expense (benefit):
Federal	(18,205		)		14,822				1,568
State	(3,620		)		3,606				1,206
Foreign	3,884				70,986				3,515
	(17,941		)		89,414				6,289
	$	70,695			$	107,995			$	107,398

The income tax expense allocated to noncontrolling interests was $7.3 million, $8.6 million and $5.2 million for the years ended May 31, 2016, 2015 and 2014, respectively.

The following presents income before income taxes for the years ended May 31, 2016, 2015 and 2014:

	2016				2015				2014
	(in thousands)
United States	$	59,876			$	135,901			$	153,453
Foreign	301,036				281,209				223,897
	$	360,912			$	417,110			$	377,350

Our effective tax rates for the years ended May 31, 2016, 2015 and 2014, respectively, differ from the federal statutory rate as follows:

	2016			2015			2014
Federal U.S. statutory rate	35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit	0.4			1.1			0.9
Foreign income taxes (primarily U.K.)	(10.1	)		(8.5	)		(7.2	)
Foreign interest income not subject to tax	(2.6	)		(1.8	)		(2.1	)
Taxes on unremitted earnings	(3.5	)		—			—
Tax credits and other	0.4			1.0			3.1
Effective tax rate attributable to Global Payments	19.6			26.8			29.7
Effective tax rate allocated to noncontrolling interests	—			(0.9	)		(1.2	)
Effective tax rate	19.6	%		25.9	%		28.5	%

Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax laws and rates. Deferred income taxes as of May 31, 2016 and 2015 reflect the effect of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. As of May 31, 2016 and 2015, principal components of deferred tax items were as follows:

	2016				2015
	(in thousands)
Deferred income tax assets:
Basis difference - U.K. business	$	17,831			$	24,520
Domestic net operating loss carryforwards	14,304				6,927
Foreign income tax credit carryforwards	7,140				14,172
Foreign net operating loss carryforwards	3,721				2,330
Share-based compensation expense	11,677				7,727
Accrued expenses	42,687				—
Other	6,483				8,636
	103,843				64,312
Less valuation allowance	(15,119		)		(3,823		)
	88,724				60,489
Deferred income tax liabilities:
Acquired intangible assets	721,928				147,239
Property and equipment	86,969				63,957
Taxes on unremitted earnings and other	—				4,992
Foreign currency translation	—				14,659
Other	1,970				2,069
	810,867				232,916
Net deferred income tax liability	$	(722,143	)		$	(172,427	)

The net deferred income taxes reflected on our consolidated balance sheets as of May 31, 2016 and 2015 are as follows:

	2016				2015
	(in thousands)
Noncurrent deferred income tax asset	$	22,719			$	30,428
Noncurrent deferred income tax liability	(744,862		)		(202,855		)
	$	(722,143	)		$	(172,427	)

Undistributed earnings of $931.0 million from certain foreign subsidiaries are considered to be indefinitely reinvested abroad and are not expected to be repatriated to the United States in the foreseeable future. Because those earnings are considered to be indefinitely reinvested, no domestic federal or state deferred income taxes have been provided thereon. If we were to make a distribution of any portion of those earnings in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign jurisdictions. Because our availability to utilize foreign tax credits is uncertain, it is not practicable to determine the domestic federal income tax liability that would be payable if such earnings were no longer considered to be reinvested indefinitely.

Prior to the fourth quarter of the year ended May 31, 2016, the undistributed earnings of all foreign subsidiaries, except for certain Canadian subsidiaries, were considered to be indefinitely reinvested outside the United States. During the fourth quarter, as a result of the merger with Heartland, we changed our assertion with respect to our Canadian subsidiaries and all undistributed earnings in Canada are now considered to be indefinitely reinvested, resulting in the reversal, through income tax expense, of net deferred tax liabilities of $12.7 million that were previously recorded on the balance sheet.

A valuation allowance is provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes to our valuation allowance during the years ended May 31, 2016 and 2015 are summarized below (in thousands):

Balance at May 31, 2014	$	(7,199	)
Utilization of foreign net operating loss carryforwards	3,387
Other	(11		)
Balance at May 31, 2015	(3,823		)
Allowance for foreign income tax credit carryforward	(7,140		)
Allowance for domestic net operating loss carryforwards	(4,474		)
Allowance for domestic net unrealized capital loss	(1,526		)
Release of allowance of domestic capital loss carryforward	1,746
Other	98
Balance at May 31, 2016	$	(15,119	)

The increase in the valuation allowance related to domestic net operating loss carryforwards of $4.5 million relates to acquired carryforwards from the merger with Heartland.

Foreign net operating loss carryforwards totaling $20.0 million and domestic net operating loss carryforwards related to the merger with Heartland totaling $33.4 million at May 31, 2016 will expire between May 31, 2024 and May 31, 2031 if not utilized. Tax credit carryforwards totaling $1.5 million at May 31, 2016 will expire between May 31, 2017 and May 31, 2023 if not utilized.

We conduct business globally and file income tax returns in the domestic federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities around the world.

We are no longer subjected to state income tax examinations for years ended on or before May 31, 2008, U.S. federal income tax examinations for fiscal years prior to 2013 and U.K. federal income tax examinations for years ended on or before May 31, 2013.

A reconciliation of the beginning and ending amounts of unrecognized income tax benefits, excluding penalties and interest, for the years ended May 31, 2016, 2015, and 2014 is as follows:

	2016				2015				2014
	(in thousands)
Balance at the beginning of the year	$	2,559			$	67,576			$	53,763
Additions based on income tax positions related to the current year	287				6,311				8,551
Additions related to acquisition	6,151				—				—
Additions for income tax positions of prior years	753				512				296
Effect of foreign currency fluctuations on income tax positions	2				(5,713		)		5,303
Reductions for income tax positions of prior years	(123		)		(32		)		(60		)
Settlements with income tax authorities	(1,826		)		(504		)		(277		)
Changes in judgment regarding tax position	—				(65,591		)		—
Balance at the end of the year	$	7,803			$	2,559			$	67,576

As a result of events that occurred in the fourth quarter of the year ended May 31, 2015, management concluded that it was more likely than not that the tax positions in a foreign jurisdiction, for which we had recorded estimated liabilities of $65.6 million in other noncurrent liabilities on our consolidated balance sheet, would be sustained on their technical merits based on information available as of May 31, 2015. Therefore, the liability and corresponding deferred tax assets were eliminated as of May 31, 2015. The uncertain tax positions had been subject to an ongoing examination in that foreign jurisdiction by the tax authority. Discussions and correspondence between the tax authority and us during the fourth quarter of fiscal 2015 indicated that the likelihood of the positions being sustained had increased. Subsequent to May 31, 2015, we received a final closure notice regarding the examination resulting in no adjustments to taxable income related to this matter for the tax returns filed for the periods ended May 31, 2010 through May 31, 2013. The unrecognized income tax benefits were effectively settled in the year ended May 31, 2016 with this final closure notice.

As of May 31, 2016, the total amount of gross unrecognized income tax benefits that, if recognized, would affect the provision for income taxes is $7.8 million.

We recognize interest and penalties related to unrecognized income tax benefits in interest expense and selling, general and administrative expenses, respectively, in our consolidated statements of income.

NOTE 10—SHAREHOLDERS’ EQUITY

We make repurchases of our common stock mainly through the use of open market purchases and accelerated share repurchase programs ("ASR's"). As of May 31, 2016, we were authorized to repurchase up to $266.9 million of our common stock.

Fiscal 2016

On April 25, 2016, we entered into an ASR with a financial institution to repurchase an aggregate of $50 million of our common stock. In exchange for an up-front payment of $50 million, the financial institution committed to deliver a number of shares during the ASR's purchase period, which ended on June 23, 2016. On April 26, 2016, 545,777 shares were initially delivered to us. At May 31, 2016, we accounted for the variable component of remaining shares to be delivered under the ASR as a forward contract indexed to our common stock which met all of the applicable criteria for equity classification. On June 23, 2016, an additional 127,435 shares were delivered to us. The total number of shares delivered under this ASR was 673,212 shares at an average price of $74.27 per share.

In addition to shares repurchased under the ASR, we repurchased and retired 1.5 million shares of our common stock at a cost of $85.9 million, or an average of $58.12 per share, including commissions, through open market repurchase plans.

Fiscal 2015

On April 10, 2015, we entered into an ASR with a financial institution to repurchase an aggregate of $100 million of our common stock. In exchange for an up-front payment of $100 million, we repurchased 1,955,730 shares at an average price of $51.13 per share. In addition to shares repurchased under the ASR, we repurchased and retired 7.0 million shares of our common stock at a cost of $269.0 million, or an average of $38.19 per share, including commissions.

Fiscal 2014

On October 7, 2013, we entered into an ASR with a financial institution to repurchase an aggregate of $100 million of our common stock. In exchange for an upfront payment of $100 million, we repurchased 3.2 million shares at an average price of $30.48 per share. In addition to shares repurchased under the ASR, we repurchased and retired 12.4 million shares of our common stock at a cost of $355.0 million, or an average of $28.65 per share, including commissions.

NOTE 11—SHARE-BASED AWARDS AND OPTIONS

We have granted nonqualified stock options and restricted stock awards to key employees, officers and directors under the Global Payments Inc. 2000 Long-Term Incentive Plan, as amended and restated (the "2000 Plan"), the Global Payments Inc. Amended and Restated 2005 Incentive Plan (the "2005 Plan"), the Amended and Restated 2000 Non-Employee Director Stock Option Plan (the "Director Stock Option Plan"), and the Global Payments Inc. 2011 Incentive Plan (the "2011 Plan") (collectively, the "Plans"). We made no further grants under the 2000 Plan after the 2005 Plan was effective, and the Director Stock Option Plan expired by its terms on February 1, 2011. We will make no future grants under the 2000 Plan, the 2005 Plan or the Director Stock Option Plan.

The 2011 Plan permits grants of equity to employees, officers, directors and consultants. A total of 14.0 million shares of our common stock was reserved and made available for issuance pursuant to awards granted under the 2011 Plan.

The following table summarizes share-based compensation expense and the related income tax benefit recognized for our share-based awards and stock options (in thousands):

	2016				2015				2014
					(in thousands)
Share-based compensation expense	$	30,809			$	21,056			$	29,793
Income tax benefit	$	9,879			$	6,907			$	7,126

We grant various share-based awards pursuant to the Plans under what we refer to as our "long-term incentive plan." The awards are held in escrow and released upon the grantee's satisfaction of conditions of the award certificate.

Restricted Stock

Restricted stock awards vest over a period of time, provided, however, that if the grantee is not employed by us on the vesting date, the shares are forfeited. Restricted shares cannot be sold or transferred until they have vested. Restricted stock granted before fiscal 2015 vests in equal installments on each of the first four anniversaries of the grant date. Restricted stock granted during fiscal 2015 and thereafter either vest in equal installments on each of the first three anniversaries of the grant date or cliff vest at the end of a three-year service period. The grant date fair value of restricted stock, which is based on the quoted market value of our common stock at the closing of the award date, is recognized as share-based compensation expense on a straight-line basis over the vesting period.

Performance Units

Certain of our executives have been granted performance units under our long-term incentive plan. Performance units are performance-based restricted stock units that, after a performance period, convert into common shares, which may be restricted. The number of shares is dependent upon the achievement of certain performance measures during the performance period. The

target number of performance units and any market-based performance measures ("at threshold," "target," and "maximum") are set by the Compensation Committee of our Board of Directors. Performance units are converted only after the Compensation Committee certifies performance based on pre-established goals.

The performance units granted to certain executives in fiscal 2014 were based on a one-year performance period. After the Compensation Committee certified the performance results, 25% of the performance units converted to unrestricted shares. The remaining 75% converted to restricted shares that vest in equal installments on each of the first three anniversaries of the conversion date. The performance units granted to certain executives during fiscal 2015 and fiscal 2016 were based on a three-year performance period. After the Compensation Committee certifies the performance results for the three-year period, performance units earned will convert into unrestricted common stock.

The Compensation Committee may set a range of possible performance-based outcomes for performance units. Depending on the achievement of the performance measures, the grantee may earn up to 200% of the target number of shares. For awards with only performance conditions, we recognize compensation expense on a straight-line basis over the performance period using the grant date fair value of the award, which is based on the number of shares expected to be earned according to the level of achievement of performance goals. If the number of shares expected to be earned were to change at any time during the performance period, we would make a cumulative adjustment to share-based compensation expense based on the revised number of shares expected to be earned.

Leveraged Performance Units

During fiscal 2015, certain executives were granted performance units that we refer to as leveraged performance units, or LPUs. LPUs contain a market condition based on our relative stock price growth over a three-year performance period. The LPUs contain a minimum threshold performance which, if not met, would result in no payout. The LPUs also contain a maximum award opportunity set as a fixed dollar and fixed number of shares. After the three-year performance period, one-third of any earned units converts to unrestricted common stock. The remaining two-thirds convert to restricted stock that will vest in equal installments on each of the first two anniversaries of the conversion date. We recognize share-based compensation expense based on the grant date fair value of the LPUs, as determined by use of a Monte Carlo model, on a straight-line basis over the requisite service period for each separately vesting portion of the LPU award.

Total Shareholder Return Units

Before fiscal 2015, certain of our executives were granted total shareholder return ("TSR") units, which are performance-based restricted stock units that are earned based on our total shareholder return over a three-year performance period compared to companies in the S&P 500. Once the performance results are certified, TSR units convert into unrestricted common stock. Depending on our performance, the grantee may earn up to 200% of the target number of shares. The target number of TSR units for each executive is set by the Compensation Committee. We recognize share-based compensation expense based on the grant date fair value of the TSR units, as determined by use of a Monte Carlo model, on a straight-line basis over the vesting period.

The following table summarizes the changes in unvested share-based awards for the years ended May 31, 2016 and 2015 (shares in thousands):

		Shares			Weighted-Average Grant-Date Fair Value
Unvested at May 31, 2014		1,754			$	22.72
Granted		954			36.21
Vested		(648	)		23.17
Forfeited		(212	)		27.03
Unvested at May 31, 2015		1,848			28.97
Granted		461			57.04
Vested		(633	)		27.55
Forfeited		(70	)		34.69
Unvested at May 31, 2016		1,606			$	37.25

Including the restricted stock, performance units and TSR units described above, the total fair value of share-based awards vested during the years ended May 31, 2016, 2015 and 2014 was $17.4 million, $15.0 million and $28.7 million, respectively.

For these share-based awards, we recognized compensation expense of $28.8 million, $19.8 million and $28.2 million in the years ended May 31, 2016, 2015 and 2014, respectively. As of May 31, 2016, there was $42.6 million of unrecognized compensation expense related to unvested share-based awards that we expect to recognize over a weighted-average period of 1.9 years. Our share-based award plans provide for accelerated vesting under certain conditions.

Employee Stock Purchase Plan

We have an employee stock purchase plan under which the sale of 4.8 million shares of our common stock has been authorized. Employees may designate up to the lesser of $25,000 or 20% of their annual compensation for the purchase of our common stock. The price for shares purchased under the plan is 85% of the market value on the last day of each calendar quarter. As of May 31, 2016, 2.3 million shares had been issued under this plan, with 2.5 million shares reserved for future issuance. We recognized compensation expense for the plan of $0.7 million in the year ended May 31, 2016, and $0.6 million in each of the years ended May 31, 2015 and 2014.

The weighted-average grant-date fair value of each designated option issued under this plan during the years ended May 31, 2016, 2015 and 2014 was approximately $7.56, $4.04 and $3.57, respectively, which represents the fair value of the 15% discount.

Stock Options

Stock options are granted with an exercise price equal to 100% of fair market value of our common stock on the date of grant and have a term of ten years. Stock options granted before fiscal 2015 vest in equal installments on each of the first four anniversaries of the grant date. Stock options granted during fiscal 2015 and thereafter vest in equal installments on each of the first three anniversaries of the grant date. During the years ended May 31, 2016 and May 31, 2015, we granted 144,786 and 306,366 stock options, respectively. We did not grant stock options during the year ended May 31, 2014. Our stock option plans provide for accelerated vesting under certain conditions.

The following summarizes changes in unvested stock option activity for the years ended May 31, 2016 and 2015:

	Options			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)							(years)		(in millions)
Outstanding at May 31, 2014	1,532			$	20.36			3.8		$	21.3
Granted	306			35.78
Forfeited	(48	)		27.42
Exercised	(896	)		20.15
Outstanding at May 31, 2015	894			25.47				5.2		23.9
Granted	145			55.92
Forfeited	(8	)		16.10
Exercised	(220	)		22.46
Outstanding at May 31, 2016	811			$	31.81			5.8		$	36.8
Options vested and exercisable at May 31, 2016	493			$	23.33			3.9		$	26.6
Options vested and exercisable at May 31, 2015	618			$	20.88			3.5		$	19.4

We recognized compensation expense for stock options of $1.4 million, $0.7 million and $1.0 million during the years ended May 31, 2016, 2015 and 2014, respectively. The aggregate intrinsic value of stock options exercised during fiscal 2016, 2015 and 2014 was $9.4 million, $16.6 million and $24.9 million, respectively. As of May 31, 2016, we had $2.5 million of unrecognized compensation expense related to unvested stock options that we expect to recognize over a weighted-average period of 1.8 years.

The weighted-average grant-date fair value of each stock option granted during the years ended May 31, 2016 and 2015 was $15.60 and $8.45, respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

	2016			2015
Risk-free interest rate	1.62	%		1.57	%
Expected volatility	28.65	%		23.65	%
Dividend yield	0.10	%		0.13	%
Expected term (years)	5			5

The risk-free interest rate is 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 is based on our historical volatility. The dividend yield assumption is calculated 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 12—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures for the years ended May 31, 2016, 2015, and 2014 are as follows:

	2016				2015				2014
	(in thousands)
Income taxes paid, net of refunds	$	89,684			$	66,726			$	94,938
Interest paid	$	58,730			$	36,537			$	33,214

Noncash Investing and Financing Activities

We issued 25.6 million shares of our common stock with a fair value of $1.9 billion on April 22, 2016 as a portion of the consideration paid for 100% of the outstanding common stock of Heartland as further discussed in "Note 2 - Acquisitions."

NOTE 13—NONCONTROLLING INTERESTS

The following table is the reconciliation of net income attributable to noncontrolling interests to comprehensive income attributable to noncontrolling interests for the years ended May 31, 2016, 2015 and 2014:

	2016				2015				2014
	(in thousands)
Net income attributable to noncontrolling interests	$	18,551			$	31,075			$	24,666
Foreign currency translation attributable to noncontrolling interests	471				(28,597		)		7,054
Comprehensive income attributable to noncontrolling interests	$	19,022			$	2,478			$	31,720

NOTE 14—ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in the accumulated balances for each component of other comprehensive loss were as follows for the years ended May 31, 2016, 2015 and 2014:

	Foreign Currency Translation				Unrealized Losses on Hedging Activities				Other				Accumulated Other Comprehensive Loss
	(in thousands)
Balance at May 31, 2013	$	(11,530	)		$	—			$	(3,532	)		$	(15,062	)
Other comprehensive income	13,113				—				173				13,286
Balance at May 31, 2014	1,583				—				(3,359		)		(1,776		)
Other comprehensive loss	(179,892		)		(3,874		)		(450		)		(184,216		)
Balance at May 31, 2015	(178,309		)		(3,874		)		(3,809		)		(185,992		)
Other comprehensive loss	(56,329		)		(2,881		)		(848		)		(60,058		)
Balance at May 31, 2016	$	(234,638	)		$	(6,755	)		$	(4,657	)		$	(246,050	)

NOTE 15—SEGMENT INFORMATION

Commencing with fiscal 2016, we began reporting based on realigned operating 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.

Information About Profit and Assets

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 certain compensation costs are included in Corporate in the following table. Interest and other income, interest and other expense and provision for income taxes 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 the Summary of Significant Accounting Policies in "Note 1 - Basis of Presentation and Summary of Significant Accounting Policies."

Information on segments and reconciliations to consolidated revenues and consolidated operating income are as follows for the years ended May 31, 2016, 2015, and 2014:

	2016				2015				2014
	(in thousands)
Revenues:
North America(1)	$	2,052,623			$	1,968,890			$	1,808,992
Europe	631,900				615,966				587,463
Asia-Pacific	213,627				188,862				157,781
Consolidated revenues	$	2,898,150			$	2,773,718			$	2,554,236
Operating income (loss):
North America(1)	$	307,626			$	293,139			$	272,251
Europe	244,837				240,014				209,334
Asia-Pacific	50,743				39,697				30,845
Corporate(2)	(178,262		)		(116,253		)		(106,931		)
Consolidated operating income	$	424,944			$	456,597			$	405,499
Depreciation and amortization:
North America(1)	$	128,618			$	81,051			$	60,970
Europe	40,194				39,910				48,589
Asia-Pacific	13,935				9,973				6,139
Corporate	5,134				6,571				6,371
Consolidated depreciation and amortization	$	187,881			$	137,505			$	122,069

(1) During the year ended May 31, 2016, revenues, operating income and depreciation and amortization for North America include results of Heartland subsequent to the acquisition date of April 22, 2016.

(2) During the year ended May 31, 2016, operating loss for Corporate included costs of $51.3 million (including $24.4 million of transaction costs) incurred in connection with our merger with Heartland. These merger-related costs are included in selling, general and administrative expenses in the consolidated statement of income.

Enterprise-Wide Information

As a percentage of our total consolidated revenues, revenues from external customers in the United States, the United Kingdom and Canada were 61%, 10% and 10%, respectively, for the year ended May 31, 2016; 60%, 13% and 11%, respectively, for the year ended May 31, 2015; and 58%, 13% and 13%, respectively, for the year ended May 31, 2014. Revenues from external customers are attributed to individual countries based on the location of the customer arrangements. Our results of operations and our financial condition are not significantly reliant upon any single customer.

Long-lived assets, excluding goodwill and other intangible assets, by location as of May 31, 2016 and 2015 were as follows:

	2016				2015
	(in thousands)
United States	$	394,716			$	284,257
Foreign countries	98,962				89,886
	$	493,678			$	374,143

NOTE 16—COMMITMENTS AND CONTINGENCIES

Leases

We conduct a major part of our operations using leased facilities and equipment. Many of these operating leases have renewal and purchase options and provide that we pay the cost of property taxes, insurance and maintenance. Rent expense on all operating leases for the years ended May 31, 2016, 2015 and 2014 was $19.7 million, $17.5 million, and $16.0 million, respectively.

Future minimum lease payments for noncancelable operating leases at May 31, 2016 were as follows:

Years ending May 31:
2017	$	34,373
2018	28,824
2019	23,467
2020	18,412
2021	15,150
Thereafter	52,368
Total future minimum lease payments	$	172,594

Legal

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.

Heartland, Heartland’s board of directors, Global Payments, Data Merger Sub One, Inc. (a wholly owned subsidiary of Global Payments, which we refer to as "Data Merger Sub One") and Data Merger Sub Two, LLC (a wholly owned subsidiary of Global Payments, which we refer to as "Data Merger Sub Two") were named as defendants in a putative class action lawsuit challenging the proposed merger with Heartland. The suit was filed on January 8, 2016 in the New Jersey Superior Court, Mercer County, Civil Division, and is captioned Kevin Merchant v. Heartland Payment Systems, et al, L-45-16. The complaint alleges, among other things, that the directors of Heartland breached their fiduciary duties to Heartland stockholders by agreeing to sell Heartland for inadequate consideration, agreeing to improper deal protection terms in the merger agreement, failing to properly value Heartland, and filing a materially incomplete registration statement with the Securities and Exchange Commission. In addition, the complaint alleges that Heartland, Global Payments, Merger Sub One, and Merger Sub Two aided and abetted these purported breaches of fiduciary duty. On April 12, 2016, solely to avoid the costs, disruption and distraction of further litigation, and without admitting the validity of any allegations made by the plaintiff, Heartland and Global Payments reached an agreement to settle the suit and entered into a Memorandum of Understanding to document the terms and conditions for settlement of the suit. The proposed settlement is subject to court approval. If the proposed settlement is approved by the court, it will release all claims that were or could have been brought challenging any aspect of the merger with Heartland or the merger agreement related thereto and any disclosure made in connection therewith, under terms that will be disclosed to stockholders before final approval of the proposed settlement. The settlement, if approved, is not expected to have a material adverse effect on our financial position, liquidity, results of operations or cash flows.

Operating Taxes

We are subject to certain taxes that are not derived based on earnings (e.g., sales, gross receipts, property, value-added and other business taxes). During the course of operations, we must interpret the meaning of various operating tax regulations in the United States and in the foreign jurisdictions in which we do business. Taxing authorities in those various jurisdictions may arrive at different interpretations of applicable tax laws and regulations which could result in the payment of additional taxes in those jurisdictions.

BIN/ICA Agreements

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

NOTE 17—QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly results for the years ended May 31, 2016 and 2015 are as follows (in thousands, except per share data):

	Quarter Ended
	August 31,				November 30,				February 29,				May 31,
2016
Revenues	$	748,796			$	722,350			$	679,940			$	747,064
Operating income	137,772				123,165				107,805				56,202
Net income	93,048				83,078				72,912				41,179
Net income attributable to Global Payments	86,646				78,771				69,061				37,188
Basic earnings per share attributable to Global Payments	0.66				0.61				0.53				0.27
Diluted earnings per share attributable to Global Payments	0.66				0.60				0.53				0.26
	Quarter Ended
	August 31,				November 30,				February 28,				May 31,
2015
Revenues	$	704,895			$	697,291			$	664,983			$	706,549
Operating income	124,398				123,984				104,615				103,600
Net income	84,434				85,256				69,315				70,110
Net income attributable to Global Payments	75,366				74,781				62,568				65,325
Basic earnings per share attributable to Global Payments	0.55				0.55				0.47				0.50
Diluted earnings per share attributable to Global Payments	0.55				0.55				0.46				0.49

The financial data in the table above for the quarter ended May 31, 2016 reflect the effects of our merger with Heartland and the refinancing and expansion of our debt facilities, which were completed on April 22, 2016. See "Note 2 - Acquisitions" in the notes to the accompanying consolidated financial statements for further discussion of the merger with Heartland.

Operating income, net income, net income attributable to Global Payments and basic and diluted earnings per share for the quarter ended May 31, 2015 include the effects of employee termination costs of $6.3 million (pre-tax) and a $1.2 million (pre-tax) charge for a transaction tax associated with the acquisition of Realex. Net income, net income attributable to Global Payments and basic and diluted earnings per share for the quarter ended May 31, 2015 also include the effect of the reversal of interest expense of $3.6 million (pre-tax) that had been previously accrued related to a previously unrecognized tax benefit. An out-of-period immaterial correction related to the measurement of certain deferred tax assets was recorded in the quarter ended May 31, 2015 as a charge to income tax expense of $14.3 million ($6.8 million of which related to the quarter ended August 31, 2014). This charge was offset by a corresponding income tax benefit recorded in the quarter ended May 31, 2015 related to a change in judgment regarding the tax rate at which those same deferred tax assets were expected to be realized in conjunction with the recognition of the previously unrecognized tax benefit related to an uncertain tax position in a foreign jurisdiction. See "Note 9 – Income Tax" for further information. Both amounts are included in the foreign income taxes line of the reconciliation between the federal statutory rate and the effective tax rate for the year ended May 31, 2015 in "Note 9 - Income Tax."

NOTE 18—SUBSEQUENT EVENT

On July 27, 2016, the Board of Directors authorized a change in our fiscal year-end from May 31 to December 31. As a result of the change, we will file a Transition Report on Form 10-K for the seven-month transition period ending December 31, 2016 (the "Transition Period"). During the Transition Period, we will continue to file Quarterly Reports on Form 10-Q for the quarterly periods ending August 31, 2016 and November 30, 2016.

GLOBAL PAYMENTS INC.

SCHEDULE II

Valuation & Qualifying Accounts

(a)		(b)				(c)				(d)				(e)
Description		Balance at Beginning of Year				Additions: Charged to Costs and Expenses				Deductions: Uncollectible Accounts Write-Off				Balance at End of Year
Allowance for doubtful accounts
May 31, 2014		$	509			$	174			$	282			$	401
May 31, 2015		401				324				257				468
May 31, 2016		468				515				630				353
Reserve for operating losses-merchant card processing (1)
May 31, 2014		$	2,318			$	8,658			$	9,252			$	1,724
May 31, 2015		1,724				4,928				5,366				1,286
May 31, 2016		1,286				3,729				2,555				2,460
Reserve for sales allowances-merchant card processing (1)
May 31, 2014		$	961			$	1,330			$	1,690			$	601
May 31, 2015		601				7,974				3,646				4,929
May 31, 2016		4,929				3,571				7,450				1,050
Reserve for operating losses-check guarantee processing
May 31, 2014		$	3,144			$	11,916			$	12,062			$	2,998
May 31, 2015		2,998				9,578				9,892				2,684
May 31, 2016		2,684				22,827				20,643				4,868
Deferred income tax asset valuation allowance
May 31, 2014		$	28,464			$	(21,265	)		$	—			$	7,199
May 31, 2015		7,199				(3,376		)		—				3,823
May 31, 2016		3,823				11,296				—				15,119

(1)Included in settlement processing obligations.