Global Payments (GPN)

Executive Overview

During the three and nine months ended February 28, 2009, we experienced revenue growth of 26% and 29%, respectively. Operating income declined significantly due to a pre-tax impairment charge of $147.7 million in our money transfer business resulting from our annual goodwill impairment test. The outlook for our money transfer business has significantly declined given the difficult macroeconomic conditions. Additionally, our results were affected by unfavorable foreign currency trends and to a lesser extent continuing negative macroeconomic conditions.

On June 30, 2008, we acquired a 51% majority ownership interest in HSBC Merchant Services LLP. We paid HSBC UK $438.6 million for our interest. We manage the day-to-day operations of the partnership, control all major decisions and,

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accordingly, consolidate the partnership’s financial results for accounting purposes effective with the closing date. HSBC UK retained ownership of the remaining 49% and contributed its existing merchant acquiring business in the United Kingdom to the partnership. In addition, HSBC UK entered into a ten-year marketing alliance with the partnership in which HSBC UK will refer customers to the partnership for payment processing services in the United Kingdom. We funded the acquisition using a combination of excess cash and proceeds of a term loan.

Revenues increased during the three months and nine months ended February 28, 2009 compared to the prior year’s comparable period. Our North American segment reported strong growth primarily driven by successful pricing initiatives in Canada offset by an unfavorable foreign currency exchange impact, and modest macroeconomic-based softening in our Canadian volumes. Our ISO channel continues to be the primary factor behind our expanding market share in the United States as evidenced by our 15% transaction growth for the quarter. In addition, revenues increased in our International merchant services segment due to our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP and strong growth in the Asia Pacific region. Our money transfer business continues to face difficult macroeconomic environment and Latino immigration trends; however we have initiated cost containment measures resulting in increased margins.

Operating margins were impacted by the negative currency exchange rates and modest softening across all of our businesses due to the macroeconomic environment. For the three months ended February 28, 2009 currency exchange rate fluctuations decreased our revenues by $35.4 million and our earnings by $0.10 per diluted share. For the nine months ended February 28, 2009 currency exchange rate fluctuations reduced our revenues by $50.2 million and our earnings by $0.14 per diluted share. To calculate this we converted our fiscal 2009 actual revenues at fiscal 2008 rates. Also, in the three and nine months ended February 28, 2009 compared to the prior year’s comparable period, our United States direct credit card average dollar value of transaction, or average ticket, decreased in the high single digit percentage range. We believe this decline, while partially due to a shift toward smaller merchants added through our ISOs, was in part driven by lower consumer spending as a result of a weakened economy. We expect this trend to continue for the remainder of the fiscal year. Further fluctuations in currency exchange rates or decreases in consumer spending could cause our results to differ from our current expectations.

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Executive Overview

On June 30, 2008, we acquired a 51% majority ownership interest in HSBC Merchant Services LLP. We paid HSBC UK $438.6 million for our interest. We manage the day-to-day operations of the partnership, control all major decisions and, accordingly, consolidate the partnership’s financial results for accounting purposes effective with the closing date. HSBC UK retained ownership of the remaining 49% and contributed its existing merchant acquiring business in the United Kingdom to the partnership. In addition, HSBC UK entered into a ten-year marketing alliance with the partnership in which HSBC UK will refer customers to the partnership for payment processing services in the United Kingdom. We funded the acquisition using a combination of excess cash and proceeds of a term loan.

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Revenues increased 30% to $401.1 million in the three months ended November 30, 2008 compared to the prior year’s comparable period. Revenues increased 30% to $806.8 million in the six months ended November 30, 2008 compared to the prior year’s comparable period. This revenue growth was primarily due to growth in our North America merchant services segment in addition to our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP in our International merchant services segment.

Consolidated operating income increased 42% to $82.8 million for the three months ended November 30, 2008, which resulted in an operating margin of 20.6% for the three months ended November 30, 2008. Consolidated operating income increased 41% to $175.9 million for the six months ended November 30, 2008, which resulted in an operating margin of 21.8% for the six months ended November 30, 2008.

Net income increased 28% to $48.9 million in the three months ended November 30, 2008 compared to the prior year’s comparable period, resulting in a 25% increase in diluted earnings per share to $0.60 in the three months ended November 30, 2008 compared to the prior year’s comparable period. Net income increased 30% to $106.4 million in the six months ended November 30, 2008 compared to the prior year’s comparable period, resulting in a 30% increase in diluted earnings per share to $1.31 in the six months ended November 30, 2008 compared to the prior year’s comparable period.

North America merchant services segment revenue increased 12% to $270.8 million in the three months ended November 30, 2008. North America merchant services segment operating income increased 9% to $72.4 million in the three months ended November 30, 2008, with operating margins of 26.7% and 27.4% for the three months ended November 30, 2008 and 2007, respectively. North America merchant services segment revenue increased 14% to $557.4 million in the six months ended November 30, 2008. North America merchant services segment operating income increased 13% to $155.5 million in the six months ended November 30, 2008, with operating margins of 27.9% and 28.1% for the six months ended November 30, 2008 and 2007, respectively.

International merchant services segment revenue increased 192% to $95.1 million in the three months ended November 30, 2008. International merchant services segment operating income increased 332% to $21.0 million in the three months ended November 30, 2008, with operating margins of 22.0% and 14.9% for the three months ended November 30, 2008 and 2007, respectively. International merchant services segment revenue increased 184% to $177.4 million in the six months ended November 30, 2008. International merchant services segment operating income increased 314% to $41.4 million in the six months ended November 30, 2008, with operating margins of 23.3% and 16.0% for the six months ended November 30, 2008 and 2007, respectively.

Money transfer segment revenue increased 2% to $35.2 million in the three months ended November 30, 2008. Money transfer segment operating income increased 294% to $4.9 million in the three months ended November 30, 2008, with operating margins of 13.9% and 3.6% for the three months ended November 30, 2008 and 2007, respectively. Money transfer segment revenue increased 4% to $72.0 million in the six months ended November 30, 2008. Money transfer segment operating income increased 89% to $9.4 million in the six months ended November 30, 2008, with operating margins of 13.0% and 7.2% for the six months ended November 30, 2008 and 2007, respectively.

Our financial results may be affected by overall economic conditions, including fluctuations in foreign currency exchange rates and consumer spending patterns. For the three months ended November 30, 2008 currency exchange rate fluctuations reduced our revenues by $23.3 million and our earnings by $0.07 per diluted share. For the six months ended November 30, 2008 currency exchange rate fluctuations reduced our revenues by $14.8 million and our earnings by $0.04 per diluted share. These fluctuations also caused reductions in our outlook for revenues and earnings for the remaining six months of the fiscal year. Also, in the three and six months ended November 30, 2008 compared to the prior year’s comparable period, our United States direct credit card average dollar value of transaction, or average ticket, decreased in the mid single digit percentage range. We believe this decline, while partially due to a shift toward smaller merchants added through our ISOs, was in part driven by lower consumer spending as a result of a weakened economy. We expect this trend to continue for the remainder of the fiscal year. Further fluctuations in currency exchange rates or decreases in consumer spending could cause our results to differ from our current expectations.

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Executive Overview

On June 17, 2008, we entered into a purchase agreement with HSBC Bank plc, or HSBC UK, to obtain an interest in a newly formed limited partnership that provides payment processing services to merchants in the United Kingdom and Internet merchants globally. The new partnership operates under the name HSBC Merchant Services. On June 30, 2008, we completed the transaction and paid HSBC UK $439 million in cash to acquire a 51% majority ownership in the partnership. We manage the day-to-day operations of the partnership, control all major decisions and, accordingly, consolidate the partnership’s financial results for accounting purposes effective with the closing date. HSBC UK retained ownership of the remaining 49% and contributed its existing merchant acquiring business in the United Kingdom to the partnership. In addition, HSBC UK entered into a ten-year marketing alliance with the partnership in which HSBC UK will refer customers to the partnership for payment processing services in the United Kingdom. On June 23, 2008, we entered into a new five year, $200 million term loan to fund a portion of the acquisition. We funded the remaining purchase price with excess cash and our existing credit facilities.

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Revenues increased 30% to $405.8 million in the three months ended August 31, 2008 compared to the prior year’s comparable period. This revenue growth was primarily due to growth in our North America merchant services segment in addition to our acquisition of 51% of HSBC Merchant Services LLP in our International merchant services segment. Consolidated operating income increased 41% to $93.1 million for the three months ended August 31, 2008, which resulted in an operating margin of 22.9% for the three months ended August 31, 2008. Net income increased 32% to $57.5 million in the three months ended August 31, 2008 compared to the prior year’s comparable period, resulting in a 34% increase in diluted earnings per share to $0.71 in the three months ended August 31, 2008 compared to the prior year’s comparable period.

North America merchant services segment revenue increased 16% to $286.6 million in the three months ended August 31, 2008. North America merchant services segment operating income increased 17% to $83.1 million in the three months ended August 31, 2008, with operating margins of 29.0% and 28.8% for the three months ended August 31, 2008 and 2007, respectively.

International merchant services segment revenue increased 176% to $82.3 million in the three months ended August 31, 2008. International merchant services segment operating income increased 297% to $20.4 million in the three months ended August 31, 2008, with operating margins of 24.8% and 17.2% for the three months ended August 31, 2008 and 2007, respectively.

Money transfer segment revenue increased 5% to $36.8 million in the three months ended August 31, 2008. Money transfer segment operating income increased 20% to $4.5 million in the three months ended August 31, 2008, with operating margins of 12.2% and 10.6% for the three months ended August 31, 2008 and 2007, respectively.

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Executive Overview

In the year ended May 31, 2008, or fiscal 2008, revenue increased 20% to $1,274.2 million from $1,061.5 million in the year ended May 31, 2007, or fiscal 2007. This revenue growth was primarily due to growth in our merchant services channels. Consolidated operating income was $251.4 million for fiscal 2008, compared to $218.1 million for fiscal 2007, which resulted in a decrease in operating margin to 19.7% for fiscal 2008 from 20.5% for fiscal 2007. Net income increased $19.8 million, or 14%, to $162.8 million in fiscal 2008 from $143.0 million in the prior year, resulting in a $0.26 increase in diluted earnings per share to $2.01 in fiscal 2008 from $1.75 in fiscal 2007.

Merchant services segment revenue increased $201.5 million or 22% to $1,130.6 million in fiscal 2008 from $929.1 million in fiscal 2007. Merchant services segment operating income increased 13% to $293.0 million in fiscal 2008 from $259.7 million in fiscal 2007, with operating margins of 25.9% and 27.9% for fiscal 2008 and 2007, respectively.

Money transfer segment revenue increased $11.2 million or 8% to $143.6 million in fiscal 2008 from $132.4 million in fiscal 2007. Money transfer segment operating income decreased 6% to $13.6 million in fiscal 2008 from $14.5 million in fiscal 2007, with operating margins of 9.5% and 10.9% for fiscal years 2008 and 2007, respectively.

The consolidated operating income amounts reflect restructuring and other charges of $1.3 million and $3.1 million in fiscal 2008 and fiscal 2007, respectively. These charges primarily relate to employee termination benefits, fixed asset abandonment and facility closure costs due to facility consolidations and the elimination of redundant activities.

Executive Overview

In the year ended May 31, 2008, or fiscal 2008,
revenue increased 20% to $1,274.2 million from $1,061.5 million in the year ended May 31, 2007, or fiscal 2007. This revenue growth was primarily due to growth in our merchant services channels. Consolidated operating income was $251.4 million
for fiscal 2008, compared to $218.1 million for fiscal 2007, which resulted in a decrease in operating margin to 19.7% for fiscal 2008 from 20.5% for fiscal 2007. Net income increased $19.8 million, or 14%, to $162.8 million in fiscal 2008 from
$143.0 million in the prior year, resulting in a $0.26 increase in diluted earnings per share to $2.01 in fiscal 2008 from $1.75 in fiscal 2007.

Executive Overview

Revenues increased 19% to $310.6 million in the three months ended February 29, 2008 compared to the prior year’s comparable period. Revenues increased 19% to $930.4 million in the nine months ended February 29, 2008 compared to the prior year’s comparable period. This revenue growth was primarily due to our merchant services channels.

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Consolidated operating income increased 17% to $59.9 million for the three months ended February 29, 2008, which resulted in an operating margin of 19.3% for the three months ended February 29, 2008. Consolidated operating income increased 11% to $184.6 million for the nine months ended February 29, 2008, which resulted in an operating margin of 19.8% for the nine months ended February 29, 2008.

Net income increased 17% to $40.1 million in the three months ended February 29, 2008 compared to the prior year’s comparable period, resulting in a 19% increase in diluted earnings per share to $0.50 in the three months ended February 29, 2008 compared to the prior year’s comparable period. Net income increased 11% to $121.9 million in the nine months ended February 29, 2008 compared to the prior year’s comparable period, resulting in a 13% increase in diluted earnings per share to $1.51 in the nine months ended February 29, 2008 compared to the prior year’s comparable period.

Merchant services segment revenue increased 21% to $276.7 million in the three months ended February 29, 2008 and increased 21% to $827.1 million in the nine months ended February 29, 2008. Merchant services segment operating income increased 16% to $72.1 million in the three months ended February 29, 2008, with operating margins of 26.1% and 27.1% for the three months ended February 29, 2008 and February 28, 2007, respectively. Merchant services segment operating income increased 12% to $219.3 million in the nine months ended February 29, 2008, with operating margins of 26.5% and 28.7% for the nine months ended February 29, 2008 and February 28, 2007, respectively.

Money transfer segment revenue increased 8% to $33.9 million in the three months ended February 29, 2008 and increased 5% to $103.3 million in the nine months ended February 29, 2008. Money transfer segment operating income decreased 49% to $1.2 million in the three months ended February 29, 2008, with operating margins of 3.4% and 7.2% for the three months ended February 29, 2008 and February 28, 2007, respectively. Money transfer segment operating income decreased 44% to $6.1 million in the nine months ended February 29, 2008, with operating margins of 5.9% and 11.2% for the nine months ended February 29, 2008 and February 28, 2007, respectively.

The consolidated operating income and earnings per share amounts reflect restructuring charges of $1.3 million in the nine months ended February 29, 2008. These charges primarily relate to employee termination benefits due to facility consolidations. We completed these plans as of November 30, 2007 and do not expect to incur additional restructuring charges in fiscal 2008 related to these restructuring plans. Please see Note 9 in the notes to the unaudited consolidated financial statements for more information. In addition, consolidated operating income and earnings per share amounts reflect the favorable impact of a non-recurring, non-cash operating tax item of $7.0 million that was recognized in the three and nine months ended February 29, 2008. During the three months ended February 29, 2008, we determined that a contingent liability relating to an operating tax matter was no longer deemed to be probable. As such, we released the related liability. See Operating Taxes under Note 13 in the notes to the unaudited consolidated financial statements for additional details.

On April 5, 2007, our Board of Directors approved a share repurchase program that authorized the purchase of up to $100 million of Global Payments’ stock in the open market or as otherwise may be determined by us, subject to market conditions, business opportunities, and other factors. Under this authorization, we repurchased 2,298,905 shares of our common stock during the nine months ended February 29, 2008 at a cost of $87.0 million, or an average of $37.85 per share, including commissions. As of February 29, 2008, we had $13.0 million remaining under our current share repurchase authorization.

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Executive Overview

Revenues increased 18% to $308.8 million in the three months ended November 30, 2007 compared to the prior year’s comparable period. Revenues increased 19% to $619.8 million in the six months ended November 30, 2007 compared to the prior year’s comparable period. This revenue growth was primarily due to our domestic direct, Canada, and Asia-Pacific merchant services channels.

Consolidated operating income increased 12% to $58.4 million for the three months ended November 30, 2007, which resulted in an operating margin of 18.9% for the three months ended November 30, 2007. Consolidated operating income increased 8% to $124.7 million for the six months ended November 30, 2007, which resulted in an operating margin of 20.1% for the six months ended November 30, 2007.

Net income increased 13% to $38.3 million in the three months ended November 30, 2007 compared to the prior year’s comparable period, resulting in a 14% increase in diluted earnings per share to $0.48 in the three months ended November 30, 2007 compared to the prior year’s comparable period. Net income increased 8% to $81.9 million in the six months ended November 30, 2007 compared to the prior year’s comparable period, resulting in a 10% increase in diluted earnings per share to $1.01 in the six months ended November 30, 2007 compared to the prior year’s comparable period.

Merchant services segment revenue increased 21% to $274.4 million in the three months ended November 30, 2007 and increased 21% to $550.4 million in the six months ended November 30, 2007. Merchant services segment operating income increased 16% to $71.1 million in the three months ended November 30, 2007, with operating margins of 25.9% and 27.0% for the three months ended November 30, 2007 and 2006, respectively. Merchant services segment operating income increased 10% to $147.2 million in the six months ended November 30, 2007, with operating margins of 26.7% and 29.6% for the six months ended November 30, 2007 and 2006, respectively.

Money transfer segment revenue increased 1% to $34.3 million in the three months ended November 30, 2007 and increased 4% to $69.3 million in the six months ended November 30, 2007. Money transfer segment operating income decreased 70% to $1.2 million in the three months ended November 30, 2007, with operating margins of 3.6% and 12.0% for the three months ended November 30, 2007 and 2006, respectively. Money transfer segment operating income decreased 43% to $5.0 million in the six months ended November 30, 2007, with operating margins of 7.2% and 13.1% for the six months ended November 30, 2007 and 2006, respectively.

The consolidated operating income and earnings per share amounts reflect restructuring charges of $0.3 million in the three months ended November 30, 2007 and $1.3 million in the six months ended November 30, 2007. These charges primarily relate to employee termination benefits due to facility consolidations. Please see Note 9 in the notes to the unaudited consolidated financial statements for more information.

On April 5, 2007, our Board of Directors approved a share repurchase program that authorized the purchase of up to $100 million of Global Payments’ stock in the open market or as otherwise may be determined by us, subject to market conditions, business opportunities, and other factors. Under this authorization, we repurchased 2,298,905 shares of our common stock during the six months ended November 30, 2007 at a cost of $87.0 million, or an average of $37.85 per share, including commissions. As of November 30, 2007, we had $13.0 million remaining under our current share repurchase authorization.

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Executive Overview

Revenues increased 19% to $311.0 million in the three months ended August 31, 2007 from $260.3 million in the prior year’s comparable period. This revenue growth was primarily due to our domestic direct and new Asia-Pacific merchant services channels. Consolidated operating income was $66.2 million for the three months ended August 31, 2007, which resulted in an operating margin of 21.3% for the three months ended August 31, 2007. Net income increased $2.1 million, or 5%, to $43.6 million in the three months ended August 31, 2007 from $41.5 million in the prior year’s comparable period, resulting in a $0.02 increase in diluted earnings per share to $0.53 in the three months ended August 31, 2007 from $0.51 in the prior year’s comparable period.

Merchant services segment revenue increased $48.7 million or 21% to $276.0 million in the three months ended August 31, 2007, and money transfer segment revenue increased $2.0 million or 6% to $35.0 million in the three months ended August 31, 2007. Merchant services segment operating income increased $3.1 million or 4% to $76.1 million in the three months ended August 31, 2007, with operating margins of 27.6% and 32.1% for the three months ended August 31, 2007 and 2006, respectively. Money transfer segment operating income decreased $1.0 million or 20% to $3.7 million in the three months ended August 31, 2007, with operating margins of 10.6% and 14.2% for the three months ended August 31, 2007 and 2006, respectively.

The consolidated operating income and earnings per share amounts reflect restructuring charges of $1.0 million in three months ended August 31, 2007. We did not incur restructuring charges in the months ended August 31, 2006. Restructuring charges represented 0.3% of revenue in the three months ended August 31, 2007. These charges primarily relate to employee termination benefits due to facility consolidations. Please see Note 9 in the notes to the unaudited consolidated financial statements for more information.

On April 5, 2007, our Board of Directors approved a share repurchase program that authorized the purchase of up to $100 million of Global Payments’ stock in the open market or as otherwise may be determined by us, subject to market conditions, business opportunities, and other factors. Under this authorization, we repurchased 1,821,320 shares of our common stock during the three months ended August 31, 2007 at a cost of $67.9 million, or an average of $37.27 per share, including commissions. As of August 31, 2007, we had $32.1 million remaining under our current share repurchase authorization.

Executive Overview

In the year ended May 31, 2007, or fiscal 2007, revenue increased 17% to $1,061.5 million from $908.1 million in the year ended May 31, 2006, or fiscal 2006. This revenue growth was primarily due to our domestic direct and new Asia-Pacific merchant services channels. Consolidated operating income was $218.1 million for fiscal 2007, compared to $201.1 million for fiscal 2006, which resulted in a decrease in operating margin to 20.5% for fiscal 2007 from 22.1% for fiscal 2006. Net income increased $17.5 million, or 14%, to $143.0 million in fiscal 2007 from $125.5 million in the prior year, resulting in a $0.22 increase in diluted earnings per share to $1.75 in fiscal 2007 from $1.53 in fiscal 2006.

Merchant services segment revenue increased $140.6 million or 18% to $929.1 million in fiscal 2007 from $788.5 million in fiscal 2006, and money transfer segment revenue increased $12.8 million or 11% to $132.4 million in fiscal 2007 from $119.6 million in fiscal 2006. Merchant services segment operating income increased 16% to $259.7 million in fiscal 2007 from $224.2 million in fiscal 2006, with operating margins of 27.9% and 28.4% for fiscal 2007 and 2006, respectively. Money transfer segment operating income decreased 23% to $14.5 million in fiscal 2007 from $18.7 million in fiscal 2006, with operating margins of 10.9% and 15.7% for fiscal years 2007 and 2006, respectively.

The consolidated operating income and earnings per share amounts reflect restructuring and other charges of $3.1 million and $1.9 million in fiscal 2007 and fiscal 2006, respectively. Restructuring and other charges represented 0.3% and 0.2% of revenue in fiscal 2007 and 2006, respectively. These charges primarily relate to employee termination benefits, fixed asset abandonment and facility closure costs due to facility consolidations and the elimination of redundant activities. Please see Note 9 in the notes to consolidated financial statements for more information.

In March 2007, we decided to consolidate our technical support center located in St. Louis, Missouri into our operations center in Owings Mills, Maryland. We believe this consolidation will improve our customer service by allowing us to provide our customers with a single point of contact in one physical location. This consolidation will result in staff reduction, fixed asset abandonment and facility closure costs and is expected to be completed during our second quarter of fiscal 2008.

In March 2007, we also decided to consolidate an operations facility in Denver, Colorado into our Niles, Illinois operations facility, which we believe will improve the efficiency of our check service offering. This consolidation, which resulted in staff reduction and facility closure costs, was completed during the fourth quarter of fiscal 2007.

Executive Overview

Revenue increased 16% to $260.4 million in the three months ended February 28, 2007 from $225.2 million in the prior year’s comparable period. Revenue increased $112.1 million, or 17%, to $781.4 million in the nine months ended February 28, 2007 from $669.3 million in the prior year’s comparable period. This revenue growth was primarily due to our domestic direct, Canada and new Asia-Pacific merchant services channels, as well as growth in our money transfer segment.

Consolidated operating income was $51.2 million for the three months ended February 28, 2007, which resulted in an operating margin of 19.7% for the three months ended February 28, 2007. Consolidated operating income was $167.0 million for the nine months ended February 28, 2007, which resulted in an operating margin of 21.4% for the nine months ended February 28, 2007.

Net income increased $4.2 million, or 14%, to $34.3 million in the three months ended February 28, 2007 from $30.1 million in the prior year’s comparable period, resulting in a $0.06 increase in diluted earnings per share to $0.42 in the three months ended February 28, 2007 from $0.36 in the prior year’s comparable period. Net income increased $18.3 million, or 20%, to $109.8 million in the nine months ended February 28, 2007 from $91.5 million in the prior year’s comparable period, resulting in a $0.22 increase in diluted earnings per share to $1.34 in the nine months ended February 28, 2007 from $1.12 in the prior year’s comparable period.

Merchant services segment revenue increased $33.0 million or 17% to $229.1 million in the three months ended February 28, 2007, and money transfer segment revenue increased $2.3 million or 8% to $31.3 million in the three months ended February 28, 2007. Merchant services segment revenue increased $99.9 million or 17% to $683.2 million in the nine months ended February 28, 2007, and money transfer segment revenue increased $12.2 million or 14% to $98.2 million in the nine months ended February 28, 2007.

Merchant services segment operating income increased $7.0 million or 13% to $62.0 million in the three months ended February 28, 2007, with operating margins of 27.1% and 28.1% for the three months ended February 28, 2007 and 2006, respectively. Merchant services segment operating income increased $28.7 million or 17% to $196.3 million in the nine months ended February 28, 2007, with operating margins of 28.7% for both the nine months ended February 28, 2007 and 2006. Money transfer segment operating income decreased $1.1 million or 33% to $2.2 million in the three months ended February 28, 2007, with operating margins of 7.2% and 11.5% for the three months ended February 28, 2007 and 2006, respectively. Money transfer segment operating income decreased $1.1 million or 9% to $11.0 million in the nine months ended February 28, 2007, with operating margins of 11.2% and 14.1% for the nine months ended February 28, 2007 and 2006, respectively.

No restructuring charges were recorded in consolidated operating income for the three and nine months ended February 28, 2007 and for the three months ended February 28, 2006. For the nine months ended February 28, 2006, the consolidated operating income amounts reflect restructuring charges of $1.9 million, or $0.01 of diluted earnings per share in the nine months ended February 28, 2006. Restructuring charges represented 0.3% of revenue in the nine months ended February 28, 2006.

In March 2007, we decided to consolidate our technical support center located in St. Louis, Missouri into our operations center in Owings Mills, Maryland. We believe this consolidation will improve our customer service by allowing us to provide our customers with a single point of contact in one physical location. This consolidation will result in staff reduction, fixed asset abandonment and facility closure costs and is expected to be completed during our second quarter of fiscal 2008.

In addition to the St. Louis consolidation, we decided also in March 2007 to consolidate an operations facility in Denver, Colorado into our Niles, Illinois operations facility, which we believe will improve the efficiency of our check service offering. This consolidation will result in staff reduction and facility closure costs and is expected to be completed during our fourth quarter of fiscal 2007.

As of February 28, 2007, no restructuring charges have been incurred related to these consolidation plans, although we anticipate recording restructuring and other charges of approximately $5 million, consisting of one-time employee termination benefits, fixed asset abandonments, and contract termination costs. We expect to incur these charges during our fourth quarter of fiscal 2007 and the first half of fiscal 2008.

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In April 2007, our Board of Directors approved a share repurchase program that authorizes the purchase of up to $100 million of Global Payments’ stock in the open market or as otherwise may be determined by us, subject to market conditions, business opportunities, and other factors. We have no obligation to repurchase shares under this program and currently intend to use this authorization as a means of offsetting dilution from the issuance of shares under employee benefit plans. This authorization has no expiration date and may be suspended or terminated at any time. Repurchased shares will be retired but will be available for future issuance.

Executive Overview

Revenue increased $41.0 million, or 19%, to $260.7 million in the three months ended November 30, 2006 from $219.7 million in the comparable prior year period. Revenue increased $76.9 million, or 17%, to $521.0 million in the six months ended November 30, 2006 from $444.1 million in the comparable prior year period. This revenue growth was primarily due to our domestic direct, Canada and new Asia-Pacific merchant services channels, as well as growth in our money transfer segment.

Consolidated operating income was $52.3 million for the three months ended November 30, 2006, which resulted in an operating margin of 20.1% for the three months ended November 30, 2006. Consolidated operating income was $115.8 million for the six months ended November 30, 2006, which resulted in an operating margin of 22.2% for the six months ended November 30, 2006.

Net income increased $3.4 million, or 11%, to $34.0 million in the three months ended November 30, 2006 from $30.6 million in the comparable prior year period, resulting in a $0.05 increase in diluted earnings per share to $0.42 in the three months ended November 30, 2006 from $0.37 in the prior year’s comparable period. Net income increased $14.2 million, or 23%, to $75.5 million in the six months ended November 30, 2006 from $61.4 million in the comparable prior year period, resulting in a $0.17 increase in diluted earnings per share to $0.92 in the six months ended November 30, 2006 from $0.75 in the prior year’s comparable period.

Merchant services segment revenue increased $36.1 million or 19% to $226.8 million in the three months ended November 30, 2006, and money transfer segment revenue increased $4.9 million or 17% to $33.9 million in the three months ended November 30, 2006. Merchant services segment revenue increased $67.0 million or 17% to $454.1 million in the six months ended November 30, 2006, and money transfer segment revenue increased $9.9 million or 17% to $66.9 million in the six months ended November 30, 2006.

Merchant services segment operating income increased $5.0 million or 9% to $61.3 million in the three months ended November 30, 2006, with operating margins of 27.0% and 29.5% for the three months ended November 30, 2006 and 2005, respectively. Merchant services segment operating income increased $21.7 million or 19% to $134.2 million in the six months ended November 30, 2006, with operating margins of 29.6% and 29.1% for the six months ended November 30, 2006 and 2005, respectively. Money transfer segment operating income decreased $0.2 million or 4% to $4.1 million in the three months ended November 30, 2006, with operating margins of 12.0% and 14.6% for the three months ended November 30, 2006 and 2005, respectively. Money transfer segment operating income decreased $0.1 million or 1% to $8.7 million in the six months ended November 30, 2006, with operating margins of 13.1% and 15.4% for the six months ended November 30, 2006 and 2005, respectively.

No restructuring charges were recorded in consolidated operating income for the three and six months ended November 30, 2006. For the three months ended November 30, 2005, the consolidated operating income amounts reflect restructuring charges of $1.0 million, or $0.01 of diluted earnings per share in the three months ended November 30, 2005. Restructuring charges represented 0.5% of revenue in the three months ended November 30, 2005. For the six months ended November 30, 2005, the consolidated operating income amounts reflect restructuring charges of $1.9 million, or $0.02 of diluted earnings per share in the six months ended November 30, 2005. Restructuring charges represented 0.4% of revenue in the six months ended November 30, 2005.

On July 24, 2006, we completed the purchase of a fifty-six percent ownership interest in the merchant acquiring business of The Hongkong and Shanghai Banking Corporation Limited, or HSBC. This business provides card payment processing services to merchants in the Asia-Pacific region. The business includes HSBC’s payment processing operations in the following ten countries and territories: Brunei, China, Hong Kong, India, Macau, Malaysia, Maldives, Singapore, Sri Lanka and Taiwan. Under the terms of the agreement, we paid HSBC $68.6 million in cash to acquire our ownership interest. Operating results of this business are included in our consolidated statements of income from the date of the acquisition.

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Executive Overview

In the three months ended August 31, 2006, revenue increased $35.8 million or 16% to $260.3 million from $224.5 million in the prior year’s comparable period. This revenue growth was primarily due to growth in our North American direct merchant services offerings and our money transfer segment. Consolidated operating income was $63.5 million for the three months ended August 31, 2006, compared to $50.5 million for the prior year’s comparable period, which resulted in an increase in operating margin to 24.4% for the three months ended August 31, 2006 from 22.5% for the prior year’s comparable period. Net income increased $10.8 million, or 35%, to $41.5 million in the three months ended August 31, 2006 from $30.7 million in the comparable prior year period, resulting in a $0.13 increase in diluted earnings per share to $0.51 in the three months ended August 31, 2006 from $0.38 in the prior year’s comparable period.

Merchant services segment revenue increased $30.9 million or 16% to $227.3 million in the three months ended August 31, 2006 from $196.4 million in the prior year’s comparable period, and money transfer segment revenue increased $5.0 million or 18% to $33.0 million in the three months ended August 31, 2006 from $28.0 million in the prior year’s comparable period. Merchant services segment operating income increased $16.7 million or 30% to $73.0 million in the three months ended August 31, 2006 from $56.2 million in the prior year’s comparable period, with operating margins of 32% and 29% for the three months ended August 31, 2006 and 2005, respectively. Money transfer segment operating income increased $0.1 million or 2% to $4.7 million in the three months ended August 31, 2006 from $4.6 million in the prior year’s comparable period, with operating margins of 14% and 16% for the three months ended August 31, 2006 and 2005, respectively.

No restructuring or other charges were recorded in consolidated operating income for the three months ended August 31, 2006. For the three months ended August 31, 2005, the consolidated operating income amounts reflect restructuring and other charges of $0.9 million, or $0.01 per diluted share in the three months ended August 31, 2005. Restructuring and other charges represented 0.4% of revenue in the three months ended August 31, 2005.

On July 24, 2006, we completed the purchase of a fifty-six percent ownership interest in the merchant acquiring business of The Hongkong and Shanghai Banking Corporation Limited, or HSBC. This business provides card payment processing services to merchants in the Asia-Pacific region. The business includes HSBC’s payment processing operations in the following ten countries and territories: Brunei, China, Hong Kong, India, Macau, Malaysia, Maldives, Singapore, Sri Lanka and Taiwan. Under the terms of the agreement, we paid HSBC $67.2 million in cash to acquire our ownership interest. Operating results of this business are included in our consolidated statement of income from the date of the acquisition.

Executive Overview

In fiscal 2006, revenue increased $123.8 million or 16% to $908.1 million from $784.3 million in fiscal 2005. This revenue growth was primarily due to growth in our North American direct merchant services offerings and our money transfer segment. Consolidated operating income was $201.1 million for fiscal 2006, compared to $160.1 million for fiscal 2005, which resulted in an increase in operating margin to 22.1% for fiscal 2006 from 20.4% for fiscal 2005. Net income increased $32.6 million, or 35%, to $125.5 million in fiscal 2006 from $92.9 million in the prior year, resulting in a $0.37 increase in diluted earnings per share to $1.53 in fiscal 2006 from $1.16 in fiscal 2005.

Merchant services segment revenue increased $100.6 million or 15% to $788.5 million in fiscal 2006 from $687.9 million in fiscal 2005 and money transfer segment revenue increased $23.1 million or 24% to $119.6 million in fiscal 2006 from $96.5 million in fiscal 2005. Merchant services segment operating income increased $40.2 million or 22% to $224.2 million in fiscal 2006 from $184.0 million in fiscal 2005, with operating margins of 28% and 27% for fiscal 2006 and 2005, respectively. Money transfer segment operating income increased $2.1 million or 13% to $18.7 million in fiscal 2006 from $16.6 million in fiscal 2005, with operating margins of 16% and 17% for fiscal years 2006 and 2005, respectively.

The consolidated operating income amounts reflect restructuring and other charges of $1.9 million, or $0.01 per diluted share, and $3.7 million, or $0.03 per diluted share, in fiscal 2006 and fiscal 2005, respectively. Restructuring and other charges represented 0.2% and 0.5% of revenue in the fiscal years ended May 31, 2006 and 2005, respectively.

Executive Overview

For the three months ended February 28, 2006, our revenue grew 15% to $225.2 million. For the nine months ended February 28, 2006, our revenue grew 16% to $669.3 million. This revenue growth was primarily due to growth in our North American direct merchant services and consumer-to-consumer money transfer offerings.

Operating income was $48.1 million for the three months ended February 28, 2006, which resulted in an increase in operating margin to 21.4% for the three months ended February 28, 2006. Operating income was $148.7 million for the nine months ended February 28, 2006, which resulted in an increase in operating margin to 22.2% for the nine months ended February 28, 2006. These increases were largely a result of greater economies of scale and continued cost containment programs.

Our revenue growth and margin improvements resulted in a 39% increase in net income to $30.1 million and a 33% increase in our diluted earnings per share to $0.36 per share for the three months ended February 28, 2006. Our revenue growth and margin improvements resulted in a 32% increase in net income to $91.5 million and a 29% increase in our diluted earnings per share to $1.12 per share for the nine months ended February 28, 2006. The results for the nine months ended February 28, 2006 include $1.9 million, or 0.3% of revenue, in restructuring expenses ($1.2 million net of tax, or $0.01 per share), associated with the plan announced in our fourth quarter of fiscal 2005. We completed this restructuring plan on November 30, 2005.

On July 19, 2005, our board of directors authorized a two-for-one stock split effected in the form of a stock dividend. As a result of the stock split, each shareholder received one additional share of our common stock for each share of common stock held of record on October 14, 2005. The shares resulting from the split were distributed by our transfer agent on October 28, 2005. When the split was effected, the exercise price of all outstanding stock options was reduced by 50% and the numbers of options both outstanding and remaining for future grant increased by 100%.

On August 30, 2005, Hurricane Katrina made landfall along the gulf coast of Louisiana, Mississippi, and Alabama, causing widespread and severe damage to significant portions of those states. We have estimated that lost revenue from customers for fiscal 2006 directly related to Hurricane Katrina will be $2.0 million to $3.0 million, which may result in a decrease in diluted earnings per share of approximately $0.01. In the nine months ended February 28, 2006, we experienced increased losses in our check guarantee offerings primarily related to the unfavorable impact of the hurricane on our collection efforts. We did not incur significant property damage or other direct losses as a result of Hurricane Katrina.

On September 8, 2005, we announced an agreement to form a joint venture with The Hongkong and Shanghai Banking Corporation Limited, or HSBC, to provide payment processing services to merchants in the Asia-Pacific region. Under the terms of the agreement, we will pay HSBC $67.2 million in cash to acquire a fifty-six percent ownership interest in the joint venture. We expect that this controlling interest will allow us to consolidate the results of operations of the joint venture in our consolidated statements of income. We anticipate the transaction will be closed within twelve months of our September 8, 2005 announcement date. We intend to update our fiscal year expectations for our total revenue, operating margin, and diluted earnings per share after this transaction is completed.

During the three months ended February 28, 2006, we became aware of suspicious processing activities by a new merchant customer whose customer agreement with us was signed during October 2005. We did not experience any operating losses in connection with this merchant during the three months ended February 28, 2006. Based on the factors described in Note 6 to the unaudited consolidated financial statements we believe a loss is possible, however, the amount of such loss cannot be reasonably determined as of February 28, 2006.

Executive Overview

For the three months ended November 30, 2005, our revenue grew 17% to $219.7 million. For the six months ended November 30, 2005, our revenue grew 17% to $444.1 million. This revenue growth was primarily due to growth in our North American direct merchant services and consumer-to-consumer money transfer offerings.

Operating income was $50.0 million for the three months ended November 30, 2005, which resulted in an increase in operating margin to 22.8% for the three months ended November 30, 2005. Operating income was $100.6 million for the six months ended November 30, 2005, which resulted in an increase in operating margin to 22.6% for the six months ended November 30, 2005. These increases were largely a result of greater economies of scale and continued cost containment programs.

Our revenue growth and margin improvements resulted in a 30% increase in net income to $30.6 million and a 23% increase in our diluted earnings per share to $0.37 per share for the three months ended November 30, 2005. The results for the three months ended November 30, 2005 include $1.0 million, or 0.5% of revenue, in restructuring expenses ($0.7 million net of tax, or $0.01 per share), associated with the plan announced in our fourth quarter of fiscal 2005. Our revenue growth and margin improvements resulted in a 28% increase in net income to $61.4 million and a 25% increase in our diluted earnings per share to $0.75 per share for the six months ended November 30, 2005. The results for the six months ended November 30, 2005 include $1.9 million, or 0.4% of revenue, in restructuring expenses ($1.2 million net of tax, or $0.02 per share), associated with the plan announced in our fourth quarter of fiscal 2005. We completed this restructuring plan on November 30, 2005.

On July 19, 2005, our board of directors authorized a two-for-one stock split effected in the form of a stock dividend. As a result of the stock split, each shareholder received one additional share of our common stock for each share of common stock held of record on October 14, 2005. The shares resulting from the split were distributed by our transfer agent on October 28, 2005. When the split was effected, the exercise price of all outstanding stock options was reduced by 50% and the numbers of options both outstanding and remaining for future grant increased by 100%.

On August 30, 2005, Hurricane Katrina made landfall along the gulf coast of Louisiana, Mississippi, and Alabama, causing widespread and severe damage to significant portions of those states. We have estimated that lost revenue from customers for fiscal 2006 directly related to Hurricane Katrina will be approximately $2.0 million to $3.0 million, which may result in a decrease in diluted earnings per share of approximately $0.01. In the three months ended November 30, 2005, we experienced increased losses in our check guarantee offerings primarily related to the unfavorable impact of the hurricane on our collection efforts. We did not incur significant property damage or other direct losses as a result of Hurricane Katrina.

On September 8, 2005, we announced an agreement to form a joint venture with The Hongkong and Shanghai Banking Corporation Limited, or HSBC, to provide payment processing services to merchants in the Asia-Pacific region. Under the terms of the agreement, we will pay HSBC $67.2 million in cash to acquire a fifty six percent ownership interest in the joint venture. We expect that this controlling interest will allow us to consolidate the results of operations of the joint venture in our consolidated statements of income. We anticipate the transaction will be closed within twelve months of our September 8, 2005 announcement date. We intend to update our fiscal year expectations for our total revenue, operating margin, and diluted earnings per share after this transaction is completed.

Executive Overview

For the three months ended August 31, 2005, our revenue grew 17% to $224.5 million, primarily due to growth in our domestic direct merchant services and consumer-to-consumer money transfer offerings. Operating income was $50.5 million for the three months ended August 31, 2005 compared to $41.6 million in the prior year’s comparable period, which resulted in an increase in operating margin to 22.5% for the three months ended August 31, 2005 from 21.6% for the comparable period in the prior year. This increase was largely a result of greater economies of scale and continued cost containment programs. Our revenue growth and margin improvements resulted in a 27% increase in net income to $30.7 million and 23% increase in our diluted earnings per share to $0.76 per share for the three months ended August 31, 2005. The results for the three months ended August 31, 2005 include $0.9 million, or 0.4% of revenue, in restructuring expenses ($0.6 million net of tax, or $0.01 per share), associated with a plan announced in our fourth quarter of fiscal 2005. We anticipate incurring additional restructuring expenses of approximately $2 million in connection with the restructuring plans, which we expect will be completed by November 30, 2005.

We intend to continue to grow our domestic and international presence, build our ISO sales channel, increase customer satisfaction, assess opportunities for profitable acquisition growth, pursue enhanced products and services for our customers, and leverage our existing business model.

On July 19, 2005, our board of directors authorized a two-for-one stock split to be effected in the form of a stock dividend. As a result of the stock split, each shareholder will be entitled to receive one additional share of our common stock for each share of common stock held of record on October 14, 2005. We expect that the shares resulting from the split will be distributed by our transfer agent on or about October 28, 2005. The stock split will increase the number of shares of our common stock outstanding from approximately 39 million to approximately 78 million shares. This stock split has not been reflected in this quarterly report filed on Form 10-Q for the quarter ended August 31, 2005. While the declaration of dividends occurs at the discretion of our board of directors, we expect that any quarterly cash dividends declared during fiscal 2006 will remain at $0.04 per common share on a pre-split basis, or $0.02 per common share on a post-split basis. When the split is effected, the exercise price of all outstanding stock options will be reduced by 50% and the numbers of options both outstanding and remaining for future grant will increase by 100%.

On August 30, 2005, Hurricane Katrina made landfall along the gulf coast of Louisiana, Mississippi, and Alabama, causing widespread and severe damage to significant portions of those states. We have estimated that lost revenue from customers for fiscal 2006 directly related to Hurricane Katrina will be approximately $2.0 million to $4.0 million, which may result in a decrease in diluted earnings per share of $0.02 to $0.04. We did not incur significant property damage or other direct losses as a result of Hurricane Katrina.

On September 8, 2005, we announced an agreement to form a joint venture with The Hongkong and Shanghai Banking Corporation Limited, or HSBC, to provide payment processing services to merchants in the Asia-Pacific region. Under the terms of the agreement, we will pay HSBC $67.2 million in cash to acquire a fifty-six percent ownership interest in the joint venture. We expect that this controlling interest will allow us to consolidate the results of operations of the joint venture in our consolidated statements of income. We anticipate the transaction will be closed within the next twelve months. We will update our expectations of future revenues, margins, and net income after the close of the transaction.

Executive Overview

We reported strong financial results for fiscal 2005. In fiscal 2005, revenue increased $155.0 million, or 24.6%, to $784.3 million from $629.3 million in fiscal 2004. Revenue growth was primarily driven by the growth in our direct merchant service and consumer-to-consumer money transfer offerings and acquisitions closed late in fiscal 2004. Operating income was $160.1 million for fiscal 2005, compared to $112.9 million in the prior year’s comparable period, which resulted in an increase in operating margin to 20.4% for fiscal 2005 from 17.9% for fiscal 2004. Net income increased $30.5 million or 48.8% to $92.9 million in fiscal 2005 from $62.4 million in the prior year’s comparable period, resulting in a $0.73 increase in diluted earnings per share to $2.33 in fiscal 2005 from $1.60 in fiscal 2004.

The operating income amounts reflect restructuring and other charges of $3.7 million, or $0.06 per diluted share, and $9.6 million, or $0.16 per diluted share, in fiscal 2005 and fiscal 2004, respectively. Restructuring and other charges represented 0.5% and 1.5% of revenue in the fiscal years ended May 31, 2005 and 2004, respectively.

On December 21, 2004, we closed the acquisition from various individual shareholders of all of the outstanding equity interests in the following related privately held companies: United Europhil, S.A., a Spanish corporation; Tropical Express, S.L., a Spanish LLC; United Europhil Belgique, S.P.R.L, a Belgian company; and United Europhil UK, Ltd., an English company, which we collectively refer to throughout this report as Europhil or the Europhil acquisition. These entities engage in money transmittal and ancillary services from the countries in which the legal entities reside primarily to settlement locations in Latin America, Morocco, and the Philippines. The total consideration paid for this transaction, which was paid in cash at closing, was €15.5 million, or approximately $20.8 million at exchange rates in effect at closing. The companies acquired in connection with the Europhil acquisition are being operated through a newly formed Spanish holding company named DolEx Dollar Express Europe. The purpose of the transaction was to further our strategy of expanding our customer base and market share geographically. The results of Europhil’s operations were included in our consolidated financial statements commencing on December 22, 2004.

On June 30, 2004, we acquired the remaining 49% interest in the Cash & Win product line from Comerica Bank. Prior to the acquisition, we effectively owned 51% of the Cash & Win product line because it was owned and operated by Global Payments Comerica Alliance, LLC, our joint venture with Comerica Bank. The Cash & Win product line provides credit and debit card cash advance services to patrons of the gaming industry. The total cash consideration paid for this interest was approximately $7.8 million. Effective July 1, 2004, we began recognizing 100% of the net income of the Cash & Win product line in our consolidated statements of income.

Executive Overview

In the three months ended February 28, 2005, revenue increased $32.9 million or 20% to $195.5 million from $162.6 million in the prior year’s comparable period, primarily due to our acquisition of MUZO, which was substantially completed in May 2004, as well as growth in our money transfer and domestic direct merchant services offerings. This includes $14.5 million in revenue recorded in the current quarter from our recent acquisitions of MUZO and Europhil. Operating income was $38.2 million for the three months ended February 28, 2005 compared to $30.4 million in the prior year’s comparable period, which resulted in an increase in operating margin to 19.5%

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for the current period from 18.7% for the three months ended February 29, 2004. This increase was largely a result of greater economies of scale, the impact of consolidation efforts completed in fiscal 2004 and continued cost containment programs. Our revenue growth and margin improvements resulted in a 31% increase in net income to $21.6 million and a 29% increase in our diluted earnings per share to $0.54 per share for the three months ended February 28, 2005. We intend to continue to grow our domestic and international presence, build our ISO sales channel, increase customer satisfaction, assess opportunities for profitable acquisition growth, pursue enhanced products and services for our customers, and leverage our existing business model.

On December 21, 2004, we acquired Europhil, a group of European electronic money transfer companies, from individual investors for € 15.5 million or approximately U.S. $20.6 million ($18.0 million net of acquired cash), based on then existing exchange rates. Europhil was established in Spain in 1989 and is based in Madrid. As of the acquisition date, the group operated 26 retail branches in Spain, Belgium, and the United Kingdom and had a settlement network of approximately 1,000 locations in over 20 countries. More than 80% of its money transfers are sent to Latin American countries, including Ecuador, Colombia, Bolivia, and Brazil. Most of its remaining money transfers are sent to African and Asian countries, including Morocco, the Philippines, and India. Our interest in Europhil was primarily based on our desire to leverage our consumer-to-consumer money transfer offering, technology platform and settlement channels beyond the United States to Latin America corridor, in addition to providing access to new regions in Europe, Africa and Asia.