QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
ITEM 6. Revenues Operating expenses: Cost of service Sales, general and administrative Operating income Other income (expense): Interest and other income Interest and other expense Income from continuing operations before income taxes Provision for income taxes Income from continuing operations (Loss) income from discontinued operations, net of tax Net income including noncontrolling interests Less: Net income attributable to noncontrolling interests, net of income tax provision of $644 and $442, respectively Net income attributable to Global Payments Amounts attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations, net of tax Net income attributable to Global Payments Basic earnings per share attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations Net income attributable to Global Payments Diluted earnings per share attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations Net income attributable to Global Payments Dividends per share CASH FLOWS Revenues Operating expenses: Cost of service Sales, general and administrative Operating income Other income (expense): Interest and other income Interest and other expense Income from continuing operations before income taxes Provision for income taxes Income from continuing operations (Loss) income from discontinued operations, net of tax Net income including noncontrolling interests Less: Net income attributable to noncontrolling interests, net of income tax provision of $1,949 and $922, respectively Net income attributable to Global Payments Amounts attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations, net of tax Net income attributable to Global Payments Basic earnings per share attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations Net income attributable to Global Payments Diluted earnings per share attributable to Global Payments: Income from continuing operations (Loss) income from discontinued operations Net income attributable to Global Payments Dividends per share ASSETS Current assets: Cash and cash equivalents Accounts receivable, net of allowances for doubtful accounts of $348 and $269, respectively Claims receivable, net of allowances for losses of $4,196 and $4,208, respectively Settlement processing assets Inventory Deferred income taxes Prepaid expenses and other current assets Total current assets Goodwill Other intangible assets, net of accumulated amortization of $181,472 and $145,076, respectively Property and equipment, net of accumulated depreciation of $155,699and $119,402, respectively Deferred income taxes Other Total assets LIABILITIES AND EQUITY Current liabilities: Lines of credit Current portion of long-term debt Accounts payable and accrued liabilities Settlement processing obligations Income taxes payable Total current liabilities Long-term debt Deferred income taxes Other long-term liabilities Total liabilities Commitments and contingencies (See Note 12) Redeemable noncontrolling interest Equity: Preferred stock, no par value; 5,000,000 shares authorized and none issued Common stock, no par value; 200,000,000 shares authorized; 82,793,925 issued and 80,066,188 outstanding at February 28, 2011 and 82,028,945 issued and 79,646,055 outstanding at May 31, 2010 Paid-in capital Retained earnings Treasury stock; 2,727,737 and 2,382,890 shares at February 28, 2011 and May 31, 2010, respectively Accumulated other comprehensive income (loss) Total Global Payments shareholders’ equity Noncontrolling interest Total equity Total liabilities and equity Cash flows from operating activities: Net income including noncontrolling interests Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization of property and equipment Amortization of acquired intangibles Share-based compensation expense Provision for operating losses and bad debts Deferred income taxes Loss on disposal of discontinued operations Other, net Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable Claims receivable Settlement processing assets and obligations, net Inventory Prepaid expenses and other assets Payables to money transfer beneficiaries Accounts payable and other accrued liabilities Income taxes payable Net cash provided by operating activities Cash flows from investing activities: Business and intangible asset acquisitions, net of cash acquired Capital expenditures Preliminary settlement of working capital adjustments from disposition of business Net decrease (increase) in financing receivables Proceeds from sale of investment and contractual rights, net Net cash used in investing activities Cash flows from financing activities: Net borrowings on lines of credit Proceeds from issuance of long-term debt Principal payments under issuance of long-term debt Acquisition of redeemable noncontrolling interest Proceeds from stock issued under share-based compensation plans 50 Repurchase of common stock Tax benefit from employee share-based compensation Distributions to noncontrolling interest Dividends paid Net cash provided by (used in) financing activities Effect of exchange rate changes on cash Increase in cash and cash equivalents Cash and cash equivalents, beginning of the period Cash and cash equivalents of discontinued operations Cash and cash equivalents, end of the period Balance at May 31, 2010 Comprehensive income: Net income including noncontrolling interests Foreign currency translation adjustment, net of tax of $(6,630) Total comprehensive income Stock issued under employee stock plans, net Tax benefit from employee share-based compensation, net Share-based compensation expense Noncontrolling interests in business acquisitions Distributions to noncontrolling interest Redeemable noncontrolling interest valuation adjustment Repurchase of common stock Dividends paid ($0.06 per share) Balance at February 28, 2011 Balance at May 31, 2009 Comprehensive income (loss): Net income including noncontrolling interests Foreign currency translation adjustment, net of tax of $1,375 Total comprehensive income Stock issued under employee stock plans Tax benefit from exercise of stock options Share-based compensation expense Distributions to noncontrolling interest Redeemable noncontrolling interest valuation adjustment Deferred tax asset –arising from acquisition of noncontrolling interest Dividends paid ($0.06 per share) Balance at February 28, 2010 2011 The majority of credit cards and signature debit cards, which are only a U.S. based card type, are based on a percentage of transaction value along with other related fees, while PIN debt cards are typically a fee per transaction. transactions we have funded merchants on behalf of the Members in advance of receipt of card association funding (“Receivable from Members”), (iii) our receivable from the card networks for transactions processed on behalf of merchants where we are a Member of that particular network (“Receivable from networks”), and Settlement processing assets: Interchange reimbursement Receivable from Members, net Exception items Merchant reserves Total Settlement processing obligations: Interchange reimbursement Liability to Members, net Exception items Merchant reserves Fair value of guarantees of customer chargebacks Reserves for sales allowances Total service, and we defer this fee revenue until the guarantee is satisfied. We have the right to collect the full amount of the check from the checkwriter but have not historically recovered . Basic weighted average shares outstanding Plus: dilutive effect of stock options and restricted stock awards Diluted weighted average shares outstanding Pago, S.L. During fiscal 2011, we expensed acquisition costs of Goodwill Customer-related intangible assets Contract-based intangible assets Working capital, net Total assets acquired Non-controlling interest Net assets acquired During Net revenues Operating income Estimated loss on disposal Other income Loss before income taxes Income tax benefit Income from discontinued operations, net of tax Goodwill Other intangible assets: Customer-related intangible assets Contract-based intangible assets Trademarks, finite life Less accumulated amortization on: Customer-related intangible assets Contract-based intangible assets Trademarks Total intangible assets Balance at May 31, 2010 Goodwill acquired Purchase price allocation adjustments Effect of foreign currency translation Balance at February 28, 2011 Credit facilities: Corporate Credit Facility Canada Credit Facility National Bank of Canada Credit Facility United Kingdom Credit Facility Macau Credit Facility Sri Lanka Credit Facility Philippines Credit Facility Maldives Credit Facility Singapore Credit Facility Malaysia Credit Facility Hong Kong Credit Facility Total credit facilities Notes Payable Term loans Total debt Current portion Long-term debt Total debt Facility is available for general corporate purposes and to fund future strategic acquisitions. Our line of credit facilities are used to fund settlement and provide a source of working Facility. and for the three months ended LLP ("UK deferred tax asset"). Kingdom of with the remaining estimated share payout. Share-based compensation cost Income tax benefit There were Outstanding at May 31, 2010 Granted Forfeited Exercised Outstanding at February 28, 2011 Options vested and exercisable at February 28, 2011 2005 Plan Risk-free interest rates Expected volatility Dividend yields Expected lives Directors Plan Risk-free interest rates Expected volatility Dividend yields Expected lives Non-vested at May 31, 2010 Granted Vested Forfeited Non-vested at February 28, 2011 Income taxes paid, net of refunds Interest paid Financing receivables: Investment in equipment for financing leases Principal collections from customers—financing leases Net decrease (increase) in financing receivables Beginning balance Acquisition of redeemable noncontrolling interest Net income attributable to redeemable noncontrolling interest Distributions to redeemable noncontrolling interest Increase in the maximum redemption amount of redeemable noncontrolling interest Ending balance Net income attributable to Global Payments Net income attributable to nonredeemable noncontrolling interest Net income attributable to redeemable noncontrolling interest Net income including noncontrolling interest Revenues: United States Canada North America merchant services Europe Asia-Pacific International merchant services Consolidated revenues Operating income for segments: North America merchant services International merchant services Corporate Consolidated operating income Depreciation and amortization: North America merchant services International merchant services Discontinued operations Corporate Consolidated depreciation and amortization customer. 2011. We are a The majority of credit cards and signature debit cards, which are only a U.S. based card type, are based on a percentage of transaction value along with other related fees, while PIN debit cards are typically a fee per transaction. 2010, and favorable foreign currency trends. channel. Revenues: United States Canada North America merchant services Europe Asia-Pacific International merchant services Total revenues Consolidated operating expenses: Cost of service Sales, general and administrative Operating income Operating income for segments: North America merchant services International merchant services Corporate Operating income Operating margin for segments: North America merchant services International merchant services Revenues: United States Canada North America merchant services Europe Asia-Pacific International merchant services Total revenues Consolidated operating expenses: Cost of service Sales, general and administrative Operating income Operating income for segments: North America merchant services International merchant services Corporate Operating income Operating margin for segments: North America merchant services International merchant services total due to rounding. trends. region. sales, general and administrative expenses. favorable currency trends. Our corporate costs increased general infrastructure growth. Comercia on December 20, 2010. Net cash used in investing activities $14.9 million. interest sheet Credit facilities: Corporate Credit Facility Canada Credit Facility National Bank of Canada Credit Facility United Kingdom Credit Facility Macau Credit Facility Sri Lanka Credit Facility Philippines Credit Facility Maldives Credit Facility Singapore Credit Facility Malaysia Credit Facility Hong Kong Credit Facility Total credit facilities Notes Payable Term loans Total debt Current portion Long-term debt Total debt Facility is available for general corporate purposes and to fund future strategic acquisitions. Our line of credit facilities are used to fund settlement and provide a source of working August 2016. la Caixa.
Georgia 58-2567903 (State or other jurisdiction of
incorporation or organization) (I.R.S. Employer
Identification No.)10 Glenlake Parkway, North Tower, Atlanta, Georgia 30328-347330328(Address of principal executive offices) (Zip Code) xý No ¨xý No ¨Large accelerated filerxAccelerated filer¨Non-accelerated filer¨ (Do not check if a smaller reporting company)Smaller reporting company¨xýMarch 29,September 30, 2011 was 80,052,396.78,315,770. Page ITEM 1. FINANCIAL STATEMENTS ITEM 1. FINANCIAL STATEMENTS 3Unaudited Consolidated Statements of Income for the nine months ended February 28, 2011 and 20104 5 6 7Unaudited Consolidated Statements of Changes in Equity for the nine months ended February 28, 20108ITEM 2. 9ITEM 2.ITEM 3. 28ITEM 3.ITEM 4. 40ITEM 4.40ITEM 2. 4142I—I – FINANCIAL INFORMATION Three Months Ended
February 28, 2011 2010 $ 456,382 $ 398,535 168,332 146,202 209,851 178,484 378,183 324,686 78,199 73,849 1,631 1,319 (4,315 ) (4,141 ) (2,684 ) (2,822 ) 75,515 71,027 (20,962 ) (20,298 ) 54,553 50,729 (430 ) 722 54,123 51,451 (6,334 ) (2,990 ) $ 47,789 $ 48,461 $ 48,219 $ 47,739 (430 ) 722 $ 47,789 $ 48,461 $ 0.60 $ 0.59 — 0.01 $ 0.60 $ 0.60 $ 0.60 $ 0.58 (0.01 ) 0.01 $ 0.59 $ 0.59 $ 0.02 $ 0.02 Three Months Ended August 31, 2011 2010 Revenues $ 542,771 $ 440,138 Operating expenses: Cost of service 191,536 151,041 Sales, general and administrative 242,625 206,990 434,161 358,031 Operating income 108,610 82,107 Other income (expense): Interest and other income 2,501 1,537 Interest and other expense (4,087 ) (4,841 ) (1,586 ) (3,304 ) Income from continuing operations before income taxes 107,024 78,803 Provision for income taxes (34,943 ) (24,981 ) Income from continuing operations 72,081 53,822 Loss from discontinued operations, net of tax — (28 ) Net income including noncontrolling interests 72,081 53,794 Less: Net income attributable to noncontrolling interests, net of income tax provision of $1,858 and $295, respectively (8,107 ) (4,426 ) Net income attributable to Global Payments $ 63,974 $ 49,368 Amounts attributable to Global Payments: Income from continuing operations $ 63,974 $ 49,396 Loss from discontinued operations, net of tax — (28 ) Net income attributable to Global Payments $ 63,974 $ 49,368 Basic earnings per share attributable to Global Payments: Income from continuing operations $ 0.80 0.62 Loss from discontinued operations — — Net income attributable to Global Payments $ 0.80 $ 0.62 Diluted earnings per share attributable to Global Payments: Income from continuing operations $ 0.79 0.61 Loss from discontinued operations — — Net income attributable to Global Payments $ 0.79 $ 0.61 Dividends per share $ 0.02 0.02 August 31, 2011 May 31, 2011 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 723,952 $ 1,354,285 Accounts receivable, net of allowances for doubtful accounts of $422 and $472, respectively 177,352 166,540 Claims receivable, net of allowances for losses of $4,847 and $3,870, respectively 1,099 914 Settlement processing assets 288,684 280,359 Inventory 10,454 7,640 Deferred income taxes 2,935 2,946 Prepaid expenses and other current assets 33,103 35,291 Total current assets 1,237,579 1,847,975 Goodwill 775,505 779,637 Other intangible assets, net of accumulated amortization of $208,672 and $197,066, respectively 326,994 341,500 Property and equipment, net of accumulated depreciation of $159,188 and $147,670, respectively 255,664 256,301 Deferred income taxes 99,013 104,140 Other 20,403 20,978 Total assets $ 2,715,158 $ 3,350,531 LIABILITIES AND EQUITY Current liabilities: Lines of credit $ 311,072 $ 270,745 Current portion of long-term debt 93,904 85,802 Accounts payable and accrued liabilities 217,978 241,578 Settlement processing obligations 162,116 838,565 Income taxes payable 17,317 7,674 Total current liabilities 802,387 1,444,364 Long-term debt 285,766 268,217 Deferred income taxes 122,133 116,432 Other long-term liabilities 52,701 49,843 Total liabilities 1,262,987 1,878,856 Commitments and contingencies (See Note 11) Redeemable noncontrolling interest 138,437 133,858 Equity: Preferred stock, no par value; 5,000,000 shares authorized and none issued — — Common stock, no par value; 200,000,000 shares authorized; 78,749,753 and 80,334,781 issued and outstanding at August 31, 2011 and May 31, 2011, respectively (see Note 1) — — Paid-in capital (see Note 1) 350,493 419,591 Retained earnings (see Note 1) 736,868 685,624 Accumulated other comprehensive income 70,350 79,320 Total Global Payments shareholders’ equity 1,157,711 1,184,535 Noncontrolling interest 156,023 153,282 Total equity 1,313,734 1,337,817 Total liabilities and equity $ 2,715,158 $ 3,350,531 INCOME Three Months Ended August 31, 2011 2010 Cash flows from operating activities: Net income including noncontrolling interests $ 72,081 $ 53,794 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization of property and equipment 11,573 9,030 Amortization of acquired intangibles 12,643 7,674 Provision for operating losses and bad debts 6,812 5,246 Share-based compensation expense 3,978 3,492 Deferred income taxes 7,831 3,518 Other, net 441 (676 ) Changes in operating assets and liabilities, net of the effects of acquisitions: Accounts receivable (10,812 ) (18,960 ) Claims receivable (4,591 ) (4,390 ) Settlement processing assets and obligations, net (687,180 ) (190,129 ) Inventory (2,861 ) 3,096 Prepaid expenses and other assets 2,153 (2,796 ) Accounts payable and other accrued liabilities (27,589 ) 11,353 Income taxes payable 9,643 15,371 Net cash used in operating activities (605,878 ) (104,377 ) Cash flows from investing activities: Business and intangible asset acquisitions, net of cash acquired — (2,489 ) Capital expenditures (12,151 ) (24,785 ) Net decrease in financing receivables 583 454 Net cash used in investing activities (11,568 ) (26,820 ) Cash flows from financing activities: Net borrowings on lines of credit 40,327 4,948 Proceeds from issuance of long-term debt 71,029 1,661 Principal payments under long-term debt (44,295 ) (49,467 ) Proceeds from stock issued under employee stock plans, net (2,836 ) (474 ) Repurchase of common stock (73,222 ) (14,900 ) Tax benefit from employee share-based compensation 1,420 118 Distributions to noncontrolling interest (2,471 ) (2,075 ) Dividends paid (1,613 ) (1,586 ) Net cash used in financing activities (11,661 ) (61,775 ) Effect of exchange rate changes on cash (1,226 ) 1,239 Decrease in cash and cash equivalents (630,333 ) (191,733 ) Cash and cash equivalents, beginning of the period 1,354,285 769,946 Cash and cash equivalents, end of the period $ 723,952 $ 578,213 Nine Months Ended
February 28, 2011 2010 $ 1,340,047 $ 1,217,418 473,578 432,287 623,019 533,337 1,096,597 965,624 243,450 251,794 7,239 2,699 (13,455 ) (12,704 ) (6,216 ) (10,005 ) 237,234 241,789 (70,489 ) (69,489 ) 166,745 172,300 (946 ) 7,778 165,799 180,078 (15,138 ) (10,951 ) $ 150,661 $ 169,127 $ 151,607 $ 161,349 (946 ) 7,778 $ 150,661 $ 169,127 $ 1.90 $ 1.99 (0.01 ) 0.10 $ 1.89 $ 2.09 $ 1.89 $ 1.96 (0.02 ) 0.10 $ 1.87 $ 2.06 $ 0.06 $ 0.06 Accumulated Other Comprehensive Income (Loss) Treasury Stock Currency Translation Adjustments Minimum Pension Liability
Shareholders’ Equity Noncontrolling Interest Total
EquityBalance at May 31, 2011, as previously reported 80,335 $ 502,993 $ (112,980 ) $ 715,202 $ 82,159 $ (2,839 ) $ 1,184,535 $ 153,282 $ 1,337,817 Retrospective adjustment for the correction of an error (see Note 1) (112,980 ) 112,980 — — — — — — Retrospective adjustment for the change in accounting method for the retirement of repurchased shares (see Note 1) 29,578 — (29,578 ) — — — — — Balance at May 31, 2011, as adjusted 419,591 — 685,624 82,159 (2,839 ) 1,184,535 153,282 1,337,817 Comprehensive income: Net income including noncontrolling interests 63,974 63,974 5,502 69,476 Foreign currency translation adjustment, net of tax of $(1,182) (8,970 ) (8,970 ) (290 ) (9,260 ) Total comprehensive income 55,004 5,212 60,216 Stock issued under employee stock plans, net 269 (3,245 ) (3,245 ) (3,245 ) Tax benefit from employee share-based compensation, net 1,420 1,420 1,420 Share-based compensation expense 3,978 3,978 3,978 Distributions to noncontrolling interest — (2,471 ) (2,471 ) Redeemable noncontrolling interest valuation adjustment (1,842 ) (1,842 ) (1,842 ) Repurchase of common stock (1,854 ) (71,251 ) (9,275 ) (80,526 ) (80,526 ) Dividends paid ($0.02 per share) (1,613 ) (1,613 ) (1,613 ) Balance at August 31, 2011 78,750 $ 350,493 $ — $ 736,868 $ 73,189 $ (2,839 ) $ 1,157,711 $ 156,023 $ 1,313,734 CONSOLIDATED BALANCE SHEETS(in thousands, except share data) February 28,
2011 May 31,
2010 (Unaudited) $ 1,329,065 $ 769,946 137,653 131,817 861 664 64,973 13,741 9,834 9,740 4,288 2,752 23,038 39,604 1,569,712 968,264 765,714 569,090 347,639 205,110 244,349 183,938 101,252 90,470 23,752 22,454 $ 3,052,418 $ 2,039,326 $ 188,961 $ 79,187 79,771 148,169 200,179 173,575 765,020 265,110 3,987 6,430 1,237,918 672,471 301,319 272,965 101,702 88,265 45,571 31,436 1,686,510 1,065,137 126,559 102,672 — — — — 484,757 460,747 675,182 544,772 (112,980 ) (100,000 ) 49,283 (44,255 ) 1,096,242 861,264 143,107 10,253 1,239,349 871,517 $ 3,052,418 $ 2,039,326 See Notes to Unaudited Consolidated Financial StatementsUNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Nine Months Ended
February 28, 2011 2010 $ 165,799 $ 180,078 29,033 25,798 27,486 24,627 11,748 11,843 15,301 18,713 3,639 (21,023 ) 602 15,770 (3,362 ) 947 (5,836 ) 1,942 (11,534 ) (11,552 ) 444,174 51,930 (69 ) (6,785 ) (7,997 ) (2,474 ) — (532 ) 45,182 25,607 19,125 3,308 733,291 318,197 (167,775 ) (17,059 ) (77,095 ) (36,520 ) (1,921 ) — 1,514 (649 ) — 297 (245,277 ) (53,931 ) 109,774 339 202,155 304,964 (248,996 ) (50,958 ) — (307,675 ) 12,072 20,699 (14,900 ) — 1,335 4,579 (6,650 ) (18,461 ) (4,782 ) (4,877 ) 50,008 (51,390 ) 21,097 1,965 559,119 214,841 769,946 426,935 — (52,156 ) $ 1,329,065 $ 589,620 See Notes to Unaudited Consolidated Financial Statements Accumulated Other Comprehensive Income
(Loss) Total Global
Payments
Shareholders’
Equity Number of
Shares Paid-in
Capital Treasury
Stock Retained
Earnings Currency Translation
Adjustments Minimum
Pension
Liability Noncontrolling
Interest Total
Equity 79,646 $ 460,747 $ (100,000 ) $ 544,772 $ (41,306 ) $ (2,949 ) $ 861,264 $ 10,253 $ 871,517 150,661 150,661 6,720 157,381 93,538 93,538 93,538 244,199 6,720 250,919 765 12,072 12,072 12,072 190 190 190 11,748 11,748 11,748 132,784 132,784 (6,650 ) (6,650 ) (15,469 ) (15,469 ) (15,469 ) (345 ) (12,980 ) (12,980 ) (12,980 ) (4,782 ) (4,782 ) (4,782 ) 80,066 $ 484,757 $ (112,980 ) 675,182 $ 52,232 $ (2,949 ) $ 1,096,242 $ 143,107 $ 1,239,349 Accumulated Other Comprehensive Loss Treasury Stock Currency Translation Adjustments Minimum Pension Liability
Shareholders’ Equity Noncontrolling Interest Total
EquityBalance at May 31, 2010, as previously reported 79,646 $ 460,747 (100,000 ) $ 544,772 $ (41,306 ) $ (2,949 ) $ 861,264 $ 10,253 $ 871,517 Retrospective adjustment for the correction of an error (see Note 1) (100,000 ) 100,000 — — — — — — Retrospective adjustment for the change in accounting method for the retirement of repurchased shares (see Note 1) 29,578 — (29,578 ) — — — — — Balance at May 31, 2010, as adjusted 390,325 — 515,194 (41,306 ) (2,949 ) 861,264 10,253 871,517 Comprehensive income: Net income including noncontrolling interests 49,368 49,368 2,059 51,427 Foreign currency translation adjustment, net of tax of $2,705 23,842 23,842 23,842 Total comprehensive income 73,210 2,059 75,269 Stock issued under employee stock plans, net 385 (474 ) (474 ) (474 ) Tax benefit deficiency from employee share-based compensation, net (891 ) (891 ) (891 ) Share-based compensation expense 3,492 3,492 3,492 Distributions to noncontrolling interest (2,075 ) (2,075 ) Redeemable noncontrolling interests valuation adjustment (115 ) (115 ) (115 ) Repurchase of common stock (345 ) (12,980 ) (12,980 ) (12,980 ) Dividends paid ($0.02 per share) (1,586 ) (1,586 ) (1,586 ) Balance at August 31, 2010 79,686 $ 379,472 — $ 562,861 $ (17,464 ) $ (2,949 ) $ 921,920 $ 10,237 $ 932,157 GLOBAL PAYMENTS INC.UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(in thousands, except per share data) Accumulated Other Comprehensive
Income (Loss) Total Global
Payments
Shareholders’
Equity Number of
Shares Paid-in
Capital Retained
Earnings Currency
Translation
Adjustments Minimum
Pension
Liability Noncontrolling
Interest Total
Shareholders’
Equity 80,445 $ 405,241 $ 273,090 $ (8,987 ) $ (1,914 ) $ 667,430 $ 10,813 $ 678,243 169,127 169,127 5,956 175,083 (9,537 ) (9,537 ) (9,537 ) 159,590 5,956 165,546 1,152 20,699 20,699 20,699 4,579 4,579 4,579 11,843 11,843 11,843 (6,566 ) (6,566 ) (14,237 ) (14,237 ) (14,237 ) 89,965 89,965 89,965 (4,877 ) (4,877 ) (4,877 ) 81,597 $ 442,362 $ 513,068 $ (18,524 ) $ (1,914 ) $ 934,992 $ 10,203 $ 945,195 See Notes to Unaudited Consolidated Financial Statements.services.services or further other economic goals. Our role is to serve as an intermediary in the exchange of information and funds that must occur between parties so that a transaction can be completed. We were incorporated in Georgia as Global Payments Inc. in September 2000 and we spun-off from our former parent company on January 31, 2001.2001. Including our time as part of our former parent company, we have been in business since 1967.The1967.the accountsthose of our majority-owned subsidiaries.subsidiaries and all intercompany balances and transactions have been eliminated. These unaudited consolidated financial statements have been prepared on the historical cost basis in accordance with accounting principles generally accepted in the United States and present our("GAAP") for interim financial position, results of operations,information and cash flows. Intercompany transactions have been eliminated in consolidation.As a result of our May 2010 disposition of the money transfer business, this segment has been accounted for as a discontinued operation. Please see Note 3 – Discontinued Operations for further information.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X and do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”). However, inS-X.primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Actual results may materially differ from these estimates. We suggest that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended May 31, 2010.We use two basicThe majority of our business models to market our merchant services offerings. One model referred to as “direct” merchant services, features a salariedprovides payment products and commissioned sales force, independent sales organizations (“ISOs”), and independent sales representatives, all of whom sell our end-to-end services directly to merchants. The other model, referred tomerchants as “indirect” merchant services, providesour end customers. We also provide similar basic products and services as our direct model, primarily to financial institutions and a limited number of ISOs on an unbundled basis,Independent Sales Organizations (ISOs) that, in turn, resell our products and services, to their clients.in which case, the financial institutions and select ISOs are our end customers. The primary difference between the models is under the “indirect” model we do not provide bank partner sponsorship services for acquired transactions. Directmajority of merchant services revenue is generated on services generally priced as a percentage of transaction value whereas indirect merchant services revenue is generated on services primarily priced onor a specified amountfee per transaction, or per service rendered. In both merchant services models, wedepending on card type. We also charge other fees basedagreement (“Merchant Reserves”).agreement. We record a corresponding liabilitiesliability in Settlementsettlement processing assets and Settlementsettlement processing obligations in our consolidated balance sheet. While this cash is not restricted in its use, we believe that designating this cash to collateralize Merchant Reserves strengthens our fiduciary standing with our member sponsors and is in accordance with guidelines set by the card networks. As of February 28,August 31, 2011 and May 31, 2010,2011, our cash and cash equivalents included $248.6$284.7 million and $199.4$271.4 million, respectively, related to Merchant Reserves.At February 28, 2011, settlement related cash balances and the corresponding settlement processing obligations were unusually high due to the timing of month end cut off. Settlement related cash balances are not restricted; however, these funds are generally paid out in satisfaction of settlement processing obligations the following day. Please seeSettlement processing assets and obligations below for further information.of either organization (“Member”) sponsoring us and our adherence to the standards of the Visa and MasterCard networks. We have sevenfive primary financial institution sponsors in the United States, Canada, the United Kingdom, Spain, the Asia-Pacific region and the Russian Federation and Spain with whom we have sponsorship or depository and clearing agreements. These agreements allow us to route transactions under the member banks’ control and identification numbers to clear credit card transactions through Visa and MasterCard. Visa and MasterCard set the standards with which we must comply. Certain of the member financial institutions of Visa and MasterCard are our competitors. In certain markets, we are members in various payment networks, allowing us to process and fund transactions without third-party sponsorship.the United States and Canadaother markets at which point the related settlement assets and obligations will be reflected in our consolidated balance sheet.(iii)(iv) exception items, such as customer chargeback amounts receivable from merchants (“Exception items”), all of which are reported net of (iv) Merchant Reserves held to minimize contingent liabilities associated with charges properly reversed by a cardholder (“Merchant Reserves”). Settlement processing obligations consist primarily of (i) Interchange reimbursement, (ii) our liability to the Members for transactions for which we have received funding from the Members but have not funded merchants on behalf of the Members (“Liability to Members”), (iii) our liability to merchants for transactions that have been processed but not yet funded where we are a Member of that particular network (“Liability to merchants”), (iv) Exception items, (iv)(v) Merchant Reserves, (v)(vi) the fair value of our guarantees of customer chargebacks (seeReserve for operating losses below), and (vi)(vii) the reserve for sales allowances. In cases in which the Member uses its own funds to satisfy a funding obligation to merchants that precedes the incoming amount from the card network, we reflect the amount of this funding as a component of “Liability to Members.”February 28,August 31, 2011 and May 31, 20102011 is as follows: February 28,
2011 May 31,
2010 (in thousands) $ 4,929 $ 19 178,328 12,258 8,978 1,748 (127,262 ) (284 ) $ 64,973 $ 13,741 $ 192,661 $ 194,341 (839,444 ) (259,947 ) 6,580 6,254 (121,344 ) (199,077 ) (2,542 ) (5,810 ) (931 ) (871 ) $ (765,020 ) $ (265,110 ) August 31, 2011 May 31,
2011Settlement processing assets: (in thousands) Interchange reimbursement $ 67,736 $ 72,022 Receivable from Members 171,073 142,117 Receivable from networks 120,472 124,980 Exception items 4,904 4,456 Merchant Reserves (75,501 ) (63,216 ) Total $ 288,684 $ 280,359 . Settlement processing obligations: Interchange reimbursement $ 216,731 $ 212,069 Liability to Members (37,277 ) (718,650 ) Liability to merchants (138,975 ) (129,806 ) Exception items 10,518 12,394 Merchant Reserves (209,159 ) (208,195 ) Fair value of guarantees of customer chargebacks (3,649 ) (3,102 ) Reserves for sales allowances (305 ) (3,275 ) Total $ (162,116 ) $ (838,565 ) knownestimated incurred losses and a projection of future losses. Estimated incurred loss accruals are recorded when it is probable that we have incurred a loss and the loss is reasonably estimable. These losses typically result from chargebacks related to merchant bankruptcies, closures, or fraud. Estimated incurred losses are calculated at the merchant level based on achargebacks received to date, processed volume, and historical chargeback ratios. The estimate is reduced for any collateral that we hold. Accruals for estimated incurred losses are evaluated periodically and adjusted as appropriate based on actual loss experience. Our projection of future losses is based on an assumed percentage of our direct merchant credit card and signature debit card sales volumes processed.processed, or processed volume. Historically, this estimation process has been materially accurate.February 28,August 31, 2011 and May 31, 2010, $2.52011, $3.6 million and $5.8$3.1 million, respectively, have been recorded to reflect the fair value of guarantees associated with merchant card processing. These amounts are included in settlement processing obligations in the accompanying unaudited consolidated balance sheets. The expense associated with the fair value of the guarantees of customer chargebacks is included in cost of service in the accompanying consolidated statements of income. For the three months ended February 28,August 31, 2011 and 2010, we recorded such expenses in the amounts of $1.6$2.4 million and $1.0$0.9 million, respectively. For the nine months ended February 28, 2011 and 2010, we recorded such expenses in the amounts of $3.7 million and $6.2 million, respectively.100%both February 28,August 31, 2011 and May 31, 2010,2011, we have a check guarantee loss reserve of $4.2$4.8 million and $3.9 million, respectively, which is included in net claims receivable in the accompanying consolidated balance sheets. For both the three months ended February 28,August 31, 2011 and 2010, we recorded expenses of $3.5 million. For the nine months ended February 28, 2011$4.4 million and 2010, we recorded expenses of $11.3$4.1 million and $11.4 million,, respectively. These expenses are included in cost of service in the accompanying consolidated statements of income. The estimated check returns and recovery amounts are subject to the risk that actual amounts returned and recovered in the future may differ significantly from estimates used in calculating the receivable valuation allowance.We capitalize the costs related to computer software developed or obtained for internal use. Maintenance and repairs are charged to operations as incurred.During fiscal 2010,$54.9$54.9 million of hardware and software associated with our next generation technology processing platform, referred to as G2. This platform is planned to be a new front-end operating environment for our merchant processing in the United States, Asia-Pacific, the United Kingdom, and Canada, and is intended to replace a number of legacy platforms that have higher cost structures. Depreciation and amortization associated with these costs is calculated based on transactions expected to be processed over the life of the platform. We believe that this method is more representative of the platform’s use than the straight-line method. We are currently processing transactions on our G2 platformninethree months ended February 28,August 31, 2011 was not significant. Depreciation and amortization expense will increase as we complete migrations of other markets to the G2 platform. We did not place any hardware or software costs associated with G2 into service during the nine months ended February 28, 2011.previously allocated to the assets and liabilities of the reporting unit is the implied fair value of goodwill. The excess of the carrying amount over the implied fair value of goodwill is the impairment loss.finite-lifefinite-lived 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 value 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 isFebruary 28,August 31, 2011 and May 31, 2010.201165 – Income TaxesTax for further information.February 28,August 31, 2011, the carrying amount of our term loans approximates fair value. Our subsidiary in the Russian Federation has notes payable with interest rates ranging from 8.0% to 10.5%10.0% and maturity dates ranging from MarchSeptember 2011 through July 2015.August 2016. At February 28,August 31, 2011, we believe the carrying amount of these notes approximates fair value. Please see Note 54 – Long-Term Debt and Credit Facilities for further information.$20.2$17.5 million and $24.2$18.9 million of financing receivables included in prepaidour August 31, 2011 and other current assets (current portion) and other assets (long-term portion) in our February 28, 2011 and May 31, 20102011 consolidated balance sheets, respectively.ninethree months ended February 28,August 31, 2011 and 2010, our transaction gains and losses were insignificant.February 28,August 31, 2011 and 2010 excludes incremental shares of 0.1 million and 0.2 million respectively, related to stock options. The diluted share base for the nine months ended February 28, 2011 and 2010 excludes incremental shares of 0.71.0 million and 0.4 million,, respectively, related to stock options. These shares were not considered in computing diluted earnings per share because including them would have had an antidilutive effect. No additional securities were outstanding that could potentially dilute basic earnings per share.and nine months ended February 28,August 31, 2011 and 2010 (in thousands): Three Months Ended
February 28, Nine Months Ended
February 28, 2011 2010 2011 2010 79,897 81,539 79,711 �� 81,102 836 1,097 702 1,079 80,733 82,636 80,413 82,181 Three Months Ended August 31, 2011 2010 Basic weighted average shares outstanding 80,076 79,597 Plus: dilutive effect of stock options and other share-based awards 755 742 Diluted weighted average shares outstanding 80,831 80,339 This ASU is2010-28 became effective for us beginning on June 1, 2011. The adoption of this standard is2011 and did not expected to have an impact on our financial position or results of operations because none of our reporting units have zero or negative carrying amounts.In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU 2010-29”). ASU 2010-29 amends and clarifies the acquisition date to be used for reporting pro forma financial disclosures when comparative financial statements are presented. In addition, it requires a description of the nature of and amount of any material, non-recurring pro forma adjustments directly attributable to the business combination. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The standard will become effective for us beginning in June 2011 and will not have an impact on our financial position or results of operations as it only amends required disclosures.In July 2010, the FASB issued ASU 2010-20,“Receivables – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses” (“ASU 2010-20”). ASU 2010-20 amends Accounting Standards Codification Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide new disclosures about its financing receivables and related allowance for credit losses. ASU 2010-20 is effective for us beginning with the quarter ended February 28, 2011. The impact of ASU 2010-20 on our disclosures is reflected inFinancing Receivables above.AND INTANGIBLE ASSET ACQUISITIONS“la Caixa” majority controlling financial interest in Comercia Global Payments Entidad de “la Caixa”Pago, S.L. (“Comercia”), a newly formed company into which Caixa d’Estalvis i Pensions de Barcelona (“la Caixa”) contributed its merchant acquiring business in Spain. We own 51% of Comercia and “la Caixa” owns the remaining 49%. of Comercia. We purchased our share of Comercia for €125 million.€125 million. The partnersshareholders contributed a total of €6.4€6.4 million as initial capital to form Comercia. Our total contribution toinvestment in Comercia, including our 51% share of the initial capital is €128.3was €128.3 million ($ ($173.5 million as of the closing date). We manage the day-to-day operations of the partnership,corporation, control all major decisions and, accordingly, consolidate the partnership’scorporation’s financial results for accounting purposes effective with the closing date. In conjunction with the acquisition, “la Caixa” agreed to a twenty-yeartwenty year marketing alliance agreement in which “la Caixa” will refer customers to Comercia for payment processing services in Spain and provide sponsorship into the card networks. We funded the purchase with a combination of existing cash resources in Europe and the Euro-denominated borrowingborrowings on our Corporate Credit Facility.bankbanks in Spain, to provide merchant acquiring services to merchants in Spain. The purchase price was determined by analyzing the historical and prospective financial statements. This business acquisition iswas not materialsignificant to our consolidated results of operationsfinancial statements and accordingly, we have not provided pro forma information relating to this acquisition.preliminary purchase price allocation (in thousands): $ 147,534 96,100 54,141 8,513 306,288 (132,784 ) $ 173,504 Goodwill $ 147,535 Customer-related intangible assets 96,100 Contract-based intangible assets 54,141 Working capital, net 8,476 Total assets acquired 306,252 Non-controlling interest (132,738 ) Net assets acquired $ 173,514 Other the first half of fiscal year 2011, we acquired contract-based and customer related intangible assets in our United States merchant services channel for $3.5 million.$3.5 million. These intangible assets are being amortized on a straight-line basis over their estimated useful lives of 5 to 7 years.Fiscal 2010HSBC Merchant Services LLPOn June 12, 2009, we purchased the remaining 49%DISCONTINUED OPERATIONSOn May 26, 2010, we completed the disposition of our DolEx and Europhil-branded money transfer businesses to an affiliate of Palladium Equity Partners, LLC for $85.0 million. Under the terms of the sale and purchase agreement, we received net proceeds of $60.2 million ($85.0 million less $24.8 million cash remaining in the business at closing to fund associated settlement obligations), subject to final working capital adjustments.The operating results of the money transfer segment for the three and nine months ended February 28, 2010 have been reported as discontinued operations as follows (in thousands): Three Months Ended
February 28, 2010 Nine Months Ended
February 28, 2010 $ 28,271 $ 89,865 $ 2,270 $ 8,609 (179 ) (16,029 ) (180 ) (55 ) 1,911 (7,475 ) (1,189 ) 15,253 $ 722 $ 7,778 During the nine months ended February 28, 2011, we paid Palladium $1.9 million in a preliminary settlement of working capital adjustments. Subsequent to February 28, 2011, we reached a settlement with Palladium to finalize the working capital adjustments and recorded an accrual of $0.6 million for this payment in our February 28, 2011 consolidated balance sheet.NOTE 4—GOODWILL AND INTANGIBLE ASSETSFebruary 28,August 31, 2011 and May 31, 2010,2011, goodwill and intangible assets consisted of the following: February 28,
2011 May 31,
2010 (in thousands) $ 765,714 $ 569,090 $ 447,752 $ 322,053 72,863 20,087 8,496 8,046 529,111 350,186 167,546 136,333 10,159 6,052 3,767 2,691 181,472 145,076 $ 347,639 $ 205,110 August 31, 2011 May 31,
2011 (in thousands) Goodwill $ 775,505 $ 779,637 Other intangible assets: Customer-related intangible assets $ 454,681 $ 457,226 Trademarks, finite life 8,537 8,659 Contract-based intangible assets 72,448 72,681 535,666 538,566 Less accumulated amortization on: Customer-related intangible assets 191,397 181,372 Trademarks 4,392 4,138 Contract-based intangible assets 12,883 11,556 208,672 197,066 $ 326,994 $ 341,500 ninethree months ended February 28,August 31, 2011 (in thousands): North
America
merchant
services International
merchant
services Total $ 210,065 $ 359,025 $ 569,090 — 147,536 147,536 (30 ) — (30 ) 7,079 42,039 49,118 $ 217,114 $ 548,600 $ 765,714 North America merchant services International merchant services (in thousands) Balance at May 31, 2011 $ 217,422 $ 562,215 $ 779,637 Accumulated impairment losses — — — 217,422 562,215 779,637 Goodwill acquired — — — Effect of foreign currency translation (948 ) (3,184 ) (4,132 ) Balance at August 31, 2011 $ 216,474 $ 559,031 $ 775,505 5—4—LONG-TERM DEBT AND CREDIT FACILITIES February 28,
2011 May 31,
2010 (in thousands) $ 198,271 $ — — — — — 69,570 — 2,467 1,454 2,766 2,382 9,784 9,064 4,035 2,501 23,014 — 19,651 — 57,674 63,786 387,232 79,187 12,174 10,064 170,645 411,070 $ 570,051 $ 500,321 $ 268,732 $ 227,356 301,319 272,965 $ 570,051 $ 500,321 August 31,
2011 May 31,
2011Lines of credit: (in thousands) Corporate Credit Facility - long-term $ 230,500 $ 183,975 Short-term lines of credit: United Kingdom Credit Facility 121,786 108,333 Hong Kong Credit Facility 70,898 73,554 Canada Credit Facility 13,772 18,725 Malaysia Credit Facility 21,223 17,743 Spain Credit Facility 44,294 17,646 Singapore Credit Facility 21,332 17,245 Philippines Credit Facility 9,927 9,736 Maldives Credit Facility 3,461 3,202 Macau Credit Facility 2,134 2,372 Sri Lanka Credit Facility 2,245 2,189 Total short-term lines of credit 311,072 270,745 Total lines of credit 541,572 454,720 Notes Payable 14,141 14,285 Term loans 135,029 155,759 Total debt $ 690,742 $ 624,764 Current portion $ 404,976 $ 356,547 Long-term debt 285,766 268,217 Total debt $ 690,742 $ 624,764 Facilitiescapital and for general corporate purposes, while the Corporate Credit Facility is additionally available to fund future strategic acquisitions. Certain of our line of credit facilities allow us to fund merchants for credit and debit card transactions prior to receipt of corresponding settlement funds from credit and debit card networks.capital. With certain of our credit facilities, the facility nets the amounts pre-funded to merchants against specific cash balances in local Global Payments accounts, which we characterize as cash and cash equivalents. Therefore, the amounts reported in lines of credit, which represents the amounts pre-funded to merchants, may exceed the stated credit limit, when in fact the combined position is less than the credit limit. The total available incremental borrowings under our credit facilities at February 28,August 31, 2011 were $653.8 million.On September 22, 2010, we entered into a revolving overdraft facility with HSBC Bank Malaysia Berhad for 90$803.5 million Malaysian Ringgits ($29.5, of which $369.5 million at February 28, 2011) to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility has a variable interest rate plus a margin, and is subject to annual review.On October 1, 2010, we entered into a revolving overdraft facility with The Hongkong and Shanghai Banking Corporation Limited for 25 million Singapore Dollars ($19.7 million at February 28, 2011) to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility has a variable interest rate plus a margin, and is subject to annual review.On December 7, 2010, we entered into a new, unsecured five-year, $600 million revolving credit facility (the “Corporate Credit Facility”) with a syndicate of financial institutions. The multi-currency facility expires in December 2015 and has a variable interest rate based on a market short-term interest rate plus a leverage based margin. In addition, theavailable under our Corporate Credit Facility allows us to expand the facility size to $750 million by requesting additional commitments from new or existing lenders. The Corporate Credit Facility contains certain financial and non-financial covenants and events of default customary for financings of this nature.We plan to use the Corporate Credit Facility to support strategic growth initiatives and for general corporate purposes, and we used approximately $150 million of the new facility to pay down existing term loan debt. As of February 28, 2011, interest rates on the term loan were between 1.8% and 2.1%, depending on the currency of the borrowing, and the aggregate outstanding balance was $198.3 million. The Corporate Credit Facility is included in long-term debt in the accompanying consolidated balance sheets because we are not contractually obligated to make repayments in the next twelve months. In conjunction with our entry into the Corporate Credit Facility on December 7, 2010, we terminated our United States Credit Facility, which was due to expire in November 2011.On January 5, 2011, the Hong Kong Credit Facility, initially entered into on April 1, 2010 for the purpose of funding merchants prior to receipt of corresponding settlement funds from the card associations, was increased from HKD 800 million to HKD 1 billion ($128.3 million at February 28, 2011). This increase reflects growth in the volume of merchant funding.In connection with our United Kingdom back-end conversion, on February 25, 2011, we entered into a new £80 million ($130.1 million at February 28, 2011) revolving overdraft facility with HSBC Bank plc to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility is denominated in GBP. This facility has a variable interest rate plus a margin and is subject to annual review.On June 23, 2008, we entered intofive-year,five year unsecured $200.0$200.0 million term loan agreement with a syndicate of banks in the United States which we used to partially fund the purchase of our initial 51% interest in the LLP.HSBC Merchant Services LLP acquisition. The term loan bears interest, at our election, at the prime rate or London Interbank Offered RateLIBOR, plus a leverage based margin. As of February 28,August 31, 2011 the interest rate on the term loan was 1.3%1.33%. The term loan requirescalls for quarterly principal payments of $5.0$5.0 million beginning with the quarter ended August 31, 2008 and increasing to $10.0$10.0 million beginning with the quarter ended August 31, 2010 and $15.0$15.0 million beginning with the quarter ending August 31, 2011.2011. As of February 28,August 31, 2011, the outstanding balance of thisthe term loan was $130.0 million.On July 10, 2009, we entered into$300.0$300.0 million term loan agreement ($($230.0 million and £43.5 million)£43.5 million) with a syndicate of financial institutions. We used the proceeds of this term loan to pay down our then-existing credit facility which had been used to initially fund the purchase of the remaining 49% interest in the LLP.HMS. In December 2010, the entire balance of the United States dollar portion of the term loan was repaid by a borrowing on the Corporate Credit Facility, and the facility terms were amended. The term loan expires in July 2012 and has a variable interest rate based on the London Interbank Offered Rate plus a leverage based margin. As of February 28,August 31, 2011, the interest rate on the remaining British Pound Sterling portion of the term loan was 2.1%2.17%%. The term loan requires quarterly principal payments of £2.2£2.2 million beginning with the quarter ended August 31, 2009 and increasing to £3.3£3.3 million beginning with the quarter ended August 31, 2010.2010. As of February 28,August 31, 2011, the outstanding balance of this term loan was £25.0$30.0 million ($40.6 (£18.5 million equivalent)).$12.2$14.1 million at February 28, 2011.August 31, 2011. These notes have fixed interest rates ranging from 8.0% to 10.5%10.0% with maturity dates ranging from MarchSeptember 2011 through July 2015.August 2016.are in compliancecomplied with these covenants as of February 28, 2011.6—5—INCOME TAXESDuring fiscal 2010, we recordedTAX$90.0$95.5 million at August 31, 2011 primarily associated with the purchase of the remaining 49% interest in HSBC Merchant Services LLP. Please see Note 2 – Business and Intangible Asset Acquisitions for further information.reflected as the provision for income taxes divided by income from continuing operations before income tax, including the effect of noncontrolling interest, were 29.5%32.7% and 29.3%31.7% for the three months ended February 28,August 31, 2011 and 2010 respectively, and were 31.1% and 29.8% for the nine months ended February 28, 2011 and 2010,, respectively. OurThe effective tax rates were lower thanfor the three months ended August 31, 2011 and 2010 reflect adjustments to our UK deferred tax asset due to legislated enacted corporate tax rate reductions in the United States statutory rate due to earnings in foreign jurisdictions that are taxed at a lower rate than United States earnings.February 28,August 31, 2011 and May 31, 2010,2011, other long-term liabilities included liabilities for unrecognized income tax benefits of $33.4$39.6 million and $20.8$37.2 million, respectively. Accrued interest and penalties were insignificant.and nine months ended February 28,August 31, 2011, we recognized additional liabilities of $4.7$2.4 million and $12.6 million, respectively, for unrecognized income tax benefits. During both the ninethree months ended February 28,August 31, 2011 and 2010, amounts recorded for accrued interest and penalty expense related to the unrecognized income tax benefits was insignificant.20042005 and prior.7—6—SHAREHOLDERS’ EQUITYApril 23, 2010,August 8, 2011, our Board of Directors approved a share repurchase program that authorized the purchase of up to $100$100.0 million of Global Payments’ stock in the open market or as otherwise may be determined by us,at the current market price, subject to market conditions, business opportunities, and other factors. Under this authorization, we repurchased 2,382,8901,854,259 shares of our common stock at a cost of $100$80.5 million, or an average of $41.97$43.43 per share, including commissions during the fourthfirst quarter of fiscal 2010. Repurchased2012. As of August 31, 2011, we paid $73.2 million in cash for such shares are held as treasury stock. also used the $13.0$13.0 million remaining under the authorization from our original share$13.0$13.0 million, or an average of $37.64$37.64 per share, including commissions. These repurchased shares are also held as treasury stock. The remaining shares repurchased under this authorization were retired and are available for future issuance.8—7—SHARE-BASED AWARDS AND OPTIONSFebruary 28,August 31, 2011, we have awards outstanding under four share-based employee compensation plans:plans. The fair value of share-based awards is amortized as compensation expense on a straight-line basis., and (collectively, the Employee Stock Purchase Plan. For all share-based awards granted after June 1, 2006, compensation expense is recognized on a straight-line basis. The fair value of share-based awards granted prior to June 1, 2006 is amortized as compensation expense on an accelerated basis from the date of the grant.Non-qualified stock options and restricted stock have been granted to officers, key employees and directors“Plans”). There were no further grants made under the the 2000 Plan after the 2005 Plan was effective and the Director Plan (collectively,expired by it's terms on February 1, 2011 so no further grants will be granted thereunder.“Plans”Annual Meeting, our shareholders approved the Global Payments Inc. 2011 Incentive Plan (the “2011 Plan”)., a plan that permits for grants of equity and employees, officers, directors and consultants. A total of 7.0 million shares of our common stock were reserved and made available for issuance pursuant to awards granted under the 2011Plan. Effective with the adoption of the 20052011 Plan, there arewill be no future grants under the 20002005 Plan. Shares availablefuture grant as of February 28, 2011 are 1.8 million foreach executive is set by our Compensation Committee and a monte carlo simulation is used to calculate the 2005 Plan and 0.3 million for the Director Plan.the continued vesting of all stock options that remained unvested as of June 1, 2006, (ii) all stock options granted, modified or cancelled after(ii) our adoption of FASB guidance,restricted stock program, and (iii) our employee stock purchase plan and (iv) our restricted stock program.. The total income tax benefit recognized for share-based compensation in the accompanying unaudited statements of income is also presented. Three Months Ended
February 28, Nine Months Ended
February 28, 2011 2010 2011 2010 $ 4.1 $ 4.4 $ 11.7 $ 11.8 1.5 1.5 4.1 4.1 Three Months Ended August 31, 2011 August 31, 2010 (in millions) Share-based compensation cost $ 4.0 $ 3.5 Income tax benefit $ 1.3 $ 1.2 10-year10-year terms. Stock options granted vest one year after the date of grant with respect to in 25% of the shares granted, an additional 25% after two years, an additional 25% after three years, and the remaining 25% after increments over a four years. year period. The Plans provide for accelerated vesting under certain conditions. We have historically issued new shares to satisfy the exercise of options.ninethree months ended February 28, 2011: Options
(in thousands) Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term
(years) Aggregate
Intrinsic
Value
(in millions) 3,042 $ 31 325 38 (182 ) 36 (456 ) 29 2,729 32 5 $ 42.7 2,077 $ 30 4 $ 37.8 Weighted Average Exercise Price Outstanding at May 31, 2011 2,453 $ 32 5.1 $ 45.9 Granted — $ — Forfeited (24 ) $ 36 Exercised (24 ) $ 29 Outstanding at August 31, 2011 2,405 $ 32 4.8 $ 29.7 Options vested and exercisable at August 31, 2011 1,966 $ 32 4.0 $ 27.5 ninethree months ended February 28,August 31, 2011 and 2010 was $7.4$0.3 million and $21.4$0.9 million, respectively. As of February 28,August 31, 2011, we had $4.4$4.7 million of total unrecognized compensation cost related to unvested options which we expect to recognize over a weighted average period of 2.01.5 years.ninethree months ended February 28, 2011 andAugust 31, 2010 were $12 and $14 respectively.$11. The fair value of each option granted during the nine months ended February 28, 2011 and 2010 was estimated on the date of grant using the Black-Scholes valuation model with the following weighted average assumptions for grants during the respective period: Nine Months Ended
February 28, 2011 2010 1.74 % 2.72 % 31.96 % 32.31 % 0.21 % 0.21 % 5 years 5 years 1.31 % 2.24 % 31.96 % 32.31 % 0.21 % 0.21 % 5 years 5 years Three Months Ended August 31, 2011 2010 2005 Plan Risk-free interest rates — 1.74 % Expected volatility — 31.96 % Dividend yields — 0.21 % Expected lives — 5 years with respect to in 25% of the shares granted, an additional 25% after two years, an additional 25% after three years, and the remaining 25% after increments over a four years. year period.ninethree months ended February 28, 2011. Share
Awards Weighted Average
Grant-Date Fair Value (in thousands) 713 $ 42 461 38 (258 ) 42 (43 ) 40 873 40 (in thousands) Non-vested at May 31, 2011 869 $ 40 Granted 466 48 Vested (308 ) 40 Forfeited (34 ) 41 Non-vested at August 31, 2011 993 44 ninethree months ended February 28,August 31, 2011 was $10.8 million.$12.3 million. During the ninethree months ended February 28,August 31, 2010, the weighted average grant-date fair value of shares vested was $41$42 and the total fair value of shares vested was $9.1 million.$10.3 million.$3.2$3.0 million and $2.7 million in both the three months ended February 28,August 31, 2011 and 2010. We recognized compensation expenses for restricted stock of $9.2 million and $8.2 million in the nine monthsended February 28, 2011 and February 28,August 31, 2011, there was $27.7$42.4 million of total unrecognized compensation cost related to unvested restricted stock awards that is expected to be recognized over a weighted average period of 23 years.$25,000$25,000 or 20% of their annual compensation for the purchase of stock. The price for shares purchased under the plan is 85% of the market value on the last day of the quarterly purchase period. As of February 28,August 31, 2011, 0.9 million shares had been issued under this plan, with 1.5 million shares reserved for future issuance.both the ninethree months ended February 28,August 31, 2011 and 2010 was $6,$8 and $5, respectively, which represents the fair value of the 15% discount.9—8—SUPPLEMENTAL CASH FLOW INFORMATION Nine Months Ended
February 28, 2011 2010 (in thousands) $ 36,065 $ 53,464 11,882 8,870 $ (54 ) $ (1,932 ) 1,568 1,283 $ 1,514 $ (649 ) Three Months Ended August 31, 2011 2010 (in thousands) Income taxes paid, net of refunds $ 4,703 $ 2,538 Interest paid 3,470 5,460 Financing receivables: Investment in equipment for financing leases $ — $ (54 ) Principal collections from customers – financing leases 583 508 Net decrease in financing receivables $ 583 $ 454 10—9—NONCONTROLLING INTERESTSinterestinterests for the ninethree months ended February 28,August 31, 2011 and 2010: Nine Months Ended
February 28, 2011 2010 (in thousands) $ 102,672 $ 399,377 — (307,675 ) 8,418 4,995 — (11,896 ) 15,469 14,237 $ 126,559 $ 99,038 Three Months Ended August 31, 2011 2010 (in thousands) Beginning balance $ 133,858 $ 102,672 Net income attributable to redeemable noncontrolling interest 2,605 2,367 Foreign currency translation adjustment 132 — Increase in the maximum redemption amount of redeemable noncontrolling interest 1,842 115 Ending balance $ 138,437 $ 105,154 ninethree months ended February 28,August 31, 2011 and 2010, net income included in the consolidated statements of changes in shareholders’ equity is reconciled to net income presented in the consolidated statements of income as follows: Nine Months Ended
February 28, 2011 2010 (in thousands) $ 151,150 $ 169,127 6,720 5,956 8,418 4,995 $ 166,288 $ 180,078 Three Months Ended August 31, 2011 2010 (in thousands) Net income attributable to Global Payments $ 63,974 $ 49,368 Net income attributable to nonredeemable noncontrolling interest 5,502 2,059 Net income attributable to redeemable noncontrolling interest 2,605 2,367 Net income including noncontrolling interest $ 72,081 $ 53,794 11—10—SEGMENT INFORMATIONhistorically operatedoperate in threetwo reportable segments, which were defined as North America Merchant Services and International Merchant Services, and Money Transfer. Beginning with the three months ended November 30, 2009, our Money Transfer segment has been reported as discontinued operations. We completed the disposition of our Money Transfer segment on May 26, 2010. The following tables reflect our segments included in continuing operations.Services. The merchant services segments primarily offer processing solutions for credit cards, debit cards, and check-related services.corporateCorporate in the following table. Interest expense or income and income tax expense are not allocated to the individual segments. Lastly, we do not evaluate performance or allocate resources using segment asset data. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in Note 1.and nine months ended February 28,August 31, 2011 and 2010: Three Months Ended
February 28, Nine Months Ended
February 28, 2011 2010 2011 2010 (in thousands) $ 249,194 $ 216,168 $ 750,495 $ 659,868 81,066 77,092 243,733 236,552 330,260 293,260 994,228 896,420 90,531 78,174 244,208 242,785 35,591 27,101 101,611 78,213 126,122 105,275 345,819 320,998 $ 456,382 $ 398,535 $ 1,340,047 $ 1,217,418 $ 62,916 $ 60,855 $ 198,415 $ 210,419 35,537 28,853 102,279 88,353 (20,254 ) (15,859 ) (57,244 ) (46,978 ) $ 78,199 $ 73,849 $ 243,450 $ 251,794 $ 7,961 $ 8,195 $ 23,874 $ 23,074 13,336 8,397 31,626 25,592 — — — 1,362 494 128 1,019 397 $ 21,791 $ 16,720 $ 56,519 $ 50,425 Three Months Ended August 31,
2011 August 31,
2010 (in thousands) Revenues: United States $ 287,425 $ 255,630 Canada 91,221 81,213 North America merchant services 378,646 336,843 Europe 129,414 73,796 Asia-Pacific 34,711 29,499 International merchant services 164,125 103,295 Consolidated revenues $ 542,771 $ 440,138 Operating income for segments: North America merchant services $ 71,758 $ 68,368 International merchant services 55,658 31,393 Corporate (18,806 ) (17,654 ) Consolidated operating income $ 108,610 $ 82,107 Depreciation and amortization: North America merchant services $ 8,532 $ 7,664 International merchant services 15,160 8,919 Corporate 524 121 Consolidated depreciation and amortization $ 24,216 $ 16,704 customer or referral partner.12—11—COMMITMENTS AND CONTINGENCIESbusiness channel.business. Global Payments Asia-Pacific, Limited, or GPAP, is the entity through which we conduct our merchant acquiring business in the Asia-Pacific region. We own 56% of GPAP and HSBC Asia Pacific owns the remaining 44%. The GPAP shareholders agreement includes provisions pursuant to which HSBC Asia Pacific may compel us to purchase, at the lesser of fair value or a net revenue multiple, additional GPAP shares from HSBC Asia Pacific (the “Put Option”). HSBC Asia Pacific may exercise the Put Option on the fiftheach anniversary of the closing of the acquisition (July 2011) andacquisition. HSBC Asia Pacific did not exercise the Put Option on each anniversary thereafter.the first exercisable date of July 24, 2011. By exercising the Put Option, HSBC Asia Pacific can require us to purchase, on an annual basis, up to 15% of the total issued shares of GPAP. We estimate the maximum total redemption amount of the redeemable noncontrolling interest under the Put Option would be $126.6$138.4 million as of February 28, 2011.August 31, 2011, $45.6 million of which was puttable to us on July 24, 2011. We have adjusted our redeemable noncontrolling interest to reflect the maximum redemption amount as of February 28,August 31, 2011 in on our consolidated balance sheet.During fiscal 2009, we sold a 20% interest in Global Payments Credit Services (“GPCS”), a leading credit information company in Russia, to Equifax Decision Systems, BV (“Equifax”) for $3.0 million in cash (the “GPCS sale”). Due to capital contribution requirements included in the GPCS shareholders agreement, we initially deferred the gain on the sale2010.Generalleading payment processing company. As a processorprovider of electronic transactions, we enablepayments transaction processing services for consumers, merchants, multinational corporations,Independent Sales Organizations (ISOs), financial institutions, consumers, government agencies and other profitmulti-national corporations located throughout the United States, Canada, the United Kingdom, Spain, the Asia-Pacific region, the Czech Republic and non-profit business enterprises to facilitate electronic payments to purchase goods and services. Our role is tothe Russian Federation. We serve as an intermediary to facilitate payments transactions and operate in the exchange of informationtwo business segments, North America Merchant Services and funds that must occur between parties so that a payment transaction can be completed. International Merchant Services.We were incorporated in Georgia as Global Payments Inc. in September 2000 and we spun-off from our former parent company inon January 31, 2001. Including our time as part of our former parent company, we have been in business since 1967.independent sales organizations (“ISOs”)ISOs and financial institutions with credit and debit card transaction processing and check-related services. We use two basicThe majority of our business models to market our merchant services offerings. One model referred to as “direct,” features a salariedprovides payment products and commissioned sales force, ISOs and independent sales representatives, all of whom sell our end-to-end services directly to merchants. Our other model, referred tomerchants as “indirect,” providesour end customers. We also provide similar basic products and services to financial institutions and a limited number of ISOs on an unbundled basis, whothat, in turn, resell our products and services, to clients. Bothin which case, the financial institutions and select ISOs are our North Americaend customers. These particular services are marketed in the United States, Canada, and International merchant services segments utilize a combinationparts of the direct and indirect models.DirectEastern Europe.generally priced as a percentage of transaction value whereas indirect merchant services revenue is generated on services primarily priced onor a specified amountfee per transaction, or per service rendered. In both merchant services models, wedepending on card type. We also charge other fees based on specific services that are unrelated to the number of transactions or the transaction value.rapid adoption of, and transitioncontinued shift to card basedelectronic payments by expanding market share in our existing markets through our distribution channels or through acquisitions in North America, the Asia-Pacific region and Europe, and investing in and leveraging technology and people, thereby maximizing shareholder value. We may also seek to enter new markets through acquisitions and expansion in the Asia-Pacific region, Europe, and SouthLatin America.For example,While there is some variation in our North American channels,seasonality across markets, the first and fourth quarters are generally the strongest, and the third quarter tends to be the slowest due to lower volumes in the months of January and February. In contrast, Asia-Pacific typically has a stronger third quarter, and the first quarter in Asia-Pacific and the United Kingdom, tends to be slower.On December 20, 2010, we acquired a 51% majority interest in Comercia de “la Caixa” (“Comercia”)a newly formed company into which Caixa d’Estalvis i Pensions de Barcelona (“la Caixa”) contributed its merchant acquiring business in Spain. We own 51% of Comercia and “la Caixa” owns the remaining 49%. We purchased our share of Comercia for €125 million. The partners contributed a total of €6.4 million, as initial capital to form Comercia. Our total contribution to Comercia, including our 51% share of the initial capital is €128.3 million ($173.5 million as of the closing date). 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. In conjunction with the acquisition, “la Caixa” agreed to a twenty-yearmarketing alliance in which “la Caixa” will refer customers to Comercia for payment processing services in Spain and provide sponsorship into the card networks. We funded the purchase with a combination of existing cash resources in Europe and the Euro-denominated borrowing on our Corporate Credit Facility.We formed Comercia with “la Caixa”, the largest retail bank in Spain, to provide merchant acquiring services to merchants in Spain.On May 26, 2010, we completed the disposition of our DolEx and Europhil-branded money transfer businesses to an affiliate of Palladium Equity Partners, LLC for $85.0 million. We recognized a pre-tax loss on disposal of $25.2 million. We also recognized $15.7 million of tax benefits associated with the disposition. As a result of our May 2010 disposition of the money transfer businesses, this segment has been accounted for as a discontinued operation. Amounts related to our discontinued operations in our prior fiscal years’ statements of income have been reclassified to conform with the presentation in the current fiscal year. Please see Note 3—Discontinued Operations in the notes to the unaudited consolidated financial statements for further information.Duringduring the three months ended February 28, 2011, revenues increased $57.8 million when compared to the prior year. Revenues increased $122.6 million during the nine months ended February 28,August 31, 2011 compared to the prior year.year’s comparable period. Revenue growth was driven by our North America merchant services segment as a resultstrong performance across all of our direct ISO channel which continues to gain market share in the United States. Revenues for the three and nine months ended February 28, 2011 also increased by 20% and 8%, respectively, in our International merchant services segment compared to the prior year. This increase is due to solid business performance in the United Kingdom, Russia, and, particularly, the Asia Pacific region. In addition, our Europe merchant services revenue increased due toregions, the impact of our acquisition in Spain on December 20, 2010.forincreased $26.5 million during the three months ended February 28, 2011 increased $4.3 million, or 6%, when compared to the prior year primarily due to growth in International, offset by increased corporate expenses. Operating income decreased $8.3 million during the nine months ended February 28,August 31, 2011 compared to the prior year. The consolidated operating income decline was primarily driven by our North America business, specifically Canada which continues to operate in a more competitive market.year’s comparable period. Operating margins for the three months ended February 28,August 31, 2011 declinedincreased to 17.1%20.0% compared to 18.5% in18.7% during the prior year. Operating margins for the ninethree months ended February 28, 2011 declined to 18.2% compared to 20.7% in the prior year.August 31, 2010. The declineincrease in operating marginsmargin is due to the dilutive impact of ISO transactions, Canada pricing compression, the dilutive impact ofstrong results in our Spain acquisition and increased corporate costs, offset by improved margins in the International merchant services segment. Sales, generalsegment, a marketing fee true-up in Spain, favorable foreign currency trends and administrative costs increased $89.7 million, or 17% due to employee termination benefits, relocation benefits and expenses related to a new Global Service Center in Manila, Philippines, and proportional increases in commission payments to ISOs as a percentagestable performing Canada, partiallyrevenues.February 28,August 31, 2011 currency exchange rate fluctuations increased our revenues by $4.9$15.0 million and our earnings by $0.02 per diluted share. For the nine months ended February 28, 2011 currency exchange rate fluctuations increased our revenues by $7.1 million and our earnings by $0.04$0.05 per diluted share. To calculate this impact, we converted our fiscal 2011 actual revenues and expenses from continuing operations at fiscal 2010 currency exchange rates. Further fluctuations in currency exchange rates or decreases in consumer spending could cause our results to differ from our current expectations.February 28,August 31, 2011 and 2010, this data as a percentage of total revenue, and the changes between three months ended February 28,August 31, 2011 and 2010, in dollars and as a percentage of the prior year’s comparable period. Three
Months
Ended
February 28,
2011 % of
Revenue(1) Three
Months
Ended
February 28,
2010 % of
Revenue(1) Change % Change (dollar amounts in thousands) $ 249,194 55 % $ 216,168 54 % $ 33,026 15 % 81,066 18 77,092 19 3,974 5 330,260 72 293,260 74 37,000 13 90,531 20 78,174 20 12,357 16 35,591 8 27,101 7 8,490 31 126,122 28 105,275 26 20,847 20 $ 456,382 100 % $ 398,535 100 % $ 57,847 15 $ 168,332 36.9 % $ 146,202 36.7 % $ 22,130 15 209,851 46.0 178,484 44.8 31,367 18 $ 78,199 17.1 % $ 73,849 18.5 % $ 4,350 6 % $ 62,916 $ 60,855 $ 2,061 3 % 35,537 28,853 6,684 23 (20,254 ) (15,859 ) (4,395 ) (28 ) $ 78,199 $ 73,849 $ 4,350 6 % 19.1 % 20.8 % (1.7 )% 28.2 % 27.4 % 0.8 % (1)Percentage amounts may not sum to the total due to rounding.The following table shows key selected Comercia's results of operations are included in our consolidated results of operations and results of operations of our International merchant services segment from December 20, 2010, the date we acquired our controlling financial datainterest. Accordingly, results of operations for the ninethree months ended February 28,August 31, 2011 and 2010, this data as a percentagereflect the results of total revenue, andComercia's operations, while results of operations for the changes between ninethree months ended February 28, 2011 andAugust 31, 2010 in dollars and as a percentage ofdo not. Change % Change (dollar amounts in thousands) Revenues: United States $ 287,425 53 $ 255,630 58 $ 31,795 12 Canada 91,221 17 81,213 18 10,008 12 North America merchant services 378,646 70 336,843 77 41,803 12 Europe 129,414 24 73,796 17 55,618 75 Asia-Pacific 34,711 6 29,499 7 5,212 18 International merchant services 164,125 30 103,295 23 60,830 59 Total revenues $ 542,771 100 $ 440,138 100 $ 102,633 23 Consolidated operating expenses: Cost of service $ 191,536 35.3 $ 151,041 34.3 $ 40,495 27 Sales, general and administrative 242,625 44.7 206,990 47.0 35,635 17 Operating income $ 108,610 20.0 $ 82,107 18.7 $ 26,503 32 Operating income for segments: North America merchant services $ 71,758 $ 68,368 $ 3,390 5 International merchant services 55,658 31,393 24,265 77 Corporate (18,806 ) (17,654 ) (1,152 ) (7 ) Operating income $ 108,610 $ 82,107 $ 26,503 32 Operating margin for segments: North America merchant services 19.0 % 20.3 % (1.3 )% International merchant services 33.9 % 30.4 % 3.5 % prior year’s comparable period. Nine
Months
Ended
February 28,
2011 % of
Revenue(1) Nine
Months
Ended
February 28,
2010 % of
Revenue(1) Change % Change (dollar amounts in thousands) $ 750,495 56 % $ 659,868 54 % $ 90,627 14 % 243,733 18 236,552 19 7,181 3 994,228 74 896,420 74 97,808 11 244,208 18 242,785 20 1,423 1 101,611 8 78,213 6 23,398 30 345,819 26 320,998 26 24,821 8 $ 1,340,047 100 % $ 1,217,418 100 % $ 122,629 10 $ 473,578 35.3 % $ 432,287 35.5 % $ 41,291 10 623,019 46.5 533,337 43.8 89,682 17 $ 243,450 18.2 % $ 251,794 20.7 % $ (8,344 ) (3 )% $ 198,415 $ 210,419 $ (12,004 ) (6 )% 102,279 88,353 13,926 16 (57,244 ) (46,978 ) (10,266 ) (22 ) $ 243,450 $ 251,794 $ (8,344 ) (3 )% 20.0 % 23.5 % (3.5 )% 29.6 % 27.5 % 2.1 % (1)Percentage amounts may not sum to the total due to rounding.February 28,August 31, 2011, revenues increased 15%23% to $456.4$542.8 million compared to the prior year’s comparable period. For the nine months ended February 28, 2011, revenues increased 10% to $1,340.0 million compared to the prior year’s comparable period.Our revenues have been affected by fluctuations in foreign currency exchange rates. For the three months ended February 28,August 31, 2011, currency exchange rate fluctuations increased our revenues by $4.9$15.0 million. For the nine months ended February 28, 2011, currency exchange rate fluctuations increased our revenues by $7.1 million.February 28,August 31, 2011, revenue from our North America merchant services segment increased 13%12% to $330.3$378.6 million compared to the prior year’s comparable period. For the nine months ended February 28, 2011, revenue from our North America merchant services segment increased 11% to $994.2 million compared to the prior year’s comparable period.February 28,August 31, 2011, our United States revenuedirect credit and debit card processed transactions grew 15%. Transaction growth of 20% was offset by a 5% decrease in average ticket. For the nine months ended February 28, 2011,12%, and our total United States revenue grew 14% as transaction growth of 19%12% compared to the prior year period. For the three months ended August 31, 2011 compared to the prior year’s comparable period, our United States average ticket decreased approximately 3% which was offset by a 4% decrease in average ticket. We believe thisincreased spreads. This decline in average ticket is primarily due to a shift toward smaller merchants added through our ISO channel. Smaller merchants tend to have lower average tickets when compared tothan larger merchants. The effect of consumers replacing cash-based payments with debit card transactions also lowers our overall United States average ticket amounts. Based on our mix of merchants, slightly more than half of our United States transactions are comprised of a combination of signature- and PIN-based debit transactions, with PIN-based debit transactions representing less than 10% of our total transactions. Aside from the impact of changes in our average ticket, the remaining differences between our transaction growth and revenue growth are due to our service fees, equipment fees, check-related services, non-profit channel and our domestic indirect revenue.February 28,August 31, 2011, our Canadian revenue increased 5% compared to the prior year period. For the nine months ended February 28, 2011, our Canadian revenue increased 3%12% compared to the prior year period. The increasesincrease in revenue werewas due to favorable foreign currency trends in Canada and credit and debit card transaction of growth of 4%, which were somewhat offset on a year-to-date basis, by reduced spreads due to market-driven pricing pressure as compared to the prior year’s comparable period.February 28,August 31, 2011 International merchant services revenue increased 20%59% to $126.1$164.1 million compared to the prior yearyear’s comparable period. For the nine months ended February 28, 2011, International merchant services revenue increased 8% to $345.8 million compared to the prior year period.February 28,August 31, 2011 increased 16%75% to $90.5 million compared to the prior year period. Our Europe merchant services revenue for the nine months ended February 28, 2011 increased 1% to $244.2$129.4 million compared to the prior year period. Our Europe merchant services revenue increased due to the impact of our acquisition in Spain on December 20, 2010. The growth2010, pricing benefits in our Europe merchant services revenue during the nine months ended February 28, 2011 was offset by unfavorable fluctuationsUnited Kingdom, a marketing fee true-up in Spain and favorable foreign currency exchange rates.February 28,August 31, 2011 increased 31%18% to $35.6$34.7 million compared to the prior year period. Asia-Pacific merchant services revenue for the nine months ended February 28, 2011 increased 30% to $101.6 million compared to the prior yearyear’s comparable period. The growth was due to solid business performance inacross the Asia-Pacific region helped by the roll-out of new products by a major retailer with both physical and e-commerce transactions in several markets in the region and continued growth of our installment payment plan, and dynamic currency conversion products.15%27% to $168.3$191.5 million for the three months ended February 28,August 31, 2011 compared to the prior year’s comparable period. As a percentage of revenue, cost of service increased to 36.9%35.3% of revenue for the three months ended February 28,August 31, 2011 from 36.7%34.3% for the prior year’s comparable period. Cost of service increased 10% to $473.6 million for the nine months ended February 28, 2011 compared to the prior year’s comparable period. As a percentage of revenue, cost of service decreased to 35.3% of revenue for the nine months ended February 28, 2011 from 35.5% for the prior year’s comparable period. ISOs and other third parties, advertising costs; other selling expenses, share-based compensation expenses and occupancy of leased space directly related to these functions.Sales, general and administrative expenses increased 18% to $209.9 million for the three months ended February 28, 2011 compared to the prior year’s comparable period. As a percentage of revenue, these expenses increased to 46.0% for the three months ended February 28, 2011 compared to 44.8% in the prior year’s comparable period. $623.0$242.6 million for the ninethree months ended February 28,August 31, 2011compared to the prior year’s comparable period.period, primarily due to an increase in commission payments to ISOs. As a percentage ofthese expenses increasedsales, general and administrative expense decreased to 46.5%44.7% for the ninethree months ended February 28,August 31, 2011 compared to 43.8%47.0% in the prior year’s comparable period. This increase was primarilyperiod as revenues increased due to employee termination benefits, relocation benefitspricing changes in the United Kingdom, a pricing rebate we received in Spain and expenses related to a new Global Service Center in Manila, Philippines, andfavorable foreign currency trends; all of which did not have proportional increases in commission payments to ISOs as a percentage of ISO revenues.3%5% to $62.9$71.8 million for the three months ended February 28,August 31, 2011 compared to the prior year’s comparable period. The operating margin was 19.1%19.0% and 20.8%20.3% for the three months ended February 28, 2011 and 2010, respectively. Operating income in the North America merchant services segment decreased 6% to $198.4 million for the nine months ended February 28, 2011 compared to the prior year’s comparable period. The operating margin was 20.0% and 23.5% for the nine months ended February 28,August 31, 2011 and 2010, respectively. Growth in the U.S. ISO channel reduced margins for the three and nine months ended February 28,August 31, 2011. The ISO channel generally has a dilutive effect on our operating margin compared to our other channels due to the ongoing commission payments to the ISOs. North America margins were also unfavorably affected by competitive pricing pressure in Canada.23%77% to $35.5$55.7 million for the three months ended February 28,August 31, 2011 compared to the prior year’s comparable period. The operating margin was 28.2%33.9% and 27.4%30.4% for the three months ended February 28, 2011 and 2010, respectively. Operating income in International merchant services increased 16% to $102.3 million for the nine months ended February 28, 2011 compared to the prior year’s comparable period. The operating margin was 29.6% and 27.5% for the nine months ended February 28,August 31, 2011 and 2010, respectively. The increase in operating margin is due to improving operating marginsthe strong segment results, a marketing fee true-up in the United KingdomSpain and higher operating margins, improving economies of scale and growth in Asia-Pacific region. We completed the migration of merchants in the United Kingdom to our back-end processing platform at the end of February 2011. This migration is expected to result in the opportunity for further margin expansion in the United Kingdom.28%7% to $20.3$18.8 million for the three months ended February 28,August 31, 2011 compared to the prior year’s comparable period. Our corporate costs increased 22% to $57.2 million for the nine months ended February 28, 2011 compared to the prior year’s comparable period. These increases are primarilyperiod due to expenses related to our new Global Service Center in Manila, Philippines and employee termination and relocation benefits.February 28,August 31, 2011, our consolidated operating income increased $4.4$26.5 million to $78.2$108.6 million compared to the prior year’s comparable period. The increase in our consolidated operating income is due to the increases in our North America and International merchant services segments,segment, offset by our increased corporate, sales, general and administrative expenses as discussed above. During the nine months ended February 28, 2011, our consolidated operating income decreased $8.3 million to $243.5 million compared to the prior year’s comparable period. The decrease in our consolidated operating income is due to the decline in our North America merchant services segment, offset by our International merchant services segment.expense, gains and losses on foreign currency transactions and other non-operating income/interest expense. Other expense, net, decreased to $2.7$1.6 million for the three months ended February 28,August 31, 2011 compared to expense of $2.8 million in the prior year’s comparable period. Other expense, net, decreased to $6.2 million for the nine months ended February 28, 2011 compared to expense of $10.0$3.3 million in the prior year’s comparable period. The decrease in our other expense is primarily due to recognitionlower interest expense resulting from a decrease in term loan outstanding balance and lower interest rates.reflected as the provision for income taxes divided by income from continuing operations before income tax, including the effect of noncontrolling interest, were 29.5%32.7% and 29.3%31.7% for the three months ended February 28,August 31, 2011 and 2010, respectively. The effective tax rates for the three months ended August 31, 2011 and 2010 reflect adjustments to our UK deferred tax asset due to legislated enacted corporate tax rate reductions in the United Kingdom of 2% and 1%, respectively.respectively. Our effective tax rates were 31.1% and 29.8% for the nine months ended February 28, 2011 and 2010, respectively. Our effective tax rates were lower than the United States statutory raterespectively, primarily due to earningsour acquisition of a 51% controlling financial interest in foreign jurisdictions that are taxed at a lower rate than United States earnings.flows, which are generally sufficient to fund operations, planned capital expenditures, debt service and various strategic investments in our business.flows. Cash flow from operations is used to make planned capital investments in our business, to pursue acquisitions that meet our corporate objectives, to pay dividends, and to pay off debt and repurchase our shares at the discretion of our Board of Directors. Accumulated cash balances are invested in high quality and marketable short-termshort term instruments.ourthe Company’s operational needs and strategic plan for the long-term growth while maintaining a low cost of capital. Lines of credit are used in certain of our markets to fund settlement and as a source of working capital and, along with other bank financing, to fund acquisitions. We regularly evaluate our liquidity and capital position relative to cash requirements, and we may elect to raise additional funds in the future, either through the issuance of debt, equity or otherwise. To meet our current capital plan objectives, we entered into a new, unsecured five-year, $600 million revolving credit facility on December 7, 2010. Please seeLong-Term Debt and Credit Facilities below for further information regarding this facility.February 28,August 31, 2011, we had cash and cash equivalents totaling $1,329.1$724.0 million. Of this amount, we consider $238.0$234.1 million to be available cash. Our available cash whichbalance includes $174.6 million of cash held by foreign subsidiaries that are considered permanently reinvested. These cash balances reflect the accumulation of cash flows generated by each subsidiary's operations, net of cash flows used to service debt locally and fund non-US acquisitions. We believe that we are able to maintain a sufficient level of liquidity for our domestic operations and commitments without repatriation of the cash held by these foreign subsidiaries. surplus funds that we hold on behalf of our member sponsors when the incoming amount from the card networks precedes the member sponsors’sponsors' funding obligation to the merchant. At February 28, 2011, settlement related cash balances and the corresponding settlement processing obligations were unusually high due to the timing of month end cut off. Merchant reserve cash balances represent funds collected from our merchants that serve as collateral (“Merchant Reserves”) to minimize contingent liabilities associated with any losses that may occur under the merchant agreement. At February 28,August 31, 2011, our cash and cash equivalents included $248.6$284.7 million related to Merchant reserves.Reserves. While this cash is not restricted in its use, we believe that designating this cash to collateralize Merchant reservesReserves strengthens our fiduciary standing with our member sponsors and is in accordance with the guidelines set by the card networks. SeeCash and cash equivalents andSettlement processing assets and obligations under Note 1 in the notes to the consolidated financial statements for additional details.Operating activities provided cash of $733.8 million during the nine months ended February 28, 2011 compared to providing net cash of $318.2 million during the prior year’s comparable period. The increase in cash flow from operating activities was primarily due to the change in net settlement processing assets and obligations of $392.8 million. As noted above, our settlement processing obligations were unusually high due to the timing of month end cut off. SeeSettlement processing assets and obligations under Note 1 in the notes to the unaudited consolidated financial statements for additional details.increased $192.1decreased $15.3 million to $246.0$11.6 million for the ninethree months ended February 28,August 31, 2011 from the prior year’s comparable period, primarily due to our $165.0 million, net of cash, investmenta reduction in a limited partnership with “la Caixa” and our capital expenditures of $77.1 million for investments in software and infrastructure duringof $12.6 million.ninethree months ended February 28, 2011.For the nine months ended February 28,August 31, 2011, we generated $50.0used $11.7 million in cash fromfor financing activities compared to $51.4$61.8 million cash used in financing activities in the prior year’s comparable period.year. The increasedecrease in cash provided byused in financing activities was primarily due to increasedan increase in line of credit borrowings in the Asia Pacific regionof $35.4 million to fund settlement, a new revolving overdraft facility with HSBC Bank plc. to fund merchants prior to receipt of corresponding settlement funds from the card associationsand an increase in the United Kingdom, and we borrowedborrowings on our Corporate Credit Facility to support strategic growth initiatives, such as the acquisition in Spain, and for general corporate purposes. This increase in cash provided by financing activities was offset by higher debt repayment. We are not contractually obligated to make repayments on the Corporate Credit Facility within the next twelve months; however, we intend to make repaymentsofnear future. SeeLong-Term Debt and Credit Facilities below for a more detailed discussionfirst quarter of our borrowing activities. Additionally, in the nine months ended February 28, 2011 we paid $14.9 million in cash for share repurchases, $1.9 million of which represents the cash settlement of purchases executed during the fiscal year ended May 31, 2010. We2012 we repurchased an additional 344,8471,854,259 shares of our common stock usingat a cost of $80.5 million. As of August 31, 2011, we paid $73.2 million in cash for such shares with the remaining $13.0$7.3 million paid in September 2011, and recorded in accounts payable and accrued liabilities. During the second quarter of our fiscal 2007 $1002012, we concluded this repurchase program with an additional purchase of 435,800 shares at a cost of $19.1 million authorization at, or an average of $43.78 per share. Cash paid for share pricerepurchases during the first quarter of $37.64.fiscal year 2011 was 2011,2012, we expect capital expenditures to approximate $85range between $85.0 and $90.0 million.20102011 have not changed significantly. Our remaining current contractual and other obligations are as follows:Interestchannel.business. Global Payments Asia-Pacific, Limited, or GPAP, is the entity through which we conduct our merchant acquiring business in the Asia-Pacific region. We own 56% of GPAP and HSBC Asia Pacific owns the remaining 44%. The GPAP shareholders agreement includes provisions pursuant to which HSBC Asia Pacific may compel us to purchase, at the lesser of fair value or a net revenue multiple, additional GPAP shares from HSBC Asia Pacific (the “Put Option”). HSBC Asia Pacific may exercise the Put Option on the fiftheach anniversary of the closing of the acquisition (July 2011) andacquisition. HSBC Asia Pacific did not exercise the Put Option on each anniversary thereafter.the first exercisable date of July 24, 2011. By exercising the Put Option, HSBC Asia Pacific can require us to purchase, on an annual basis, up to 15% of the total issued shares of GPAP. We estimate the maximum total redemption amount of the redeemable noncontrolling interest under the Put Option would be $126.6$138.4 million as of February 28, 2011.August 31, 2011, $45.6 million of which was puttable to us on July 24, 2011. We have adjusted our redeemable noncontrolling interest to reflect the maximum redemption amount as of February 28,August 31, 2011 in on our consolidated balance sheet. February 28,
2011 May 31,
2010 (in thousands) $ 198,271 $ — — — — — 69,570 — 2,467 1,454 2,766 2,382 9,784 9,064 4,035 2,501 23,014 — 19,651 — 57,674 63,786 387,232 79,187 12,174 10,064 170,645 411,070 $ 570,051 $ 500,321 $ 268,732 $ 227,356 301,319 272,965 $ 570,051 $ 500,321 August 31,
2011 May 31,
2011Lines of credit: (in thousands) Corporate Credit Facility - long term $ 230,500 $ 183,975 Short-term lines of credit: United Kingdom Credit Facility 121,786 108,333 Hong Kong Credit Facility 70,898 73,554 Canada Credit Facility 13,772 18,725 Malaysia Credit Facility 21,223 17,743 Spain Credit Facility 44,294 17,646 Singapore Credit Facility 21,332 17,245 Philippines Credit Facility 9,927 9,736 Maldives Credit Facility 3,461 3,202 Macau Credit Facility 2,134 2,372 Sri Lanka Credit Facility 2,245 2,189 Total short-term lines of credit $ 311,072 $ 270,745 Total lines of credit 541,572 454,720 Notes Payable 14,141 14,285 Term loans 135,029 155,759 Total debt $ 690,742 $ 624,764 Current portion $ 404,976 $ 356,547 Long-term debt 285,766 268,217 Total debt $ 690,742 $ 624,764 Facilitiescapital and for general corporate purposes, while the Corporate Credit Facility is additionally available to fund future strategic acquisitions. Certain of our line of credit facilities allow us to fund merchants for credit and debit card transactions prior to receipt of corresponding settlement funds from credit and debit card networks.capital. With certain of our credit facilities, the facility nets the amounts pre-funded to merchants against specific cash balances in local Global Payments accounts, which we characterize as cash and cash equivalents. Therefore, the amounts reported in lines of credit, which represents the amounts pre-funded to merchants, may exceed the stated credit limit, when in fact the combined position is less than the credit limit. The total available incremental borrowings under our credit facilities at February 28,August 31, 2011 were $653.8 million.On September 22, 2010, we entered into a revolving overdraft facility with HSBC Bank Malaysia Berhad for 90$803.5 million Malaysian Ringgits ($29.5, of which $369.5 million at February 28, 2011) to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility has a variable interest rate plus a margin, and is subject to annual review.On October 1, 2010, we entered into a revolving overdraft facility with The Hongkong and Shanghai Banking Corporation Limited for 25 million Singapore Dollars ($19.7 million at February 28, 2011) to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility has a variable interest rate plus a margin, and is subject to annual review.On December 7, 2010, we entered into a new, unsecured five-year, $600 million revolving credit facility (the “Corporate Credit Facility”) with a syndicate of financial institutions. The multi-currency facility expires in December 2015 and has a variable interest rate based on a market short-term interest rate plus a leverage based margin. In addition, theavailable under our Corporate Credit Facility allows us to expandFacility.facility size to $750quarter ended August 31, 2011 the maximum and average borrowings under our credit facilities were $708.9 million by requesting additional commitments from new or existing lenders. and $451.9 million, respectively. The Corporate Credit Facility contains certain financial and non-financial covenants and events of default customary for financings of this nature.We plan to use the Corporate Credit Facility to support strategic growth initiatives and for general corporate purposes, and we used approximately $150 million of the new facility to pay down existing term loan debt. As of February 28, 2011,weighted average interest rates on the term loanthese borrowings were between 1.8%2.1%1.72%, depending on the currency of the borrowing,respectively. Our maximum borrowed amount was greater than our average and period end borrowings due to share repurchases and the aggregate outstanding balance was $198.3 million. The Corporate Credit Facility is included in long-term debt in the accompanying consolidated balance sheets because we are not contractually obligated to make repayments in the next twelve months. In conjunction with our entry into the Corporate Credit Facility on December 7, 2010, we terminated our United States Credit Facility, which was due to expire in November 2011.On January 5, 2011, the Hong Kong Credit Facility, initially entered into on April 1, 2010 for the purposetiming of funding merchants prior to receipt of corresponding settlement funds from the card associations, was increased from HKD 800 million to HKD 1 billion ($128.3 million at February 28, 2011). This increase reflects growth in the volume of merchant funding.In connection with our United Kingdom back-end conversion, on February 25, 2011, we entered into a new £80 million ($130.1 million at February 28, 2011) revolving overdraft facility with HSBC Bank plc to fund merchants prior to receipt of corresponding settlement funds from the card associations. This facility is denominated in GBP. This facility has a variable interest rate plus a margin, and is subject to annual review.On June 23, 2008, we entered intofive-year,five year unsecured $200.0$200.0 million term loan agreement with a syndicate of banks in the United States which we used to partially fund the purchase of our initial 51% interest in the LLP.HSBC Merchant Services LLP acquisition. The term loan bears interest, at our election, at the prime rate or London Interbank Offered RateLIBOR, plus a leverage based margin. As of February 28,August 31, 2011 the interest rate on the term loan was 1.3%1.33%. The term loan requirescalls for quarterly principal payments of $5.0$5.0 million beginning with the quarter ended August 31, 2008 and increasing to $10.0$10.0 million beginning with the quarter ended August 31, 2010 and $15.0 million beginning with the quarter ending August 31, 2010 and $15.0 million beginning with the quarter ending 2011. As of2011. As of February 28, 2011, the outstanding balance of thisthe term loan was $130.0 million.On July 10, 2009, we entered into$300.0$300.0 million term loan agreement ($($230.0 million and £43.5 million)£43.5 million) with a syndicate of financial institutions. We used the proceeds of this term loan to pay down our then-existing credit facility which had been used to initially fund the purchase of the remaining 49% interest in the LLP. In December 2010, the entire balance of the United States dollar portion of the term loan was repaid by a borrowing on the Corporate Credit Facility, and the facility terms were amended. The term loan expires in July 2012 and has a variable interest rate based on the London Interbank Offered Rate plus a leverage based margin. As of February 28,August 31, 2011, the interest rate on the remaining British Pound Sterling portion of the term loan was 2.1%0.02%. The term loan requires quarterly principal payments of £2.2£2.2 million beginning with the quarter ended August 31, 2009 and increasing to £3.3£3.3 million beginning with the quarter ended August 31, 2010.2010. As of February 28,August 31, 2011, the outstanding balance of this term loan was £25.0$30.0 million ($40.6 (£18.5 million equivalent)).$12.2$14.1 million at February 28, 2011.August 31, 2011. These notes have fixed interest rates ranging from 8.0% to 10.5%10.0% with maturity dates ranging from MarchSeptember 2011 through July 2015.are in compliancecomplied with these covenants as of February 28, 2011.August 31, 2011.ninethree months ended February 28,August 31, 2011, we have not adopted any new critical accounting policies, have not changed any critical accounting policies and have not changed the application of any critical accounting policies from the year ended May 31, 2010.2011. You should read the Critical Accounting Estimates in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 1A – Risk Factors included in our Annual Report on Form 10-K for the year ended May 31, 20102011 and our summary of significant accounting policies in Note 1 of our notes to the unaudited consolidated financial statements in this Form 10-Q.20102011 for information on some of the matters which could adversely affect our business and results of operations.somea substantial amount of our operations are conducted in foreign currencies. Consequently, a portion of our revenues and expenses may be affected by fluctuations in foreign currency exchange rates. We are also affected by fluctuations in exchange rates on assets and liabilities related to our foreign operations. We have not hedged our translation risk on foreign currency exposure. For the ninethree months ended February 28,August 31, 2011, currency rate fluctuations increased our revenues by $7.1$15.0 million and our diluted earnings per share by $0.04.$0.05. To calculate this we converted our fiscal 20112012 actual revenues and expenses from continuing operations at fiscal 20102011 currency exchange rates.20102011 contains additional information regarding ourFebruary 28,August 31, 2011, management carried out, under the supervision and with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of February 28,August 31, 2011, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.reliedand plan to continue to rely on HSBC Bank plcCaixa d'Estalvis i Pensions de Barcelona ("la Caixa") to provide financial data, such as revenue billed to merchants, to assist us with compiling our accounting records prior tountil we can fully integrate the integration of HSBC Merchant Services LLP’sComercia financial reporting functions into our own. Accordingly, our internal controls over financial reporting could be materially affected, or are reasonably likely to be materially affected, by HSBC’sla Caixa internal controls and procedures. In order to mitigate this risk, we have implemented internal controls over financial reporting which monitor the accuracy of the financial data being provided by HSBC. We completed the integration at the end of February 2011.February 28,August 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.II—II – OTHER INFORMATION
Shares (or Units)
Purchased
Price Paid
per Share (or Unit)
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs— — — $ — — — — $ — 1,854,259 $ 43.43 1,854,259 $ 19,473,470 1,854,259 $ 43.43 1,854,259 3.1 Amended and Restated Articles of Incorporation of Global Payments Inc., filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated January 31, 2001, File No. 001-16111, and incorporated herein by reference. 3.2 Fourth Amended and Restated By-laws of Global Payments Inc., filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q dated August 31, 2003, File No. 001-16111, and incorporated herein by reference. 10.118Key Position Agreement for Paul R. Garcia, filed as Exhibit 10.1 to the Registrant’s Form 8-KPreferability letter from Deloitte & Touche LLP regarding a change in accounting method dated January 6, 2010, File No. 001-16111, and incorporated herein by reference.October 11, 2011.10.2Employment Agreement for Morgan Schuessler, filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q dated August 31, 2010, File No. 001-16111, and incorporated herein by reference.10.3Amendment to Employment Agreement for Morgan Schuessler (Section 409A of the Internal Revenue Code), filed as Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q dated August 31, 2010, File No. 001-16111, and incorporated herein by reference.10.4Second Amendment to the Third Amended and Restated 2000 Non-Employee Director Stock Option Plan, filed as Exhibit 10.4 to the Registrant’s Annual Report on Form 10-Q dated August 31, 2010, File No. 001-16111, and incorporated herein by reference.10.5Third Amendment to the Third Amended and Restated 2000 Non-Employee Director Stock Option Plan, filed as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-Q dated August 31, 2010, File No. 001-16111, and incorporated herein by reference.10.6Form of Global Payments Inc. 2010 Non-Employee Director Compensation Plan (Director Subplan), filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q dated August 31, 2010, File No. 001-16111, and incorporated herein by reference.31.1Rule 13a-14(a)/15d-14(a) Certification of CEO31.2Rule 13a-14(a)/15d-14(a) Certification of CFO32.1 CEO and CFO Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 101 The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended February 28,August 31, 2011, formatted in XBRL (“Extensible Business Reporting Language”) and furnished electronically herewith: (i) the Consolidated Statements of Income; (ii) the Consolidated Balance Sheets; (iii) the Consolidated Statements of Cash Flows; (iv) the Consolidated Statements of Changes in Equity; and (v) the Notes to the Consolidated Financial Statements.Global Payments Inc. (Registrant)Date: April 1, 2011/s/ David E. MangumDavid E. MangumChief Financial OfficerDate: April 1, 2011/s/ Daniel C. O’KeefeDaniel C. O’KeefeChief Accounting Officer42