Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Global Payments Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Global Payments Inc. and subsidiaries (the "Company") as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2018, of the Company and our report dated February 21, 2019, expressed an unqualified opinion on those financial statements and included an emphasis of a matter paragraph regarding the Company's change of its fiscal year end from May 31 to December 31, in 2016, and an explanatory paragraph regarding the Company's change in its method of accounting for revenue from contracts with customers in fiscal year 2018, due to the adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606). 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 AdvancedMD, Inc. ("AdvancedMD"), which was acquired on September 4, 2018, and SICOM Systems, Inc. ("SICOM"), which was acquired on October 17, 2018. AdvancedMD and SICOM's combined financial statements constitute less than 2% of consolidated revenues and approximately 5% of consolidated assets (excluding goodwill related to the transactions which were integrated into the Company's systems and control environment), as of and for the year ended December 31, 2018. AdvancedMD and SICOM did not contribute to net income for the year ended December 31, 2018. Accordingly, our audit did not include the internal control over financial reporting at AdvancedMD and SICOM that is excluded from management’s assessment.

Basis for Opinion

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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 21, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Global Payments Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Global Payments Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for the years ended December 31, 2018 and 2017, the seven months ended December 31, 2016, and the year ended May 31, 2016, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years ended December 31, 2018 and 2017, the seven months ended December 31, 2016, and the year ended May 31, 2016, in conformity with the applicable accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2019 expressed an unqualified opinion on the Company's internal control over financial reporting.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the Company changed its fiscal year end from May 31 to December 31 in 2016.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers in fiscal year 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 21, 2019

We have served as the Company’s auditors since 2002.

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

	Years Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
Revenues	$	3,366,366			$	3,975,163			$	2,202,896			$	2,898,150
Operating expenses:
Cost of service	1,095,014				1,928,037				1,094,593				1,147,639
Selling, general and administrative	1,534,297				1,488,258				870,352				1,325,567
	2,629,311				3,416,295				1,964,945				2,473,206
Operating income	737,055				558,868				237,951				424,944
Interest and other income	20,719				8,662				44,382				5,284
Interest and other expense	(195,619		)		(174,847		)		(108,989		)		(69,316		)
	(174,900		)		(166,185		)		(64,607		)		(64,032		)
Income before income taxes	562,155				392,683				173,344				360,912
Income tax (provision) benefit	(77,488		)		101,387				(35,661		)		(70,695		)
Net income	484,667				494,070				137,683				290,217
Less: Net income attributable to noncontrolling interests	(32,614		)		(25,645		)		(12,752		)		(18,551		)
Net income attributable to Global Payments	$	452,053			$	468,425			$	124,931			$	271,666
Earnings per share attributable to Global Payments:
Basic earnings per share	$	2.85			$	3.03			$	0.81			$	2.05
Diluted earnings per share	$	2.84			$	3.01			$	0.81			$	2.04

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Years Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
Net income	$	484,667			$	494,070			$	137,683			$	290,217
Other comprehensive income (loss):
Foreign currency translation adjustments	(118,439		)		146,401				(92,229		)		(55,858		)
Income tax provision related to foreign currency translation adjustments	(832		)		—				—				—
Net unrealized gains (losses) on hedging activities	(7,553		)		4,549				5,532				(12,859		)
Reclassification of net unrealized (gains) losses on hedging activities to interest expense	(4,792		)		5,673				4,222				8,240
Income tax benefit (provision) related to hedging activities	2,972				(2,583		)		(3,639		)		1,738
Other, net of tax	760				(660		)		1,030				(848		)
Other comprehensive income (loss)	(127,884		)		153,380				(85,084		)		(59,587		)
Comprehensive income	356,783				647,450				52,599				230,630
Less: comprehensive income attributable to noncontrolling interests	(29,918		)		(39,452		)		(4,335		)		(19,022		)
Comprehensive income attributable to Global Payments	$	326,865			$	607,998			$	48,264			$	211,608

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	December 31, 2018				December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	1,210,878			$	1,335,855
Accounts receivable, net of allowances for doubtful accounts of $3,164 and $1,827, respectively	348,400				301,887
Settlement processing assets	1,600,222				2,459,292
Prepaid expenses and other current assets	216,708				206,545
Total current assets	3,376,208				4,303,579
Goodwill	6,341,355				5,703,992
Other intangible assets, net	2,488,618				2,181,707
Property and equipment, net	653,542				588,348
Deferred income taxes	8,128				13,146
Other noncurrent assets	362,923				207,297
Total assets	$	13,230,774			$	12,998,069
LIABILITIES AND EQUITY
Current liabilities:
Settlement lines of credit	$	700,486			$	635,166
Current portion of long-term debt	115,075				100,308
Accounts payable and accrued liabilities	1,176,703				1,039,607
Settlement processing obligations	1,276,356				2,040,509
Total current liabilities	3,268,620				3,815,590
Long-term debt	5,015,168				4,559,408
Deferred income taxes	585,025				436,879
Other noncurrent liabilities	175,618				220,961
Total liabilities	9,044,431				9,032,838
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; 157,961,982 issued and outstanding at December 31, 2018 and 159,180,317 issued and outstanding at December 31, 2017	—				—
Paid-in capital	2,235,167				2,379,774
Retained earnings	2,066,415				1,597,897
Accumulated other comprehensive loss	(310,175		)		(183,144		)
Total Global Payments shareholders’ equity	3,991,407				3,794,527
Noncontrolling interests	194,936				170,704
Total equity	4,186,343				3,965,231
Total liabilities and equity	$	13,230,774			$	12,998,069

See Notes to Consolidated Financial Statements.

GLOBAL PAYMENTS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
Cash flows from operating activities:
Net income	$	484,667			$	494,070			$	137,683			$	290,217
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	145,128				113,273				53,242				74,192
Amortization of acquired intangibles	377,685				337,878				194,329				113,689
Share-based compensation expense	57,826				39,095				18,707				30,809
Provision for operating losses and bad debts	43,237				48,443				24,074				27,202
Amortization of capitalized customer acquisition costs	51,541				45,098				14,982				1,776
Deferred income taxes	(1,451		)		(250,670		)		(33,523		)		(18,162		)
Gain on sale of investments	—				—				(41,150		)		—
Other, net	(8,025		)		44,070				32,718				15,370
Changes in operating assets and liabilities, net of the effects of business combinations:
Accounts receivable	(33,386		)		(14,096		)		2,189				(14,542		)
Settlement processing assets and obligations, net	83,478				(361,673		)		35,599				218,061
Prepaid expenses and other assets	(160,800		)		(129,427		)		(44,164		)		(64,216		)
Accounts payable and other liabilities	66,182				146,327				121,140				(81,506		)
Net cash provided by operating activities	1,106,082				512,388				515,826				592,890
Cash flows from investing activities:
Business combinations and other acquisitions, net of cash acquired	(1,259,692		)		(562,688		)		(33,865		)		(2,034,406		)
Capital expenditures	(213,290		)		(181,905		)		(88,913		)		(91,591		)
Net proceeds from sale of investments	—				—				37,717				—
Net proceeds from sales of property and equipment	—				37,565				—				—
Other, net	(3,305		)		(28,997		)		(1,622		)		(1,251		)
Net cash used in investing activities	(1,476,287		)		(736,025		)		(86,683		)		(2,127,248		)
Cash flows from financing activities:
Net proceeds from (repayments of) settlement lines of credit	70,783				221,532				20,582				(206,009		)
Proceeds from long-term debt	2,774,214				1,994,324				1,299,000				6,078,230
Repayments of long-term debt	(2,304,314		)		(1,781,541		)		(1,381,161		)		(3,691,608		)
Payment of debt issuance costs	(16,345		)		(9,520		)		(9,279		)		(63,382		)
Repurchase of common stock	(208,198		)		(34,811		)		(178,165		)		(135,954		)
Proceeds from stock issued under share-based compensation plans	14,318				10,115				6,093				8,480
Common stock repurchased - share-based compensation plans	(31,510		)		(31,761		)		(20,390		)		(12,236		)
Purchase of subsidiary shares from noncontrolling interest	—				—				—				(7,550		)
Proceeds from sale of subsidiary shares to noncontrolling interest	—				—				—				16,374
Distributions to noncontrolling interests	(5,686		)		(9,301		)		(12,365		)		(23,308		)
Dividends paid	(6,332		)		(6,732		)		(3,069		)		(5,439		)
Net cash provided by (used in) financing activities	286,930				352,305				(278,754		)		1,957,598
Effect of exchange rate changes on cash	(41,702		)		44,408				(32,338		)		(29,251		)
Increase (decrease) in cash and cash equivalents	(124,977		)		173,076				118,051				393,989
Cash and cash equivalents, beginning of the period	1,335,855				1,162,779				1,044,728				650,739
Cash and cash equivalents, end of the period	$	1,210,878			$	1,335,855			$	1,162,779			$	1,044,728

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 December 31, 2017	159,180			$	2,379,774			$	1,597,897			$	(183,144	)		$	3,794,527			$	170,704			$	3,965,231
Cumulative effect of adoption of new accounting standards								50,969				(1,843		)		49,126								49,126
Net income								452,053								452,053				32,614				484,667
Other comprehensive loss												(125,188		)		(125,188		)		(2,696		)		(127,884		)
Stock issued under share-based compensation plans	988			14,318												14,318								14,318
Common stock repurchased - share-based compensation plans	(279	)		(32,727		)										(32,727		)						(32,727		)
Share-based compensation expense				57,826												57,826								57,826
Distributions to noncontrolling interest																				(5,686		)		(5,686		)
Repurchase of common stock	(1,927	)		(184,024		)		(28,172		)						(212,196		)						(212,196		)
Dividends paid ($0.04 per share)								(6,332		)						(6,332		)						(6,332		)
Balance at December 31, 2018	157,962			$	2,235,167			$	2,066,415			$	(310,175	)		$	3,991,407			$	194,936			$	4,186,343

	Number of Shares			Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Total Global Payments Shareholders’ Equity				Noncontrolling Interests				Total Equity
Balance at December 31, 2016	152,186			$	1,816,278			$	1,137,230			$	(322,717	)		$	2,630,791			$	148,551			$	2,779,342
Net income								468,425								468,425				25,645				494,070
Other comprehensive income												139,573				139,573				13,807				153,380
Stock issued under share-based compensation plans	1,350			10,115												10,115								10,115
Common stock repurchased - share-based compensation plans	(338	)		(32,006		)										(32,006		)						(32,006		)
Share-based compensation expense				39,095												39,095								39,095
Issuance of common stock in connection with a business combination	6,358			572,079												572,079								572,079
Dissolution of a subsidiary								7,998								7,998				(7,998		)		—
Distributions to noncontrolling interests																—				(9,301		)		(9,301		)
Repurchase of common stock	(376	)		(25,787		)		(9,024		)						(34,811		)						(34,811		)
Dividends paid ($0.04 per share)								(6,732		)						(6,732		)						(6,732		)
Balance at December 31, 2017	159,180			$	2,379,774			$	1,597,897			$	(183,144	)		$	3,794,527			$	170,704			$	3,965,231

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, 2016	154,422			$	1,976,715			$	1,015,811			$	(246,050	)		$	2,746,476			$	130,928			$	2,877,404
Net income								124,931								124,931				12,752				137,683
Other comprehensive loss												(76,667		)		(76,667		)		(8,417		)		(85,084		)
Stock issued under share-based compensation plans	549			6,093												6,093								6,093
Common stock repurchased - share-based compensation plans	(267	)		(20,532		)										(20,532		)						(20,532		)
Tax benefit from share-based compensation plans				13,017												13,017								13,017
Share-based compensation expense				18,707												18,707								18,707
Contribution of subsidiary shares to noncontrolling interest related to a business combination																				25,653				25,653
Distributions to noncontrolling interests																				(12,365		)		(12,365		)
Repurchase of common stock	(2,518	)		(177,722		)		(443		)						(178,165		)						(178,165		)
Dividends paid ($0.02 per share)								(3,069		)						(3,069		)						(3,069		)
Balance at December 31, 2016	152,186			$	1,816,278			$	1,137,230			$	(322,717	)		$	2,630,791			$	148,551			$	2,779,342

	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	591			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	25,645			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	154,422			$	1,976,715			$	1,015,811			$	(246,050	)		$	2,746,476			$	130,928			$	2,877,404

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 and software services delivering innovative solutions to our customers globally. Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to accept various payment types and operate their businesses more efficiently. We distribute our services across a variety of channels in 32 countries throughout North America, Europe, the Asia-Pacific region and Brazil and operate in three reportable segments: North America, Europe and Asia-Pacific.

We were incorporated in Georgia as Global Payments Inc. in 2000 and spun-off from our former parent company in 2001. Including our time as part of our former parent company, we have been in the payment technology services business since 1967. 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"). On July 27, 2016, the board of directors authorized a change in our fiscal year end from May 31 to December 31. We refer to the period consisting of the seven months ended December 31, 2016 as the "2016 fiscal transition period."

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.

Recently Adopted Accounting Pronouncements and Rules Issued by the U.S. Securities and Exchange Commission (the "SEC")—We adopted Accounting Standards Update ("ASU") 2014-09, "Revenues from Contracts with Customers (Topic 606)" as well as other clarifications and technical guidance issued by the Financial Accounting Standards Board ("FASB") related to this new revenue standard ("ASC 606") and ASC Subtopic 340-40: "Other Assets and Deferred Costs - Contracts with Customers" ("ASC 340-40") on January 1, 2018. We elected the modified retrospective transition method, which resulted in a net increase to retained earnings of $51.0 million for the cumulative effect of applying the standard. The primary components of the cumulative-effect adjustment were changes in the accounting for certain costs to obtain customer contracts and the related income tax effects, which resulted in increases to other noncurrent assets and deferred income tax liabilities of $64.6 million and $15.6 million, respectively. Previously, we amortized these assets to expense over the related contract term. Under ASC 340-40, we now amortize these assets over the expected period of benefit, which is generally longer than the initial contract term. Under the new standard, we also capitalized certain costs that were not previously capitalized, including certain commissions and the related payroll taxes and certain costs incurred to fulfill a contract before the performance obligation has been satisfied, primarily compensation and related payroll taxes for employees engaged in customer implementation activities in our technology-enabled businesses.

Prior to the adoption of ASC 606, we presented payments made to certain third parties, including payment networks, as a component of operating expenses. For the year ended December 31, 2018, we presented revenue net of these third-party payments. This change in presentation had the effect of reducing our revenues and operating expenses by the same amounts. As a result, revenues, cost of service and selling, general and administrative expenses were lower than the amounts that would have been presented if not for the effect of the new revenue accounting standard by $1,110.8 million, $1,042.9 million and $67.9 million, respectively, for the year ended December 31, 2018. The adoption of ASC 606 did not have a material effect on any other line items in our consolidated statement of income for year ended December 31, 2018 or on any other line items in our consolidated balance sheet as of December 31, 2018 and had no effect on our cash flows from operating activities, investing activities or financing activities included in our consolidated statement of cash flows for the year ended December 31, 2018.

In October 2018, the FASB issued ASU 2018-16, "Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes." ASU 2018-16 provides for the use of the Overnight Index Swap ("OIS") rate based on Secured Overnight Financing Rate as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815. In addition to the interest rates on direct Treasury obligations

of the U.S. government, the London Interbank Offered Rate ("LIBOR") Swap Rate, the OIS rate based on the Fed Funds Effective Rate and the Securities Industry and Financial Markets Association Municipal Swap Rate are also permitted. We adopted ASU 2018-16 with no effect on our consolidated financial statements.

In August 2018, the SEC issued a final rule that amends certain of its disclosure requirements. The changes are generally intended to reduce or eliminate certain disclosures that have become redundant, duplicative, overlapping, outdated or superseded in light of other disclosures requirements or changes in the information environment. The rule also requires SEC registrants to present changes in stockholders' equity and the amount of dividends per share for each class of shares on a quarterly basis for the current and prior-year periods. The final rule was effective for SEC filings on Forms 10-Q and 10-K made on or after November 5, 2018. As a result, we have reduced or eliminated certain disclosures in this Annual Report on Form 10-K for the year ended December 31, 2018, as permitted, and we will present the quarterly changes in 2019.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU 2018-02 provides an option to reclassify stranded tax effects within accumulated other comprehensive income ("AOCI") to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017 (the "2017 U.S. Tax Act") is recorded. We adopted this ASU during 2018 and elected the option to reclassify stranded tax effects within AOCI to retained earnings in the period of adoption with no material effect on our consolidated financial statements. Under this transition method, we did not recast the prior-period financial statements presented.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU 2017-12 expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. In addition, the amendments in this update modify disclosure requirements for presentation of hedging activities. Those modifications include a tabular disclosure related to the effect on the income statement of fair value and cash flow hedges and eliminate the requirement to disclose the ineffective portion of the change in fair value of hedging instruments, if any. We adopted ASU 2017-12 on January 1, 2018 with no effect on our consolidated financial statements, except required revisions to our disclosures.

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." ASU 2017-01 clarifies the definition of a business, which affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The new standard is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, with the expectation that fewer will qualify as acquisitions (or disposals) of businesses. ASU 2017-01 became effective for us on January 1, 2018. These amendments have been applied prospectively from the date of adoption. We applied the clarified definition of a business to the business combinations we completed in 2018 with no effect on our consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." The amendments in this update state that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory, such as intellectual property and property and equipment, when the transfer occurs. We adopted ASU 2016-16 on January 1, 2018 using the modified retrospective transition method with no material effect 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," which was further clarified in ASU 2018-03, issued by the FASB in February 2018. The amendments in ASU 2016-01 and ASU 2018-03 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The amendments 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. We adopted ASU 2016-01 on January 1, 2018 using the modified retrospective transition

method and elected to account for certain of our equity investments that have no readily determinable fair value using the alternative cost method, which had no effect on our consolidated financial statements.

Revenue recognition— Our payment services customers contract with us for payment services, which we provide in exchange for consideration for completed transactions. Our payment solutions are similar around the world in that we enable our customers to accept card, electronic, check and digital-based payments. Our comprehensive offerings include, but are not limited to, authorization services, settlement and funding services, customer support and help-desk functions, chargeback resolution, payment security services, consolidated billing and statements and on-line reporting. In addition, we may sell or rent point-of-sale terminals or other equipment to customers.

On January 1, 2018, we adopted ASC 606. Pursuant to ASC 606, at contract inception, we assess the goods and services promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good or service that is distinct. For our payment services specifically, the nature of our promise to the customer is that we stand ready to process transactions the customer requests on a daily basis over the contract term. Since the timing and quantity of transactions to be processed by us is not determinable, we view payment services to comprise an obligation to stand ready to process as many transactions as the customer requests. Under a stand-ready obligation, the evaluation of the nature of our performance obligation is focused on each time increment rather than the underlying activities. Therefore, we view payment services to comprise a series of distinct days of service that are substantially the same and have the same pattern of transfer to the customer. Accordingly, the promise to stand ready is accounted for as a single-series performance obligation.

In order to provide our payment services, we route and clear each transaction through the applicable payment network. We obtain authorization for the transaction and request funds settlement from the card issuing financial institution through the payment network. When third parties are involved in the transfer of goods or services to our customer, we consider the nature of each specific promised good or service and apply judgment to determine whether we control the good or service before it is transferred to the customer or whether we are acting as an agent of the third party. To determine whether or not we control the good or service before it is transferred to the customer, we assess indicators including whether we or the third party is primarily responsible for fulfillment and which party has discretion in determining pricing for the good or service, as well as other considerations. Based on our assessment of these indicators, we have concluded that our promise to our customer to provide our payment services is distinct from the services provided by the card issuing financial institutions and payment networks in connection with payment transactions. We do not have the ability to direct the use of and obtain substantially all of the benefits of the services provided by the card issuing financial institutions and payment networks before those services are transferred to our customer, and on that basis, we do not control those services prior to being transferred to our customer. As a result, upon adoption of ASC 606, we present our revenue net of the interchange fees charged by the card issuing financial institutions and the fees charged by the payment networks.

The majority of our payment services are priced as a percentage of transaction value or a specified fee per transaction, depending on the card type. We also charge other per occurrence fees based on specific services that may be unrelated to the number of transactions or transaction value. Given the nature of the promise and the underlying fees based on unknown quantities or outcomes of services to be performed over the contract term, the total consideration is determined to be variable consideration. The variable consideration for our payment service is usage-based and, therefore, it specifically relates to our efforts to satisfy our payment services obligation. The variability is satisfied each day the service is provided to the customer. We directly ascribe variable fees to the distinct day of service to which it relates, and we consider the services performed each day in order to ascribe the appropriate amount of total fees to that day. Therefore, we measure revenue for our payment service on a daily basis based on the services that are performed on that day.

Certain of our technology-enabled customer arrangements contain multiple promises, such as payment services, perpetual software licenses, software-as-a-service ("SaaS"), maintenance, installation services, training and equipment, each of which is evaluated to determine whether it represents a separate performance obligation. SaaS arrangements are generally offered on a subscription basis, providing the customers with access to the SaaS platform along with general support and maintenance services. Because these promised services within our SaaS arrangements are delivered concurrently over the contract term, we account for these promises as if they are a single performance obligation that includes a series of distinct services with the same pattern of transfer to the customer. In addition, certain installation services are not considered distinct from the SaaS and are recognized over the expected period of benefit.

Once we determine the performance obligations and the transaction price, including an estimate of any variable consideration, we then allocate the transaction price to each performance obligation in the contract using a relative standalone selling price method. We determine standalone selling price based on the price at which the good or service is sold separately. If the standalone selling price is not observable through past transactions, we estimate the standalone selling price by considering all reasonably available information, including market conditions, trends or other company- or customer-specific factors. Substantially all of the performance obligations described above are satisfied over time. The performance obligations associated with equipment sales, perpetual software licenses and certain professional services are generally satisfied at a point in time when they are transferred to the customer. For certain other professional services that represent separate performance obligations, we generally use the input method and recognize revenue based on the number of hours incurred or services performed to date in relation to the total services expected to be required to satisfy the performance obligation.

We satisfy the combined SaaS performance obligation by standing ready to provide access to the SaaS. Consideration for SaaS arrangements may consist of fixed- or usage-based fees. Revenue is recognized over the period for which the services are provided or by directly ascribing any variable fees to the distinct day of service based on the services that are performed on that day.

For periods prior to our adoption of ASC 606, we recognized revenue when services were performed. For arrangements with multiple elements, such as equipment, perpetual licenses, SaaS, maintenance, installation and training, we allocated consideration to each element based on the relative-selling-price method. In multiple element arrangements where more-than-incidental software elements were included, the entire amount of revenue under the arrangement was deferred until all elements were delivered or objective evidence of the fair value of the undelivered items was established. The amounts paid in advance by customers and amounts deferred for software arrangements were reflected as unearned revenue in the consolidated balance sheets with the portion estimated to be recognized as revenue within the next twelve months reflected in current liabilities and the remainder reflected in other noncurrent liabilities.

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. The amount of cash that we consider to be available for general purposes does not include the following: (i) settlement-related cash balances, (ii) funds held as collateral for merchant losses ("Merchant Reserves") and (iii) funds held for customers. Settlement-related cash balances represent funds that we hold when the incoming amount from the card networks precedes the funding obligation to the merchant. Settlement-related cash balances are not restricted; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. Merchant Reserves 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 financial institutions that sponsor us and is in accordance with guidelines set by the card networks. See "Note 4—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.

Accounts receivable, contract assets and contract liabilities— Upon adoption of ASC 606, we were required to describe our accounting policies for accounts receivable, contract assets and contract liabilities. A contract with a customer creates legal rights and obligations. As we perform under customer contracts, our right to consideration that is unconditional is considered to be accounts receivable. If our right to consideration for such performance is contingent upon a future event or satisfaction of additional performance obligations, the amount of revenues we have recognized in excess of the amount we have billed to the customer is recognized as a contract asset. Contract liabilities represent consideration received from customers in excess of revenues recognized. At December 31, 2018, contract assets and liabilities are presented net at the individual contract level in the consolidated balance sheet and are classified as current or noncurrent based on the nature of the underlying contractual rights and obligations.

Contract Costs— Upon adoption of ASC 340-40, we capitalize costs we incur costs to obtain contracts with customers, including employee sales commissions and fees to business partners. At contract inception, we capitalize such costs that we expect to recover and that would not have been incurred if the contract had not been obtained. We also capitalize certain costs incurred to fulfill our contracts with customers that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy our performance obligation under the contract and (iii) are expected to be recovered through revenue generated under the contract. Capitalized costs to obtain and to fulfill contracts were included in other noncurrent assets as of December 31, 2018.

Contract costs are amortized on a systematic basis consistent with the transfer to the customer of the goods or services to which the asset relates. A straight-line or proportional amortization method is used depending upon which method best depicts the pattern of transfer of the goods or services to the customer. We evaluate contract costs for impairment by comparing, on a pooled basis, the expected future net cash flows from underlying customer relationships to the carrying amount of the capitalized contract costs.

We amortize these assets over the expected period of benefit, which, based on the factors noted above, is typically seven years. In order to determine the appropriate amortization period for capitalized contract costs, we consider a combination of factors, including customer attrition rates, estimated terms of customer relationships, the useful lives of technology we use to provide goods and services to our customers, whether future contract renewals are expected and if there is any incremental commission to be paid associated with a contract renewal. Costs to obtain a contract with an expected period of benefit of one year or less are recognized as an expense when incurred.

Prior to our adoption of ASC 606, we capitalized certain customer acquisition costs, which were included in other noncurrent assets. Capitalized customer acquisition costs consisted of (1) up-front signing bonus payments made to certain salespersons for the establishment of certain of our new merchant relationships and (2) a deferred acquisition cost representing the estimated cost of buying out the residual commissions of certain vested salespersons. Capitalized customer acquisition costs represented incremental, direct customer acquisition costs that were recoverable through merchant profitability. The capitalized customer acquisition costs were amortized using a method which approximated a proportional revenue approach over the initial term of the related merchant contract. Up-front signing bonuses paid for certain new accounts were based on the estimated profitability for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization were adjusted after the first year to reflect the actual profitability generated by the merchant contract during that year. The deferred customer acquisition cost asset was accrued over the first year of merchant processing, consistent with the build-up in the accrued buyout liability, as described below.

Settlement processing assets and obligations— Settlement processing assets and obligations represent intermediary balances arising in our settlement process. In accordance with ASC Subtopic 210-20, "Offsetting," we apply offsetting to our settlement processing assets and obligations where a right of setoff exists. See "Note 4—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 financial institutions. When we are not able to collect these amounts from the merchants due to merchant fraud, insolvency, bankruptcy or any other reason, we may be liable for the reversed charges. We require cash deposits, guarantees, letters of credit and other types of collateral 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.

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. 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 to provide services to customers. Capitalization of internal-use software, primarily associated with operating platforms, occurs when we have completed the preliminary project stage, management authorizes the project, management commits to funding the project, it is probable the project will be completed and the project will be used to perform the function intended. The preliminary project stage consists of the conceptual formulation of alternatives, the evaluation of alternatives, the determination of existence of needed technology and the final selection of alternatives. Costs incurred during the preliminary project stage are expensed as incurred.

Goodwill— We perform our annual goodwill impairment test as of October 1. We test goodwill for impairment at the reporting unit level annually and more often if an event occurs or circumstances change that indicate the fair value of a reporting unit is below its carrying amount. We have the option of performing a qualitative assessment of impairment to determine whether any

further quantitative assessment for impairment is necessary. The option of whether or not to perform a qualitative assessment is made annually and may vary by reporting unit.

Factors we consider in the qualitative assessment include general macroeconomic conditions, industry and market conditions, cost factors, overall financial performance of our reporting units, events or changes affecting the composition or carrying amount of the net assets of our reporting units, sustained decrease in our share price, and other relevant entity-specific events. If we elect to bypass the qualitative assessment or if we determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, a quantitative test would be required.

We have seven reporting units: North America Payments, Integrated Solutions and Vertical Markets, United Kingdom, Asia-Pacific, Central and Eastern Europe, Russia and Spain. As of October 1, 2018, we elected to perform a qualitative assessment of impairment for each of our reporting units. We determined on the basis of qualitative factors that the fair value of each reporting unit was not more likely than not less than the respective carrying amount. We believe that the fair value of each of our reporting units is substantially in excess of its carrying amount.

Other intangible assets— Other intangible assets include 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 business combinations. These assets are amortized over their estimated useful lives. The useful lives for customer-related intangible assets are determined based primarily on forecasted cash flows, which include estimates for the revenues, expenses, and customer attrition associated with the assets. The useful lives of contract-based intangible assets are equal to the terms of the agreements. The useful lives of amortizable trademarks and trade names are based on our plans to use the trademarks and trade names in the applicable markets.

We use the straight-line method of amortization for our amortizable acquired technologies, trademarks and trade names and contract-based intangibles. Amortization for most of our customer-related intangible assets is calculated using an accelerated method in which 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 expected pattern of the benefit to be derived from the acquired customer relationships.

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.

Accrued buyout liability— Certain of our salespersons are paid residual commissions based on the profitability 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. As noted above, as the liability increases over the first year of the related merchant contract, we record a related asset. Subsequent changes in the estimated accrued buyout liability due to merchant attrition, same-store sales growth or contraction and changes in profitability are included in the selling, general and administrative expense in the consolidated statements of income.

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.

ASC Topic 740, "Income Taxes" ("ASC 740") requires companies to recognize the effect of tax law changes in the period of enactment. To address the application of GAAP in situations when a registrant does not have the necessary information available, prepared or analyzed in reasonable detail to complete the accounting for certain income tax effects of the 2017 U.S. Tax Act, which was enacted on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118"), which in March 2018 was codified by the FASB in ASC 740. SAB 118 provided guidance for registrants regarding the application of ASC 740 and permitted up to one year after the enactment date for the registrant to complete its accounting.

In applying the provisions of SAB 118, our income tax benefit for the year ended December 31, 2017 reflected provisional amounts for specific income tax effects as a result of the enactment of the 2017 U.S. Tax Act for which our accounting was incomplete but could be reasonably estimated as of December 31, 2017. During the year ended December 31, 2018, we continued to analyze our foreign tax pools and resulting foreign tax credits and reduced the estimated transition tax liability, which completed our accounting for the transition effects of the 2017 U.S. Tax Act. In accounting for the effects of the 2017 U.S. Tax Act, we made a policy election to treat taxes due, if any, under the Global Intangible Low-taxed Income provision as an expense in the period incurred.

We periodically assess our tax exposures related to periods that are open to examination. Based on the latest available information, we evaluate our tax positions to determine whether the position will more likely than not be sustained upon examination by the U.S. Internal Revenue Service or other taxing authorities. If we cannot reach a more-likely-than-not determination, no benefit is recorded. If we determine that the tax position is more likely than not to be sustained, we record the largest amount of benefit that is more likely than not to be realized when the tax position is settled. We record interest and penalties related to unrecognized income tax benefits in interest and selling, general and administrative expenses, respectively, in our consolidated statements of income.

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 forecasted 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. See "Note 8—Long-Term Debt and Lines of Credit" 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 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 December 31, 2018, the carrying amount of our long-term debt, exclusive of debt issuance costs, approximated 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 8—Long-Term Debt and Lines of Credit" for further information.

We have investments in equity instruments without readily determinable fair value, including our investment in certain preferred shares of Visa Inc. ("Visa") that we accounted for using the cost method. Upon the adoption of ASU 2016-01 on January 1, 2018, we elected a measurement alternative for equity instruments that do not have readily determinable fair values. Under such alternative, these instruments are measured at cost plus or minus any changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. Any resulting change in carrying amount would be reflected in net income. See "Note 7—Other Assets" for more information about our investment in certain preferred shares of Visa.

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 into the reporting currency 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 December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016, 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.

Earnings per share— Basic earnings per share ("EPS") 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 EPS is computed by dividing net income attributable to Global Payments by the weighted-average number of shares outstanding during the period, including the effect of share-based awards that would have a dilutive effect on 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 EPS. There were no stock options that would have an antidilutive effect on the computation of diluted EPS for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period or for the year ended May 31, 2016.

The following table sets forth the computation of the diluted weighted-average number of shares outstanding for all periods presented:

	Years Ended December 31,						Seven Months Ended December 31,			Year Ended May 31,
	2018			2017			2016			2016
	(in thousands)
Basic weighted-average number of shares outstanding	158,672			154,652			153,342			132,284
Plus: Dilutive effect of stock options and other share-based awards	599			876			889			883
Diluted weighted-average number of shares outstanding	159,271			155,528			154,231			133,167

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.

Conforming Presentation— To conform to the presentation for the year ended December 31, 2018, we modified the consolidated statements of cash flows for the year ended December 31, 2017, the 2016 fiscal transition period and the year ended May 31, 2016 to include changes in "capitalized customer acquisition costs" of $82.9 million, $58.2 million and $12.0 million, respectively, within "prepaid expenses and other assets" among the changes in operating assets and liabilities. Previously, changes in "capitalized customer acquisition costs" were presented as a separate line in the consolidated statements of cash flows. These modifications had no effect on net cash provided by operating activities for any period.

Recently Issued Pronouncements Not Yet Adopted

ASC 842 - New Lease Accounting Standard

In February 2016, the FASB issued ASU 2016-02, "Leases." ASU 2016-02 will require us to recognize, on the balance sheet, assets and liabilities for the rights and obligations created by leases. In addition, several new disclosures will be required.

We will adopt ASU 2016-02, as well as other related clarifications and interpretive guidance issued by the FASB, when it becomes effective for us on January 1, 2019. We will elect the optional modified retrospective transition method to apply the provisions of the new standard at the adoption date, which will result in measurement and recognition of assets and liabilities for the rights and obligations created by leases. The lease liability will be measured as the present value of remaining lease payments, and the corresponding right of use asset will be measured at an amount equal to the lease liability adjusted by the amount of certain assets and liabilities, such as deferred lease obligations and prepaid rent, related to our operating leases previously recognized on the balance sheet immediately before the date of initial application. Under this transition method, we will not recast the prior-period financial statements presented.

We have made progress in the execution of our implementation plan, and we are substantially complete with our evaluation of the effect of ASU 2016-02 on our consolidated financial statements. We currently estimate that we will recognize lease liabilities on the balance sheet of approximately $275 million at adoption for our operating leases. We expect right of use assets will be approximately $235 million, reflecting adjustments for the net amount of lease-related items previously recognized on the balance sheet. We do not expect adoption to have a material effect on any line items in our consolidated statement of income or on our cash flows from operating activities, investing activities or financing activities included in our consolidated statement of cash flows.

We will elect the transition package of three practical expedients, which among other things, allows for the carryforward of historical lease classifications, and we will make an accounting policy election to not apply the recognition requirements to leases with a term of less than twelve months. We will also elect a lessee practical expedient, as an accounting policy election by class of underlying asset, to account for lease and nonlease components as a combined single lease component. Finally, we will make

an accounting policy election to determine the incremental borrowing rate at transition, based on the remaining lease term at the date of adoption.

Our existing leases consist primarily of real estate leases for office space throughout the markets in which we conduct business. We are currently finalizing the analysis of our existing lease arrangements. We will implement new accounting processes and internal controls to meet the requirements for financial reporting and disclosures of our leases. We have implemented a new technology solution to assist with the necessary calculations to support the accounting and disclosure requirements of the new lease accounting standard. We are coordinating with various internal stakeholders to evaluate and test the newly implemented technology, processes and controls. We expect these final implementation and evaluation activities will continue during the first quarter of 2019.

Other Accounting Standards Updates Not Yet Adopted

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is Service Contract (A Consensus of the FASB Emerging Issues Task Force)." ASU 2018-15 provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in this update also provide additional disclosure requirements to disclose the nature of an entity’s hosting arrangements that are service contracts. ASU 2018-15 is effective for annual and interim periods beginning after December 15, 2019. We are evaluating the effect of ASU 2018-15 on our consolidated financial statements.

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 us 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 update. ASU 2016-13 also made amendments to the current impairment model for held-to-maturity and available-for-sale debt securities and certain guarantees. The guidance will become effective for us on January 1, 2020. Early adoption is permitted for periods beginning on or after January 1, 2019. We are evaluating the effect of ASU 2016-13 on our consolidated financial statements.

NOTE 2— ACQUISITIONS

The transactions described below were accounted for as business combinations, which requires that we record the assets acquired and liabilities assumed at fair value as of the acquisition date.

SICOM

On October 17, 2018, we acquired SICOM Systems, Inc. ("SICOM") for total purchase consideration of $409.2 million, which we funded with cash on hand and by drawing on our Revolving Credit Facility (described in "Note 8—Long-Term Debt and Lines of Credit"). SICOM is a provider of end-to-end enterprise, cloud-based software solutions and other technologies to quick service restaurants and food service management companies. SICOM's technologies are complementary to our existing Xenial solutions, and we believe this acquisition will expand our software-driven payments strategy by enabling us to increase our capabilities and expand on our existing presence in the restaurant vertical market. Prior to the acquisition, SICOM was indirectly owned by a private equity investment firm where one of our board members is a partner and investor. His direct interest in the transaction was approximately $1.1 million, the amount distributed to him based on his investment interest in the fund of the private equity firm that sold SICOM to us. Based on consideration of all relevant information, the audit committee of our board of directors recommended that the board approve the acquisition of SICOM, which it did.

The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as of December 31, 2018, including a reconciliation to the total purchase consideration, were as follows (in thousands):

Cash and cash equivalents		$	7,540
Property and equipment		5,943
Identified intangible assets		188,294
Other assets		22,278
Deferred income taxes		(48,448		)
Other liabilities		(31,250		)
Total identifiable net assets		144,357
Goodwill		264,844
Total purchase consideration		$	409,201

As of December 31, 2018, we considered these balances to be provisional because we were still in the process of determining the final purchase consideration, which is subject to adjustment pursuant to the purchase agreement, and gathering and reviewing information to support the valuations of the assets acquired and liabilities assumed.

Goodwill arising from the acquisition of $264.8 million, included in the North America segment, was attributable to expected growth opportunities, an assembled workforce and potential synergies from combining our existing businesses. We expect that approximately $50 million of the goodwill from this acquisition will be deductible for income tax purposes.

The following table reflects the estimated fair values of the identified intangible assets of SICOM and the respective aggregated weighted-average estimated amortization periods:

	Estimated Fair Values				Weighted-Average Estimated Amortization Periods
	(in thousands)				(years)
Customer-related intangible assets	$	104,900			14
Acquired technologies	65,312				6
Trademarks and trade names	11,202				5
Covenants-not-to-compete	6,880				5
Total estimated acquired intangible assets	$	188,294			10

Transaction costs associated with the acquisition of SICOM were not material, and the revenues and operating income of SICOM were not material to our consolidated results of operations during the year ended December 31, 2018. The historical revenues and operating income of SICOM were not material to our historical consolidated results of operations for the purpose of presenting unaudited pro forma information for the years ended December 31, 2018 and 2017.

AdvancedMD

On September 4, 2018, we acquired AdvancedMD, Inc. ("AdvancedMD") for total purchase consideration of $706.9 million, which we funded with cash on hand and by drawing on our Revolving Credit Facility. AdvancedMD is a provider of cloud-based enterprise software solutions to small-to-medium sized ambulatory care physician practices in the United States. We believe this acquisition will expand our software-driven payments strategy by enabling us to enter the healthcare vertical market, a large and fragmented market with strong payment fundamentals and attractive growth opportunities.

The provisional estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed as of December 31, 2018, including a reconciliation to the total purchase consideration, were as follows (in thousands):

Cash and cash equivalents		$	7,657
Property and equipment		5,672
Identified intangible assets		419,500
Other assets		11,958
Deferred income taxes		(98,979		)
Other liabilities		(15,624		)
Total identifiable net assets		330,184
Goodwill		376,701
Total purchase consideration		$	706,885

During the fourth quarter of 2018, we recorded adjustments to increase the estimated acquisition-date fair value of identified intangible assets by approximately $115 million to increase the estimated acquisition-date fair value of deferred income tax liabilities by approximately $24 million and to decrease the estimated acquisition-date fair value of goodwill by approximately $92 million. The adjustments were the result of our refinement of certain estimates made as of September 30, 2018. As of December 31, 2018, we considered these balances to be provisional because we were still in the process of gathering and reviewing information to support the valuation of the assets acquired and liabilities assumed.

Goodwill arising from the acquisition of $376.7 million, included in the North America segment, was attributable to expected growth opportunities, an assembled workforce and potential synergies from combining our existing businesses. We expect that substantially all of the goodwill from this acquisition will not be deductible for income tax purposes.

The following table reflects the estimated fair values of the identified intangible assets of AdvancedMD and the respective aggregated weighted-average estimated amortization periods:

	Estimated Fair Values				Weighted-Average Estimated Amortization Periods
	(in thousands)				(years)
Customer-related intangible assets	$	303,100			11
Acquired technologies	83,700				5
Trademarks and trade names	32,700				15
Total estimated acquired intangible assets	$	419,500			10

Transaction costs associated with the acquisition of AdvancedMD were not material, and the revenues and operating income of AdvancedMD were not material to our consolidated results of operations during the year ended December 31, 2018. The historical revenues and operating income of AdvancedMD were not material to our historical consolidated results of operations for the purpose of presenting unaudited pro forma information for the years ended December 31, 2018 and 2017.

ACTIVE Network

We acquired the communities and sports divisions of Athlaction Topco, LLC ("ACTIVE Network") on September 1, 2017, for total purchase consideration of $1.2 billion. ACTIVE Network delivers cloud-based enterprise software, including payment technology solutions, to event organizers in the communities and health and fitness markets. This acquisition aligns with our technology-enabled, software-driven strategy and adds an enterprise software business operating in two additional vertical markets that we believe offer attractive growth fundamentals.

The following table summarizes the cash and non-cash components of the consideration transferred on September 1, 2017 (in thousands):

Cash consideration paid to ACTIVE Network stockholders		$	599,497
Fair value of Global Payments common stock issued to ACTIVE Network stockholders		572,079
Total purchase consideration		$	1,171,576

We funded the cash consideration primarily by drawing on our Revolving Credit Facility. The acquisition-date fair value of 6,357,509 shares of our common stock issued to the sellers was determined based on the share price of our common stock as of the acquisition date and the effect of certain transfer restrictions.

The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed, provisionally determined as of December 31, 2017 and as subsequently revised for measurement-period adjustments, including a reconciliation to the total purchase consideration, were as follows:

	Provisional at December 31, 2017				Measurement- Period Adjustments				Final
	(in thousands)
Cash and cash equivalents	$	42,913			$	—			$	42,913
Property and equipment	21,985				(133		)		21,852
Identified intangible assets	410,545				—				410,545
Other assets	87,240				(97		)		87,143
Deferred income taxes	(31,643		)		4,003				(27,640		)
Other liabilities	(144,132		)		(3,349		)		(147,481		)
Total identifiable net assets	386,908				424				387,332
Goodwill	784,668				(424		)		784,244
Total purchase consideration	$	1,171,576			$	—			$	1,171,576

The measurement-period adjustments were the result of continued refinement of certain estimates, primarily those regarding the measurement of certain contingencies and deferred income taxes.

Goodwill of $784.2 million arising from the acquisition, included in the North America operating segment, was attributable to expected growth opportunities, an assembled workforce and potential synergies from combining our existing businesses. We expect that approximately 80% of the goodwill will be deductible for income tax purposes.

The following table reflects the estimated fair values of the identified intangible assets and the respective weighted-average estimated amortization periods:

	Estimated Fair Values				Weighted-Average Estimated Amortization Periods
	(in thousands)				(years)
Customer-related intangible assets	$	189,000			17
Acquired technologies	153,300				9
Trademarks and trade names	59,400				15
Covenants-not-to-compete	8,845				3
Total estimated acquired intangible assets	$	410,545			13

Heartland

We merged with Heartland on April 22, 2016 for total purchase consideration of $3.9 billion. The merger significantly expanded our small and medium-sized enterprise distribution, customer base and vertical reach in the United States. The following table summarizes the cash and non-cash components of the consideration transferred on April 22, 2016 (in thousands):

Cash consideration paid to Heartland stockholders		$	2,043,362
Fair value of Global Payments common stock issued to Heartland 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 for which vesting 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.

The estimated acquisition-date fair values of major classes of assets acquired and liabilities assumed provisionally determined as of December 31, 2016 and as subsequently revised for measurement-period adjustments, including a reconciliation to the total purchase consideration, were as follows:

	Provisional at December 31, 2016				Measurement- Period Adjustments				Final
	(in thousands)
Cash and cash equivalents	$	304,747			$	—			$	304,747
Accounts receivable	70,385				—				70,385
Prepaid expenses and other assets	103,090				(5,131		)		97,959
Identified intangible assets	1,639,040				—				1,639,040
Property and equipment	106,583				—				106,583
Debt	(437,933		)		—				(437,933		)
Accounts payable and accrued liabilities	(457,763		)		(65		)		(457,828		)
Settlement processing obligations	(36,578		)		(3,727		)		(40,305		)
Deferred income taxes	(518,794		)		18,907				(499,887		)
Other liabilities	(64,938		)		(33,495		)		(98,433		)
Total identifiable net assets	707,839				(23,511		)		684,328
Goodwill	3,214,981				23,511				3,238,492
Total purchase consideration	$	3,922,820			$	—			$	3,922,820

The measurement-period adjustments were the result of continued refinement of certain estimates, particularly regarding certain tax positions and deferred income taxes.

Goodwill of $3.2 billion arising from the merger, included in the North America segment, was attributable to expected growth opportunities, an assembled workforce and potential synergies from combining our existing businesses, and is not deductible for income tax purposes. During the year ended December 31, 2016, we incurred transaction costs in connection with the merger of $24.7 million, which were recorded in selling, general and administrative expenses in the consolidated statements of income.

The following table reflects the estimated fair values of the identified intangible assets and the respective weighted-average estimated amortization periods:

	Estimated Fair Values				Weighted-Average Estimated Amortization Periods
	(in thousands)				(years)
Customer-related intangible assets	$	977,400			15
Acquired technologies	457,000				5
Trademarks and trade names	176,000				7
Covenants-not-to-compete	28,640				1
Total estimated acquired intangible assets	$	1,639,040			11

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 relationships with gaming clients in approximately 260 locations as of the acquisition date, 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 market.

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

Customer-related intangible assets		$	143,400
Liabilities		(150		)
Total identifiable net assets		143,250
Goodwill		94,250
Total purchase consideration		$	237,500

Goodwill arising from the acquisition, included in the North America segment, was attributable to an expected growth opportunities, including cross-selling opportunities at existing and acquired gaming client locations and operating synergies in the gaming business, and an 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.

Valuation of Identified Intangible Assets

For the acquisitions discussed above, the estimated fair values of customer-related intangible assets were determined using the income approach, which was based on projected cash flows discounted to their present value using discount rates that consider the timing and risk of the forecasted cash flows. The discount rates used represented the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics. Acquired technologies were valued using the replacement cost method, which required us to estimate the costs 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 trademarks 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 revenues for the related brands, the appropriate royalty rate and the weighted-average cost of capital. The discount rates used represented the average estimated value of a market participant’s cost of capital and debt, derived using customary market metrics.

NOTE 3—REVENUES

We are a leading worldwide provider of payment technology and software solutions delivering innovative services to our customers globally. Our technologies, services and employee expertise enable us to provide a broad range of solutions that allow our customers to accept various payment types and operate their businesses more efficiently. We distribute our services across a variety of channels to customers. The disclosures in this note are applicable for the year ended December 31, 2018.

The following table presents a disaggregation of our revenue from contracts with customers by distribution channel:

	Year Ended December 31, 2018
	North America				Europe				Asia-Pacific				Total
	(in thousands)
Direct:
Relationship-led	$	1,035,143			$	404,083			$	123,726			$	1,562,952
Technology-enabled	1,207,278				206,847				109,426				1,523,551
	2,242,421				610,930				233,152				3,086,503
Wholesale	279,863				—				—				279,863
	$	2,522,284			$	610,930			$	233,152			$	3,366,366

ASC 606 requires that we determine for each customer arrangement whether revenue should be recognized at a point in time or over time. For the year ended December 31, 2018 substantially all of our revenues were recognized over time.

ASC 606 requires disclosure of the aggregate amount of the transaction price allocated to unsatisfied performance obligations; however, as permitted by ASC 606, we have elected to exclude from this disclosure any contracts with an original duration of one year or less and any variable consideration that meets specified criteria. As described above, our most significant performance obligations consist of variable consideration under a stand-ready series of distinct days of service. Such variable consideration meets the specified criteria for the disclosure exclusion; therefore, the majority of the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied is variable consideration that is not required for this disclosure. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.

Contract Assets and Contract Liabilities

Net contract liabilities included in accounts payable and accrued liabilities on our consolidated balance sheet were $146.9 million at December 31, 2018 and $100.6 million at January 1, 2018. Net contract liabilities included in other noncurrent liabilities on our consolidated balance sheet were $8.6 million at December 31, 2018 and $6.0 million at January 1, 2018. The increase in contract liabilities during 2018 reflects the effects of business combinations. Revenues for the year ended December 31, 2018 included $97.3 million that was in contract liabilities at January 1, 2018. Net contract assets were not material at December 31, 2018 or at January 1, 2018.

Contract Costs

At December 31, 2018, we had net capitalized costs to obtain and to fulfill contracts of $194.6 million and $13.0 million, respectively. During the year ended December 31, 2018, amortization of capitalized contract costs was $51.5 million.

NOTE 4—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 an independent sales organization by Mastercard and 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 and sales allowances. Our reserve for allowances, charges or losses that we do not expect to collect from the merchants due to concessions, merchant fraud, insolvency, bankruptcy or any other merchant-related reason.

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 December 31, 2018 and 2017 settlement processing assets and obligations consisted of the following:

	2018				2017
	(in thousands)
Settlement processing assets:
Interchange reimbursement	$	154,978			$	304,964
Receivable from Members	228,107				104,339
Receivable from networks	1,221,060				2,055,390
Exception items	7,636				7,867
Merchant Reserves	(11,559		)		(13,268		)
	$	1,600,222			$	2,459,292
Settlement processing liabilities:
Interchange reimbursement	$	193,235			$	72,053
Liability to Members	(182,450		)		(20,369		)
Liability to merchants	(1,144,249		)		(1,961,107		)
Exception items	7,146				6,863
Merchant Reserves	(145,826		)		(133,907		)
Reserve for operating losses and sales allowances	(4,212		)		(4,042		)
	$	(1,276,356	)		$	(2,040,509	)

NOTE 5—PROPERTY AND EQUIPMENT

As of December 31, 2018 and 2017, property and equipment consisted of the following:

	Range of Depreciable Lives
	(Years)		2018				2017
			(in thousands)
Land			$	3,518			$	2,742
Buildings	25-30		27,179				29,309
Equipment	2-20		337,589				280,774
Software	2-10		539,879				411,975
Leasehold improvements	3-15		73,298				63,154
Furniture and fixtures	3-7		45,346				24,054
			1,026,809				812,008
Less accumulated depreciation and amortization			(503,827		)		(314,336		)
Work-in-progress			130,560				90,676
			$	653,542			$	588,348

NOTE 6—GOODWILL AND INTANGIBLE ASSETS

As of December 31, 2018 and 2017, goodwill and other intangible assets consisted of the following:

	2018				2017
	(in thousands)
Goodwill	$	6,341,355			$	5,703,992
Other intangible assets:
Customer-related intangible assets	$	2,486,217			$	2,078,891
Acquired technologies	896,701				722,466
Trademarks and trade names	289,588				247,688
Contract-based intangible assets	178,391				171,522
	3,850,897				3,220,567
Less accumulated amortization:
Customer-related intangible assets	860,715				685,869
Acquired technologies	351,170				210,063
Trademarks and trade names	83,234				50,849
Contract-based intangible assets	67,160				92,079
	1,362,279				1,038,860
	$	2,488,618			$	2,181,707

The following table sets forth the changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016:

	North America				Europe				Asia-Pacific				Total
	(in thousands)
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
Goodwill acquired	—				28,820				—				28,820
Effect of foreign currency translation	(1,911		)		(45,265		)		(2,160		)		(49,336		)
Measurement-period adjustments	(1,267		)		(28		)		—				(1,295		)
Balance at December 31, 2016	4,083,252				455,300				269,042				4,807,594
Goodwill acquired	784,668				—				—				784,668
Effect of foreign currency translation	5,060				57,838				18,291				81,189
Measurement-period adjustments	23,511				—				7,030				30,541
Balance at December 31, 2017	4,896,491				513,138				294,363				5,703,992
Goodwill acquired	641,483				—				57,387				698,870
Effect of foreign currency translation	(7,463		)		(28,377		)		(25,243		)		(61,083		)
Measurement-period adjustments	(424		)		—				—				(424		)
Balance at December 31, 2018	$	5,530,087			$	484,761			$	326,507			$	6,341,355

There were no accumulated impairment losses for goodwill at any balance sheet date reflected in the table above.

Customer-related intangible assets, acquired technologies, contract-based intangible assets and trademarks and trade names acquired during the year ended December 31, 2018 had weighted-average amortization periods of 11.5 years, 6.2 years, 19.3 years and 12.5 years, respectively. Customer-related intangible assets, acquired technologies, contract-based intangible assets and trademarks and trade names acquired during the year ended December 31, 2017 had weighted-average amortization periods of 16.8 years, 8.8 years, 3 years and 15 years, respectively. Customer-related intangible assets acquired 2016 fiscal transition period had a weighted-average amortization period of 12.1 years. 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. Amortization expense of acquired intangibles was $377.7 million for the year ended December 31, 2018, $337.9 million for the year ended December 31, 2017, $194.3 million for the 2016 fiscal transition period and $113.7 million for the year ended May 31, 2016, respectively.

The estimated amortization expense of acquired intangibles as of December 31, 2018 for the next five years, calculated using the currency exchange rate at the date of acquisition, if applicable, is as follows (in thousands):

2019	$	408,358
2020	378,538
2021	296,435
2022	256,054
2023	213,726

NOTE 7—OTHER ASSETS

Through certain of our subsidiaries in Europe, we were a member and shareholder of Visa Europe Limited ("Visa Europe"). On June 21, 2016, Visa acquired all of the membership interests in Visa Europe, including ours, upon which we recorded a gain of $41.2 million included in interest and other income in our consolidated statements of income for the 2016 fiscal transition period. We received up-front consideration comprised of €33.5 million ($37.7 million equivalent at June 21, 2016) in cash and Series B and C convertible preferred shares whose initial conversion rate equates to Visa common shares valued at $22.9 million as of June 21, 2016. The preferred shares were assigned a value of zero based on transfer restrictions, Visa's ability to adjust the conversion rate and the estimation uncertainty associated with those factors. Based on the outcome of potential litigation involving Visa Europe in the United Kingdom and elsewhere in Europe, the conversion rate of the preferred shares could be adjusted down such that the number of Visa common shares we ultimately receive could be as low as zero, and approximately €25.6 million ($28.8 million equivalent at June 21, 2016) of the up-front cash consideration could be refundable. On the third anniversary of the closing of the acquisition by Visa, we are contractually entitled to receive €3.1 million ($3.5 million equivalent at June 21, 2016) of deferred consideration (plus compounded interest at a rate of 4.0% per annum).

NOTE 8—LONG-TERM DEBT AND LINES OF CREDIT

As of December 31, 2018 and 2017, long-term debt consisted of the following:

	2018				2017
	(in thousands)
Credit Facility:
Term loans (face amounts of $4,463,643 and $3,932,677 at December 31, 2018 and 2017, respectively, less unamortized debt issuance costs of $37,400 and $37,961 at December 31, 2018 and 2017, respectively)	$	4,426,243			$	3,894,716
Revolving Credit Facility	704,000				765,000
Total long-term debt	5,130,243				4,659,716
Less current portion of Credit Facility (face amounts of $124,176 and $108,979 at December 31, 2018 and 2017, respectively, less unamortized debt issuance costs of $9,101 and $8,671 at December 31, 2018 and 2017, respectively)	115,075				100,308
Long-term debt, excluding current portion	$	5,015,168			$	4,559,408

Maturity requirements on long-term debt as of December 31, 2018 by year are as follows (in thousands):

Years ending December 31,
2019	$	124,176
2020	159,979
2021	195,848
2022	267,587
2023	3,945,053
2024 and thereafter	475,000
Total	$	5,167,643

Credit Facility

We are party to a credit facility agreement with Bank of America, N.A., as administrative agent, and a syndicate of financial institutions as lenders and other agents (as amended from time to time, the "Credit Facility"). As of December 31, 2018, the Credit Facility provided for secured financing comprised of (i) a $1.5 billion revolving credit facility (the "Revolving Credit Facility"); (ii) a $1.5 billion term loan (the "Term A Loan"), (iii) a $1.37 billion term loan (the "Term A-2 Loan"), (iv) a $1.14 billion term loan facility (the "Term B-2 Loan") and (v) a $500 million term loan (the "Term B-4 Loan"). Substantially all of the assets of our domestic subsidiaries are pledged as collateral under the Credit Facility.

The borrowings outstanding under our Credit Facility as of December 31, 2018 reflect amounts borrowed for acquisitions and other activities we completed in 2018, including a reduction to the interest rate margins applicable to our Term A Loan, Term A-2 Loan, Term B-2 Loan and the Revolving Credit Facility, an extension of the maturity dates of the Term A Loan, Term A-2 Loan and the Revolving Credit Facility, and an increase in the total financing capacity under the Credit Facility to approximately $5.5 billion in June 2018.

In October 2018, we entered into an additional term loan under the Credit Facility in the amount of $500 million (the "Term B-4 Loan"). We used the proceeds from the Term B-4 Loan to pay down a portion of the balance outstanding under our Revolving Credit Facility.

The Credit Facility provides for an interest rate, at our election, of either LIBOR or a base rate, in each case plus a margin. As of December 31, 2018, the interest rates on the Term A Loan, the Term A-2 Loan, the Term B-2 Loan and the Term B-4 Loan were 4.02%, 4.01%, 4.27% and 4.27%, respectively, and the interest rate on the Revolving Credit Facility was 3.92%. In addition, we are required to pay a quarterly commitment fee with respect to the unused portion of the Revolving Credit Facility at an applicable rate per annum ranging from 0.20% to 0.30% depending on our leverage ratio.

The Term A Loan and the Term A-2 Loan mature, and the Revolving Credit Facility expires, on January 20, 2023. The Term B-2 Loan matures on April 22, 2023. The Term B-4 Loan matures on October 18, 2025. The Term A Loan and Term A-2 Loan principal amounts must each be repaid in quarterly installments in the amount of 0.625% of principal through June 2019, increasing to 1.25% of principal through June 2021, increasing to 1.875% of principal through June 2022 and increasing to 2.50% of principal through December 2022, with the remaining principal balance due upon maturity in January 2023. The Term B-2 Loan principal must be repaid in quarterly installments in the amount of 0.25% of principal through March 2023, with the remaining principal balance due upon maturity in April 2023. The Term B-4 Loan principal must be repaid in quarterly installments in the amount of 0.25% of principal through September 2025, with the remaining principal balance due upon maturity in October 2025.

We may 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." The total available commitments under the Revolving Credit Facility at December 31, 2018 were $783.6 million.

The portion of deferred debt issuance costs related to the Revolving Credit Facility is included in other noncurrent assets, and the portion of deferred debt issuance costs related to the term loans is reported as a reduction to the carrying amount of the term loans. Debt issuance costs are amortized as an adjustment to interest expense over the terms of the respective facilities.

Settlement Lines of Credit

In various markets where we do business, we have specialized lines of credit, which are restricted for use in funding settlement. The settlement lines of credit generally have variable interest rates, are subject to annual review and are denominated in local currency but may, in some cases, facilitate borrowings in multiple currencies. 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 December 31, 2018 and 2017, a total of $70.6 million and $59.3 million, respectively, of cash on deposit was used to determine the available credit.

As of December 31, 2018 and 2017, respectively, we had $700.5 million and $635.2 million outstanding under these lines of credit with additional capacity of $710.3 million as of December 31, 2018 to fund settlement. The weighted-average interest rate on these borrowings was 2.97% and 1.97% at December 31, 2018 and 2017, respectively. During the year ended December 31, 2018, the maximum and average outstanding balances under these lines of credit were $828.2 million and $398.3 million, respectively.

Compliance with Covenants

The Credit Facility Agreement contains customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and interest coverage ratios, as defined in the agreement. As of December 31, 2018, financial covenants under the Credit Facility Agreement required 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 1, 2018 through June 30, 2019; (ii) 4.75 to 1.00 as of the end of any fiscal quarter ending during the period from July 1, 2019 through June 30, 2020; and (iii) 4.50 to 1.00 as of the end of any fiscal quarter ending thereafter. The interest coverage ratio is required to be no less than 3.25 to 1.00.

The Credit Facility Agreement includes covenants, subject in each case to exceptions and qualifications that may restrict certain payments, including, in certain circumstances, the repurchasing of our common stock and paying cash dividends in excess of our current rate of $0.01 per share per quarter. We were in compliance with all applicable covenants as of December 31, 2018.

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. 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. 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 in the consolidated balance sheets:

				Weighted-Average Fixed Rate of Interest at		Range of Maturity Dates at		Fair Values at December 31,
Derivative Financial Instruments		Balance Sheet Location		December 31, 2018		December 31, 2018		2018				2017
								(in thousands)
Interest rate swaps (Notional of $750 million at December 31, 2018)		Prepaid expenses and other current assets		1.54%		February 28, 2019 - December 31, 2019		$	3,200			$	—
Interest rate swaps (Notional of $550 million and $1,300 million at December 31, 2018 and 2017, respectively)		Other noncurrent assets		1.65%		July 31, 2020 - March 31, 2021		$	8,256			$	9,202
Interest rate swaps (Notional of $950 million at December 31, 2018)		Accounts payable and accrued liabilities		2.82%		December 31, 2022		$	14,601			$	—

The table below presents the effects of our interest rate swaps on the consolidated statements of income and comprehensive income for the periods presented:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Amount of unrealized gains (losses) recognized in other comprehensive income (loss)	$	(7,553	)		$	4,549			$	5,532			$	(12,859	)
Amount of unrealized (gains) losses reclassified out of other comprehensive income (loss) to interest expense	$	(4,792	)		$	5,673			$	4,222			$	8,240

At December 31, 2018, the amount of gain 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 $5.5 million.

Interest Expense

Interest expense was $195.5 million, $174.3 million, $108.6 million and $67.9 million for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016.

NOTE 9—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of December 31, 2018 and 2017, accounts payable and accrued liabilities consisted of the following:

	2018				2017
	(in thousands)
Customer deposits	$	406,117			$	397,085
Contract liabilities(1)	146,947				101,029
Compensation and benefits	117,739				102,187
Payment network fees	96,495				97,304
Trade accounts payable	76,229				47,391
Income taxes payable(2)	51,108				35,405
Commissions payable to third parties	24,998				35,855
Third-party processing fees	24,987				24,267
Unclaimed property	24,369				26,468
Current portion of accrued buyout liability(3)	14,011				20,739
Other	193,703				151,877
	$	1,176,703			$	1,039,607

(1) Following the adoption of ASC 606 on January 1, 2018, amounts previously reported as unearned revenue are now a component of contract liabilities.

(2) The 2017 U.S. Tax Act created a territorial tax system (with a one-time mandatory "transition" tax on previously deferred foreign earnings), effective January 1, 2018. In 2017, upon the enactment of the new tax law, we recognized an estimate for income taxes payable of $63.7 million on previously deferred foreign earnings, of which $55.7 million was included in other noncurrent liabilities on the consolidated balance sheet at December 31, 2017. As of December 31, 2018, we have no liability for the transition tax on previously deferred foreign earnings.

(3) The noncurrent portion of accrued buyout liability of $59.4 million and $64.1 million is included in other noncurrent liabilities on the consolidated balance sheets as of December 31, 2018 and 2017, respectively.

NOTE 10—INCOME TAX

The income tax provision (benefit) for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 consisted of the following:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Current income tax provision (benefit):
Federal	$	(20,984	)		$	79,903			$	22,859			$	26,493
State	21,122				3,468				3,443				5,454
Foreign	79,320				67,851				42,681				56,689
	79,458				151,222				68,983				88,636
Deferred income tax provision (benefit):
Federal	(8,760		)		(266,869		)		(36,447		)		(18,205		)
State	(1,684		)		9,678				(1,842		)		(3,620		)
Foreign	8,474				4,582				4,967				3,884
	(1,970		)		(252,609		)		(33,322		)		(17,941		)
	$	77,488			$	(101,387	)		$	35,661			$	70,695

The income tax provision allocated to noncontrolling interests was $10.6 million and $8.6 million for the years ended December 31, 2018 and 2017, $4.4 million for the 2016 fiscal transition period and $7.3 million for the year ended May 31, 2016.

The following table presents income (loss) before income taxes for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
United States	$	131,067			$	29,692			$	(55,279	)		$	59,876
Foreign	431,089				362,991				228,623				301,036
	$	562,156			$	392,683			$	173,344			$	360,912

On December 22, 2017, the United States enacted the 2017 U.S. Tax Act, which resulted in numerous changes, including a reduction in the U.S. federal tax rate from 35% to 21% effective January 1, 2018 and the transition of the U.S. federal tax system to a territorial regime. As part of this transition, the 2017 U.S. Tax Act imposed a one-time mandatory "transition" tax on foreign earnings not previously subjected to U.S. income tax.

Following the guidance in SAB 118, we made reasonable estimates of the effects of the 2017 U.S. Tax Act on our existing deferred tax balances and the one-time transition tax. For these items, which are further described below, we recognized a provisional net income tax benefit of $158.7 million, which was included as a component of income tax benefit in our consolidated statement of income for the year ended December 31, 2017.

We remeasured our U.S. deferred tax assets and liabilities based on the rates at which they are expected to reverse, which is now 21% instead of 35% and recorded a provisional income tax benefit of $222.4 million for the year ended December 31, 2017. The one-time transition tax established by the 2017 U.S. Tax Act is based on our total post-1986 foreign earnings and profits, offset by allowable foreign tax credits. The transition tax rate applied to our foreign earnings is based on the amount of those earnings held in cash and cash equivalents, as well as other assets. For the year ended December 31, 2017, we recorded a provisional income tax expense of $63.7 million for the transition tax on our previously deferred foreign earnings. During 2018, we continued to analyze other provisions of the 2017 U.S. Tax Act, including the effects on our foreign tax pools and resulting foreign tax credits, and reduced our estimated transition tax liability to $40.4 million, which resulted in an income tax benefit of $23.3 million. As of December 31, 2018, we have completed our accounting for the transition effects of the 2017 U.S. Tax Act.

Approximately $18 million of our undistributed foreign earnings are considered to be indefinitely reinvested outside the United States as of December 31, 2018. Because those earnings are considered to be indefinitely reinvested, no 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, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax.

Our effective tax rates for periods presented differ from the federal statutory rate for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 as follows:

	Year Ended December 31,						Seven Months Ended December 31,			Year Ended May 31,
	2018			2017			2016			2016
Federal U.S. statutory rate	21.0	%		35.0	%		35.0	%		35.0	%
State income taxes, net of federal income tax benefit	2.7			1.9			0.6			0.4
Foreign income taxes (primarily U.K.)	(0.5	)		(12.0	)		(12.6	)		(10.1	)
Foreign interest income not subject to tax	(1.7	)		(2.2	)		(2.3	)		(2.6	)
Federal U.S. transition tax	(4.1	)		16.2			—			—
Federal U.S. rate reduction	—			(55.6	)		—			—
Other SAB 118 adjustments	(0.6	)		—			—			—
Share-based compensation expense	(2.1	)		(4.2	)		—			—
Foreign-derived intangible income deduction	(1.6	)		—			—			—
Taxes on unremitted earnings	—			—			—			(3.5	)
Valuation allowance	1.4			(3.2	)		—			—
Other	(0.7	)		(1.7	)		(0.1	)		0.4
Effective tax rate	13.8	%		(25.8	)%		20.6	%		19.6	%

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 December 31, 2018 and 2017 reflect the effect of temporary differences between the amounts of assets and liabilities for financial accounting and income tax purposes. As of December 31, 2018 and 2017, principal components of deferred tax items were as follows:

	2018				2017
	(in thousands)
Deferred income tax assets:
Basis difference - U.K. business	$	4,890			$	8,961
Domestic net operating loss carryforwards	20,096				17,228
Foreign net operating loss carryforwards	10,833				3,819
Share-based compensation expense	11,333				7,856
Accrued expenses	35,913				34,582
Other	16,906				18,502
	99,971				90,948
Less valuation allowance	(23,390		)		(16,550		)
	76,581				74,398
Deferred tax liabilities:
Acquired intangibles	522,636				410,563
Property and equipment	102,654				77,481
Other	28,188				10,087
	653,478				498,131
Net deferred income tax liability	$	(576,897	)		$	(423,733	)

The net deferred income taxes reflected on our consolidated balance sheets as of December 31, 2018 and 2017 are as follows:

	2018				2017
	(in thousands)
Noncurrent deferred income tax asset	$	8,128			$	13,146
Noncurrent deferred income tax liability	(585,025		)		(436,879		)
Net deferred income tax liability	$	(576,897	)		$	(423,733	)

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 December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 are summarized below (in thousands):

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		)
Allowance for domestic net operating loss carryforwards	(1,504		)
Release of allowance of domestic net unrealized capital loss	12
Balance at December 31, 2016	(16,611		)
Allowance for foreign net operating loss carryforwards	(6,469		)
Allowance for domestic net operating loss carryforwards	(3,793		)
Allowance for state credit carryforwards	(685		)
Rate change on domestic net operating loss and capital loss carryforwards	3,868
Utilization of foreign income tax credit carryforward	7,140
Balance at December 31, 2017	(16,550		)
Allowance for foreign net operating loss carryforwards	(7,979		)
Allowance for domestic net operating loss carryforwards	1,145
Allowance for state credit carryforwards	(6		)
Balance at December 31, 2018	$	(23,390	)

The increase in the valuation allowance related to foreign net operating loss carryforwards of $8.0 million for the year ended December 31, 2018. The increase in the valuation allowance of $10.3 million for the year ended December 31, 2017 relates primarily to carryforward assets recorded as part of the acquisition of ACTIVE Network. The increase in the valuation allowance related to domestic net operating loss carryforwards of $1.5 million and $4.5 million for the 2016 fiscal transition period and the year ended May 31, 2016, respectively, relates to acquired carryforwards from the merger with Heartland.

Foreign net operating loss carryforwards of $68.3 million and domestic net operating loss carryforwards of $38.6 million at December 31, 2018 will expire between December 31, 2026 and December 31, 2038 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 fiscal years ended on or before May 31, 2008, U.S. federal income tax examinations for fiscal ended on or before May 31, 2013 and U.K. federal income tax examinations for fiscal years ended on or before May 31, 2014.

A reconciliation of the beginning and ending amounts of unrecognized income tax benefits, excluding penalties and interest, for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 is as follows:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Balance at the beginning of the year	$	31,218			$	17,916			$	7,803			$	2,559
Additions based on income tax positions related to the current year	—				7,537				4,626				287
Additions related to acquisition	—				13,061				6,149				6,151
Additions for income tax positions of prior years	—				411				247				753
Effect of foreign currency fluctuations on income tax positions	—				27				(3		)		2
Reductions for income tax positions of prior years	(10,021		)		(7,285		)		(906		)		(123		)
Settlements with income tax authorities	—				(449		)		—				(1,826		)
Balance at the end of the year	$	21,197			$	31,218			$	17,916			$	7,803

As of December 31, 2018, the total amount of gross unrecognized income tax benefits that, if recognized, would affect the provision for income taxes is $21.2 million.

NOTE 11—SHAREHOLDERS’ EQUITY

We make repurchases of our common stock mainly through the use of open market purchases and, at times, through accelerated share repurchase programs ("ASRs"). As of December 31, 2018, we were authorized to repurchase up to $387.8 million of our common stock. On February 5, 2019, the board of directors increased its authorization to repurchase shares of our common stock to $750 million, inclusive of prior share repurchase programs authorized by the board and repurchases made thereunder.

Information about shares repurchased and retired was as follows for the periods indicated:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands, except per share amounts)
Number of shares repurchased and retired	1,927				376				2,518				2,152
Cost of shares repurchased, including commissions	$	212,196			$	34,811			$	178,165			$	135,954
Average cost per share	$	110.11			$	92.51			$	70.77			$	63.17

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 during the year ended May 31, 2016, we repurchased and retired 1.5 million shares of our common stock at a cost of $85.9 million, or an average cost of $58.12 per share, including commissions, through open market repurchase plans.

NOTE 12—SHARE-BASED AWARDS AND OPTIONS

We have granted nonqualified stock options and restricted stock awards to key employees, officers and directors under a long-term incentive plan, which 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 plan. The awards are held in escrow and released upon the grantee's satisfaction of conditions of the award certificate.

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

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Share-based compensation expense	$	57,826			$	39,095			$	18,707			$	30,809
Income tax benefit	$	13,038			$	13,849			$	6,582			$	9,879

Restricted Stock

Restricted stock awards vest in equal annual installments over a three-year period and in some cases vest at the end of a three-year service period. Restricted shares cannot be sold or transferred until they have vested. The grant date fair value of restricted stock awards, which is based on the quoted market value of our common stock on the grant 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, may 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 ("Compensation Committee"). Performance units are converted only after the compensation committee certifies performance based on pre-established goals.

The Compensation Committee may set a range of possible performance-based outcomes for performance units. 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. The performance periods for awards granted generally range from 28 months to three years.

During the year ended December 31, 2018, certain of our executives were granted performance units that may be earned based on achievement of an annual adjusted EPS growth target, as modified up or down by our total shareholder return performance rank relative to the Standard & Poors 500 Index over a three-year performance period. The maximum payout is four times the target number of performance units and the minimum payout is zero. To the extent earned, these performance units convert into unrestricted shares after performance results for the three-year performance period are certified by the Compensation Committee. We recognize share-based compensation expense based on the grant-date fair value of the performance-based restricted stock units, as determined by use of a Monte Carlo model, on a straight-line basis over the performance period.

Leveraged Performance Units

During the year ended May 31, 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, which concluded in October 2017, one-third of the earned units converted to unrestricted common stock. The remaining two-thirds converted 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.

The following table summarizes the changes in unvested restricted stock and performance awards for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016:

		Shares			Weighted-Average Grant-Date Fair Value
		(in thousands)
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
Granted		348			74.26
Vested		(639	)		31.38
Forfeited		(52	)		45.27
Unvested at December 31, 2016		1,263			49.55
Granted		899			79.79
Vested		(858	)		39.26
Forfeited		(78	)		59.56
Unvested at December 31, 2017		1,226			78.29
Granted		650			109.85
Vested		(722	)		60.08
Forfeited		(70	)		91.47
Unvested at December 31, 2018		1,084				$108.51

The total fair value of restricted stock and performance awards vested was $43.4 million and $33.7 million for the years ended December 31, 2018 and 2017, respectively, $20.0 million for the 2016 fiscal transition period and $17.4 million for the year ended May 31, 2016.

For restricted stock and performance awards, we recognized compensation expense of $53.2 million and $35.2 million for the years ended December 31, 2018 and 2017, respectively, $17.2 million for the 2016 fiscal transition period and $28.8 million for the year ended May 31, 2016. As of December 31, 2018, there was $62.7 million of unrecognized compensation expense related to unvested restricted stock and performance awards that we expect to recognize over a weighted-average period of 2.0 years. Our restricted stock and performance award plans provide for accelerated vesting under certain conditions.

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 vest in equal installments on each of the first three anniversaries of the grant date. Our stock option plans provide for accelerated vesting under certain conditions.

The following table summarizes changes in stock option activity for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016:

	Options			Weighted-Average Exercise Price				Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands)							(years)		(in millions)
Outstanding at May 31, 2015	894				$25.47			5.2			$23.9
Granted	145			55.92
Forfeited	(8	)		16.10
Exercised	(220	)		22.46						9.4
Outstanding at May 31, 2016	811			31.81				5.8		36.8
Granted	73			74.66
Forfeited	(1	)		22.93
Exercised	(124	)		22.26						6.5
Outstanding at December 31, 2016	759			37.51				6.0		24.5
Granted	124			79.45
Forfeited	—			—
Exercised	(160	)		23.50						10.1
Outstanding at December 31, 2017	723			47.79				6.4		37.9
Granted	103			114.70
Forfeited	(22	)		100.38
Exercised	(206	)		42.65						16.5
Outstanding at December 31, 2018	598				$59.16			6.2			$27.3
Options vested and exercisable at December 31, 2018	427				$44.34			5.2			$25.1

We recognized compensation expense for stock options of $2.7 million and $2.6 million during the years ended December 31, 2018 and 2017, respectively, $1.1 million during the 2016 fiscal transition period and $1.4 million during the fiscal year ended May 31, 2016. As of December 31, 2018, we had $3.3 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 stock options granted during the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and during the year ended May 31, 2016 was $35.09, $23.68, $21.87 and $15.60, respectively. Fair value was estimated on the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

	Year Ended December 31,						Seven Months Ended December 31,			Year Ended May 31,
	2018			2017			2016			2016
Risk-free interest rate	2.60	%		1.99	%		1.05	%		1.62	%
Expected volatility	29	%		30	%		32	%		29	%
Dividend yield	0.04	%		0.06	%		0.06	%		0.10	%
Expected term (years)	5			5			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 13—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures for the periods presented are as follows:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Income taxes paid (refunded), net	$	101,302			$	97,002			$	(3,680	)		$	89,684
Interest paid	$	177,525			$	154,200			$	93,624			$	58,730

NOTE 14—NONCONTROLLING INTERESTS

The following table is the reconciliation of net income attributable to noncontrolling interests to comprehensive income attributable to noncontrolling interests for the periods presented:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Net income attributable to noncontrolling interests	$	32,614			$	25,645			$	12,752			$	18,551
Foreign currency translation attributable to noncontrolling interests	(2,696		)		13,807				(8,417		)		471
Comprehensive income attributable to noncontrolling interests	$	29,918			$	39,452			$	4,335			$	19,022

NOTE 15—ACCUMULATED OTHER COMPREHENSIVE LOSS

The changes in the accumulated balances for each component of other comprehensive income (loss), net of tax, were as follows for the periods presented:

	Foreign Currency Translation				Unrealized Gains (Losses) on Hedging Activities				Other				Accumulated Other Comprehensive Loss
	(in thousands)
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		)
Other comprehensive income (loss)	(83,812		)		6,115				1,030				(76,667		)
Balance at December 31, 2016	(318,450		)		(640		)		(3,627		)		(322,717		)
Other comprehensive income (loss)	132,594				7,639				(660		)		139,573
Balance at December 31, 2017	(185,856		)		6,999				(4,287		)		(183,144		)
Cumulative effect of adoption of new accounting standards	(1,843		)		—				—				(1,843		)
Other comprehensive income (loss)	(116,575		)		(9,373		)		760				(125,188		)
Balance at December 31, 2018	$	(304,274	)		$	(2,374	)		$	(3,527	)		$	(310,175	)

NOTE 16—SEGMENT INFORMATION

Information About Profit and Assets

We operate in three reportable segments: North America, Europe and Asia-Pacific. 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 periods presented:

	Year Ended December 31,								Seven Months Ended December 31,				Year Ended May 31,
	2018				2017				2016				2016
	(in thousands)
Revenues (1)(2):
North America	$	2,522,284			$	2,929,522			$	1,650,616			$	2,052,623
Europe	610,930				767,524				403,823				631,900
Asia-Pacific	233,152				278,117				148,457				213,627
Consolidated revenues	$	3,366,366			$	3,975,163			$	2,202,896			$	2,898,150
Operating income (loss) (2):
North America	$	570,630			$	457,009			$	233,850			$	307,626
Europe	318,392				272,769				145,767				244,837
Asia-Pacific	93,402				81,273				37,530				50,743
Corporate(2)	(245,369		)		(252,183		)		(179,196		)		(178,262		)
Consolidated operating income	$	737,055			$	558,868			$	237,951			$	424,944
Depreciation and amortization (2):
North America	$	444,182			$	379,953			$	208,198			$	128,618
Europe	46,007				46,928				26,178				40,194
Asia-Pacific	24,935				16,466				10,385				13,935
Corporate	7,689				7,804				2,810				5,134
Consolidated depreciation and amortization	$	522,813			$	451,151			$	247,571			$	187,881

(1) As more fully described in "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" and "Note 3—Revenues" we adopted a new revenue accounting standard on January 1, 2018 that results in revenue being presented net of certain fees that we pay to third parties, including payment networks. This change in presentation affected our reported revenues and operating expenses during the year ended December 31, 2018 by the same amount and had no effect on operating income.

(2) Revenues, operating income and depreciation and amortization reflect the effect of acquired businesses from the respective dates of acquisition. For further discussion, see "Note 2—Acquisitions."

(3) During the years ended December 31, 2018 and 2017, 2016 fiscal transition period and the year ended May 31, 2016, operating loss for Corporate included acquisition and integration expenses of $56.1 million, $94.6 million, $91.6 million, and $51.3 million, respectively.

Enterprise-Wide Information

As a percentage of our total consolidated revenues, revenues from external customers in the United States and the United Kingdom were 67% and 9%, respectively, for the year ended December 31, 2018, 66% and 11%, respectively, for the year ended December 31, 2017 and 67% and 10%, respectively, for the 2016 transition period. 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. 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 December 31, 2018 and 2017 were as follows:

	2018				2017
	(in thousands)
United States	$	516,449			$	451,436
Foreign countries	137,093				136,912
	$	653,542			$	588,348

NOTE 17—COMMITMENTS AND CONTINGENCIES

Leases and Purchase Obligations

We conduct a major part of our operations using leased facilities and equipment. Many of our operating leases include escalating rental payments, renewal options and purchase options. Certain of the agreements provide that we pay the cost of property taxes, insurance and maintenance. Rent expense on all operating leases for the years ended December 31, 2018 and 2017, the 2016 fiscal transition period and the year ended May 31, 2016 was $47.1 million, $44.7 million, $19.2 million and $19.7 million, respectively. We also have contractual obligations related to service arrangements with suppliers for fixed or minimum amounts.

In May 2017, we sold our operating facility in Jeffersonville, Indiana for $37.5 million and simultaneously leased the property back for an initial term of 20 years, followed by four optional renewal terms of 5 years. The arrangement met the criteria to be treated as a sale for accounting purposes, and as a result, we derecognized the associated property. There was no resulting gain or loss on the sale because the proceeds received were equal to the carrying amount of the property. We are accounting for the lease as an operating lease.

Future minimum payments at December 31, 2018 for noncancelable operating leases and purchase obligations were as follows:

	Operating Leases				Purchase Obligations
	(in thousands)
Years ending December 31:
2019	$	50,095			$	88,022
2020	47,700				69,878
2021	40,035				62,234
2022	37,055				25,420
2023	33,298				22,909
Thereafter	225,225				33,538
Total future minimum payments(1)	$	433,408			$	302,001

(1) Future minimum lease payments include approximately $70 million for operating lease agreements not commenced at December 31, 2018.

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.

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 banks' identification numbers, referred to as Bank Identification Number ("BIN") 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 December 31, 2018.

NOTE 18—COMPARATIVE DATA FOR THE YEAR ENDED DECEMBER 31, 2016 AND THE SEVEN MONTHS ENDED DECEMBER 31, 2015 (UNAUDITED)

The condensed consolidated statement of income for the year ended December 31, 2016 and the seven months ended December 31, 2015 is as follows (in thousands, except per share data):

	Year Ended December 31,				Seven Months Ended December 31,
	2016				2015
Revenues	$	3,370,976			$	1,730,070
Operating expenses:
Cost of service	1,603,532				638,700
Selling, general and administrative	1,411,096				784,823
	3,014,628				1,423,523
Operating income	356,348				306,547
Interest and other income	46,780				2,886
Interest and other expense	(146,156		)		(32,149		)
	(99,376		)		(29,263		)
Income before income taxes	256,972				277,284
Provision for income taxes	(36,267		)		(70,089		)
Net income	220,705				207,195
Less: Net income attributable to noncontrolling interests	(18,952		)		(12,351		)
Net income attributable to Global Payments	$	201,753			$	194,844
Earnings per share attributable to Global Payments:
Basic earnings per share	$	1.38			$	1.50
Diluted earnings per share	$	1.37			$	1.49

NOTE 19—QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)

Summarized quarterly results for the years ended December 31, 2018 and 2017 are as follows (in thousands, except per share data):

	Quarter Ended
	March 31, 2018				June 30, 2018				September 30, 2018				December 31, 2018
Year Ended December 31, 2018
Revenues	$	794,977			$	833,164			$	857,670			$	880,555
Operating income	156,170				190,737				223,162				166,986
Net income	97,586				117,729				186,029				83,323
Net income attributable to Global Payments	91,399				109,069				176,370				75,215
Basic earnings per share attributable to Global Payments	0.57				0.69				1.12				0.48
Diluted earnings per share attributable to Global Payments	0.57				0.68				1.11				0.47
	Quarter Ended
	March 31, 2017				June 30, 2017				September 30, 2017				December 31, 2017
Year Ended December 31, 2017
Revenues	$	919,762			$	962,240			$	1,038,907			$	1,054,253
Operating income	104,970				131,852				172,471				149,575
Net income	52,959				72,443				118,362				250,305
Net income attributable to Global Payments	48,813				66,909				110,740				241,962
Basic earnings per share attributable to Global Payments	0.32				0.44				0.72				1.52
Diluted earnings per share attributable to Global Payments	0.32				0.44				0.71				1.51

As more fully described in "Note 1—Basis of Presentation and Summary of Significant Accounting Policies" and "Note 3—Revenues" we adopted a new revenue accounting standard on January 1, 2018 that results in revenue being presented net of certain fees that we pay to third parties, including payment networks. This change in presentation affected our reported revenues and operating expenses during each of the quarterly periods in the year ended December 31, 2018 by the same amount and had no effect on operating income.

The quarterly financial data in the table above reflect the effects of acquisitions and borrowings to fund certain of those acquisitions. Notably, we acquired ACTIVE Network during the quarter ended September 30, 2017, AdvancedMD during the quarter ended September 30, 2018 and SICOM during the quarter ended December 31, 2018. Additionally, our consolidated results reflected incremental expenses associated with the acquisition and integration of acquired businesses. See "Note 2—Acquisitions" for further discussion of our acquisitions.

Acquisition and integration expenses were $18.3 million, $8.1 million, $8.2 million and $21.7 million for the quarters ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018, respectively. Acquisition and integration expenses were $26.1 million, $21.9 million, $21.5 million and $25.1 million for the quarters ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, respectively.

Results for the quarter ended December 31, 2017 reflect the effects of a net income tax benefit of $158.7 million in connection with the 2017 U.S. Tax Act, which was enacted on December 22, 2017. Results for the quarter ended September 30, 2018 reflect the effects of a net income tax benefit of $23.3 million in connection with adjustments made to accounting estimates associated with the 2017 U.S. Tax Act. See "Note 10—Income Tax" for further discussion of the recently enacted U.S. tax legislation.

GLOBAL PAYMENTS INC.

SCHEDULE II

Valuation & Qualifying Accounts

(in thousands)

(a)		(b)				(c)				(d)				(e)
Description		Balance at Beginning of Period				Additions: Charged to Costs and Expenses				Deductions: Uncollectible Accounts Write-Offs (Recoveries)				Balance at End of Period
Allowance for doubtful accounts
May 31, 2016		$	468			$	515			$	630			$	353
December 31, 2016(1)		353				4,283				3,544				1,092
December 31, 2017		1,092				6,113				5,378				1,827
December 31, 2018		$	1,827			$	10,430			$	9,093			$	3,164
Reserve for operating losses-merchant card processing (2)
May 31, 2016		$	1,286			$	3,729			$	2,555			$	2,460
December 31, 2016(1)		2,460				4,629				4,810				2,279
December 31, 2017		2,279				14,893				13,712				3,460
December 31, 2018		$	3,460			$	16,068			$	16,740			$	2,788
Reserve for sales allowances-merchant card processing (2)
May 31, 2016		$	4,929			$	3,571			$	7,450			$	1,050
December 31, 2016(1)		1,050				2,637				3,027				660
December 31, 2017		660				3,874				3,954				580
December 31, 2018		$	580			$	6,244			$	5,400			$	1,424
Reserve for operating losses-check guarantee processing
May 31, 2016		$	2,684			$	22,827			$	20,643			$	4,868
December 31, 2016(1)		4,868				15,204				14,286				5,786
December 31, 2017		5,786				28,064				28,112				5,738
December 31, 2018		$	5,738			$	19,314			$	19,987			$	5,065
Deferred income tax asset valuation allowance
May 31, 2016		$	3,823			$	11,296			$	—			$	15,119
December 31, 2016(1)		15,119				1,492				—				16,611
December 31, 2017		16,611				7,079				7,140				16,550
December 31, 2018		$	16,550			$	6,840			$	—			$	23,390

(1) Additions and deductions in columns (c) and (d), respectively, are for the seven months ended December 31, 2016.

(2) Included in settlement processing obligations.