The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known and unknown factors, including but not limited to those discussed in "Item 1A-Risk Factors" of this report. See also "Cautionary Notice Regarding Forward-Looking Statements" located above "Item 1-Business."

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

General

We are a leading payment processing and consumer money transfer company. As a high-volume processor of electronic transactions, we enable merchants, multinational corporations, financial institutions, consumers, government agencies and other profit and non-profit business enterprises to facilitate payments to purchase goods and 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 payment transaction or money transfer can be completed. We were incorporated in Georgia as Global Payments Inc. in September 2000 and we spun-off from our former parent company in January 2001. Including our time as part of our former parent company, we have provided transaction processing services since 1967.

We market our products and services throughout the United States, Canada, Europe and the Asia-Pacific region. We operate in three business segments; North America merchant services, International merchant services and Money transfer, and we offer various products through these segments. Our two merchant services segments target customers in many vertical industries including financial institutions, government, professional services, restaurants, universities, utilities, gaming, retail and health care. Our money transfer segment primarily targets Latin American immigrants in the United States and Europe. See Note 12 in the notes to the consolidated financial statements for additional segment information.

Our offerings in our merchant services segments provide merchants, independent sales organizations, or ISOs, and financial institutions with credit and debit card transaction processing, as well as check-related services. We use two basic business models to market our merchant services offerings. One model, referred to as "direct," features a salaried 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 to as "indirect," provides similar basic products and services as our direct model, primarily to financial institutions and a limited number of ISOs on an unbundled basis, that in turn resell our products and services to merchants. Both our North America and International merchant services segments utilize a combination of the direct and indirect models.

Direct merchant services revenue is generated on services primarily priced as a percentage of transaction value, whereas indirect merchant services revenue is generated on services primarily priced on a specified amount per transaction or per service rendered. In both merchant services models, we also charge for other processing fees unrelated to the number of transactions or the transaction value.

Our money transfer segment provides money transfer services and revenue is primarily generated based on a fee paid by the customer which is in turn based on the nature and amount of the transaction. A majority of the revenue derived from our money transfer offering consists of our electronic money transfer services marketed under our DolEx brand to the population of first generation Latin Americans living in the United States. This consumer segment enables customers to transfer money to family and friends living in Latin America. Our Europhil brand operates money transfer origination locations in Europe and settlement locations in Morocco, the Philippines, Romania, Poland and other destinations.

Our products and services are marketed through a variety of distinct sales channels that include a dedicated direct sales force, ISOs, an internal telesales group, retail outlets, trade associations, alliance bank relationships and financial institutions.

Executive Overview

During fiscal 2009, we experienced revenue growth of 26%. Operating income declined significantly due to a pre-tax impairment charge of $147.7 million in our money transfer business resulting from our annual goodwill impairment test. The outlook for our money transfer business has declined given the difficult macroeconomic conditions directly impacting this segment's customer base. Additionally, our results were affected by unfavorable foreign currency trends.

On June 30, 2008, we acquired a 51% majority ownership interest in HSBC Merchant Services LLP (the "LLP"). The LLP provides payment processing services to merchants in the United Kingdom and Internet merchants globally. We paid HSBC Bank plc ("HSBC UK") $438.6 million for our interest. We manage the day-to-day operations of the partnership, control all major decisions and, accordingly, consolidate the partnership's financial results for accounting purposes effective with the closing date. HSBC UK retained ownership of the remaining 49% and contributed its existing merchant acquiring business in the United Kingdom to the partnership. In addition, HSBC UK entered into a ten-year marketing alliance with the partnership in which HSBC UK will refer customers to the partnership for payment processing services in the United Kingdom.

On June 12, 2009, we completed the purchase of the remaining 49% of the LLP from HSBC UK and extended our marketing alliance agreement to 2019. Total consideration paid for the remaining interest in the LLP was $307.7 million in cash. We used existing lines of credit and available cash to complete the transaction.

On July 10, 2009 we entered into a new $300.0 million term loan agreement with a syndicate of financial institutions. We will use the proceeds of this term loan to pay down our existing credit facility which was used to fund the purchase of our remaining 49% interest in the LLP. The term loan expires in 2012 and has a variable interest rate based on London Interbank Offered Rate ("LIBOR") plus a margin based on our leverage position.

On April 30, 2009, we completed the acquisition of all outstanding stock of ZAO United Card Service ("UCS"), a leading direct merchant acquirer and indirect payment processor in the Russian Federation, from ZAO United Investments. Under the terms of the agreement, we paid a total of $75.0 million in cash to acquire UCS. As of May 31, 2009, $55.0 million of the purchase price was held in escrow (the "escrow account"). Prior to our acquisition of UCS, the former parent of company of UCS pledged the company's stock as collateral for a third party loan (the "loan") that matures on September 24, 2009. Upon repayment of this loan, the stock will be released to us and $35.0 million of the purchase price will be released to the seller. The remaining $20.0 million will remain in escrow until January 1, 2013, to satisfy any liabilities discovered post-closing that existed at the purchase date.

Upon acquisition of UCS Global Payments assumed an indirect guarantee of the loan. In the event of a default by the third-party debtor, we would be required to transfer all of the shares of UCS to the trustee or pay the amount outstanding under the loan. At May 31, 2009 the maximum potential amount of future payments under the guarantee was $44.1 million which represents the total outstanding under the loan, consisting of $21.8 million due and paid on June 24, 2009 and $22.3 million due on September 24, 2009. Should the third-party debtor default on the final payment, Global Payments would pay the total amount outstanding and seek to be reimbursed for any payments made from the $55 million held in the escrow account. We did not record an obligation for this guarantee because we determined that the fair value of the guarantee is de minimis.

Revenues increased $327.3 million during fiscal 2009 compared to the prior year. Our North America merchant services segment reported growth primarily driven by our ISO channel which continues to drive expanding market share in the United States as evidenced by our 17% transaction growth for the year. In Canada, revenue was driven by successful pricing initiatives, partially offset by an unfavorable foreign currency exchange

impact and modest macroeconomic-based softening in our Canadian volumes. In addition, revenues increased in our International merchant services segment due to our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP and strong growth in the Asia Pacific region. Our money transfer business continues to face a difficult environment for United States construction and Latino immigration trends; however we have initiated cost containment measures resulting in increased margins.

Operating margins were impacted by negative currency exchange rates and modest softening across all of our businesses due to the macroeconomic environment. For the year ended May 31, 2009 currency exchange rate fluctuations reduced our revenues by $88.2 million and our earnings by $0.23 per diluted share. To calculate the impact of currency exchange rate fluctuations we converted our fiscal 2009 actual revenues at fiscal 2008 rates. Further future fluctuations in currency exchange rates or decreases in consumer spending could cause our results to differ from our current expectations.

Results of Operations

Fiscal Year Ended May 31, 2009 Compared to Fiscal Year Ended May 31, 2008



The following table shows key selected financial data for the fiscal years ended
May 31, 2009 and 2008, this data as a percentage of total revenues, and the
changes between fiscal years in dollars and as a percentage of fiscal 2008.



                                                       % of                                % of                               %
                                     2009           Revenue (1)          2008           Revenue (1)         Change          Change
                                                            (dollar amounts in thousands)
Revenues:
United States                     $   805,557                50 %     $   731,215                57 %     $   74,342            10 %
Canada                                301,294                19           267,249                21           34,045            13

North America merchant
services                            1,106,851                69           998,464                78          108,387            11

Europe                                265,121                17            59,778                 5          205,343           344
Asia-Pacific                           90,334                 6            72,367                 6           17,967            25

International merchant
services                              355,455                22           132,145                10          223,310           169

United States                         112,429                 7           119,019                 9           (6,590 )          (6 )
Europe                                 26,789                 2            24,601                 2            2,188             9

Money transfer                        139,218                 9           143,620                11           (4,402 )          (3 )

Total revenues                    $ 1,601,524               100 %     $ 1,274,229               100 %     $  327,295            26 %

Consolidated operating
expenses:
Cost of service                   $   598,785              37.4 %     $   475,612              37.3 %     $  123,173            26 %
Sales, general and
administrative                        693,646              43.3           545,941              42.8          147,705            27
Impairment, restructuring and
other                                 147,664               9.2             1,317               0.1          146,347            NM

Operating income                  $   161,429              10.1 %     $   251,359              19.7 %     $  (89,930 )         (36 )%

Operating (loss) income for
segments:
North America merchant
services                          $   272,972                         $   275,356                         $   (2,384 )          (1 )%
International merchant
services                               82,763                              17,674                             65,089           368
Money transfer                         16,547                              13,635                              2,912            21
Corporate                             (63,189 )                           (53,989 )                           (9,200 )         (17 )
Impairment, restructuring and
other                                (147,664 )                            (1,317 )                         (146,347 )          NM

Operating income                  $   161,429                         $   251,359                         $  (89,930 )         (36 )%

Operating margin for segments:
North America merchant
services                                 24.7 %                              27.6 %                             (2.9 )%
International merchant
services                                 23.3 %                              13.4 %                              9.9 %
Money transfer segment                   11.9 %                               9.5 %                              2.4 %

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

NM - Not Meaningful

Revenues

We derive our revenues from three primary sources: charges based on volumes, charges based on transaction quantity, and equipment sales, leases and service fees. Revenues generated by these areas depend upon a number of factors, such as demand for and price of our services, the technological competitiveness of our product offerings, our reputation for providing timely and reliable service, competition within our industry, and general economic conditions.

In fiscal 2009, revenues increased 26% to $1,601.5 million compared to the prior year. We attribute this revenue growth primarily to our acquisition of 51% of HSBC Merchant Services LLP in our International merchant services segment and to growth in our North America merchant services segment. This growth was partially offset by fluctuations in foreign currency exchange rates. For fiscal 2009, currency exchange rate fluctuations reduced our revenues by $88.2 million. We intend to continue to grow our domestic and international presence, build our ISO sales channel, increase customer satisfaction, assess opportunities for profitable growth through acquisitions, pursue enhanced products and services for our customers, and leverage our existing business model.

North America Merchant Services Segment

In fiscal 2009, revenue from our North America merchant services segment increased 11% to $1,106.9 million compared to the prior year. We have continued to grow our United States channel by adding small and mid-market merchants in diversified vertical markets, primarily through our ISOs. For fiscal 2009, our United States direct credit and debit card processed transactions grew 17% and our total United States revenue grew 10% compared to the prior year. In fiscal 2009 compared to the prior year, our United States direct credit and debit card average dollar value of transaction, or average ticket, decreased in the high single-digit percentage range. We believe this decline was due to a combination of lower consumer spending as a result of a weakened economy, the industry shift of increasing debit transactions, as well as the shift toward smaller merchants added through our ISO channel. Smaller merchants tend to have lower average tickets than larger merchants. The effect of consumers replacing cash-based payments with debit card transactions also lowers our overall U.S. average ticket amounts. Based on our mix of merchants, slightly more than half of our U.S. transactions are comprised of a combination of signature- and PIN-based debit. Aside from the impact of changes in our average ticket, the remaining difference between our transaction growth and revenue growth is due to our service fees, equipment fees, check-related services, and our domestic indirect revenue. The total of this revenue grew at a lower rate than our United States direct credit and debit card transaction growth.

For fiscal 2009, our Canadian revenue grew 13% compared to the prior year period. This growth was primarily due to successful pricing initiatives and, to a lesser extent, transaction growth of 4%, partially offset by an unfavorable Canadian currency exchange rate. In addition, our average ticket in Canada declined in the low single-digit range, which we believe may be partially due to lower consumer spending as a result of a weakened economy.

International Merchant Services Segment

For fiscal 2009, our International merchant services revenue increased 169% to $355.5 million compared to the prior year. In Europe, this growth was primarily due to our acquisition of 51% of HSBC Merchant Services LLP. Revenues attributed to this acquisition were $203.5 million during fiscal 2009. Our Asia-Pacific merchant services revenue for fiscal 2009 increased 25% to $90.3 million compared to the prior year period. Our Asia-Pacific merchant services revenue has grown due to the favorable impact of our acquisition in the Philippines on September 4, 2008, expansion of our customer base, the introduction of new product offerings, and strategic pricing initiatives.

Money Transfer Segment

In fiscal 2009, revenue from our money transfer segment decreased 3% to $139.2 million compared to the prior year. Our United States money transfer channel relates to all revenue originating from the money transfer branches that we operate in the United States, which may include money transfers to destinations both inside and outside of the United States. For fiscal 2009, our United States money transfer channel transactions decreased 16% and revenue decreased 6%, compared to the prior year. Revenue decreased less than transactions primarily due to pricing initiatives.

As a result of our continuing efforts to close unprofitable branches, our United States branch footprint decreased to 741 branches as of May 31, 2009, compared to 793 branch locations as of May 31, 2008. On a sequential basis, our domestic branch footprint as of May 31, 2009 decreased by 15 locations compared to our domestic branch footprint as of February 28, 2009. This decrease in domestic branches was the result of the closure of underperforming locations, partially offset by new branch openings. We believe that an extended downturn in the United States construction market, immigrant labor trends, and a decrease in overall economic growth have negatively affected our United States money transfer channel.

Our European money transfer channel relates to all revenue generated from the money transfer branches that we operate in Europe, which may include money transfers to destinations both inside and outside of Europe. For fiscal 2009, our European money transfer revenue grew 9%, with transaction declines of 1%. Our revenue growth exceeded transaction growth due to higher pricing compared to the prior year and our acquisition of LFS Spain in the fourth quarter of fiscal year 2008. In Europe, we decreased our branch footprint to 77 locations as of May 31, 2009, compared to 90 locations as of May 31, 2008, through the sale of our Belgium branches and branch closures. The vast majority of our revenue in this channel is generated in Spain. Similar to the United States, Spain has experienced a decrease in economic growth, which has negatively affected this channel.

Consolidated Operating Expenses

Cost of service consists primarily of the following costs: operational-related personnel, including those who monitor our transaction processing systems and settlement function; assessment fees paid to card networks; transaction processing systems, including third-party services such as the costs of settlement channels for money transfer services; transition services paid to HSBC in the Asia-Pacific market and the United Kingdom; network telecommunications capability, depreciation and occupancy costs associated with the facilities performing these functions; amortization of intangible assets; and provisions for operating losses.

Cost of service increased 26% to $598.8 million for fiscal 2009 compared to the prior year. The growth in cost of service expenses is primarily due to the acquisition of 51% of HSBC Merchant Services LLP and increases in variable processing expenses, such as card network assessments and fees, associated with our revenue growth.

Sales, general and administrative expenses consists primarily of salaries, wages and related expenses paid to sales personnel, non-revenue producing customer support functions and administrative employees and management, commissions to independent contractors and ISOs, 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 27% to $693.6 million in fiscal 2009 compared to the prior year. As a percentage of revenue, these expenses increased to 43.3% for fiscal 2009 compared to 42.8% in the prior year. The increase in sales, general and administrative expenses is due to growth in commission payments to ISOs resulting from the increased revenue in this sales channel and the acquisition of 51% of HSBC Merchant Services LLP. 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. In addition, during fiscal 2008 we recorded a favorable impact from a non-recurring, non-cash operating tax item of $7.0 million.

Operating Income and Operating Margin for Segments

For the purpose of discussing segment operations, we refer to operating income as calculated by subtracting segment direct expenses from segment revenue. Overhead and shared expenses, including share-based compensation costs, are not allocated to the segments' operations; they are reported in the caption "Corporate." Similarly, references to operating margin regarding segment operations mean segment operating income divided by segment revenue.

North America Merchant Services Segment

Operating income in the North America merchant services segment decreased 1% to $273.0 million for fiscal 2009 compared to the prior year. The operating margin was 24.7% and 27.6% for fiscal 2009 and fiscal 2008, respectively. The decrease in operating income in fiscal 2009 was primarily due to the negative impact of the Canadian Dollar exchange rate. In addition, fiscal 2008 reflects a favorable impact of a non-recurring, non-cash operating tax item of $7.0 million. Growth in the ISO channel also negatively impacted fiscal 2009 margins. 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.

International Merchant Services Segment

Operating income in the International merchant services segment increased 368% to $82.8 million for fiscal 2009 compared to the prior year. The operating margin was 23.3% and 13.4% for fiscal 2009 and fiscal 2008, respectively. This growth in operating margin and operating income was primarily due to the acquisition of 51% of HSBC Merchant Services LLP in the United Kingdom. In the Czech Republic and the Russian Federation our contracts with key indirect merchant acquiring customers are subject to periodic renewal. Such renewals may include lower fees which may negatively impact our margins.

Money Transfer Segment

Operating income in the money transfer segment increased 21% to $16.5 million for fiscal 2009 compared to the prior year. This increase resulted in an operating margin of 11.9% for fiscal 2009, compared to 9.5% in the prior year. These results were primarily due to the impact of stabilized pricing, the closure of underperforming branch locations, and reduced overhead costs. In addition, during the prior year, we incurred costs associated with the closure of underperforming locations, such as lease termination fees and fixed asset write-offs.

Corporate

Our corporate expenses primarily include costs associated with our Atlanta headquarters, insurance, employee incentive programs, and certain corporate staffing areas, including finance, accounting, legal, human resources, marketing, and executive. Corporate also includes expenses associated with our share-based compensation programs. Our corporate costs increased 17% to $63.2 million for fiscal 2009 compared to the prior year.

Impairment Charges

The downturn in the United States construction market, immigrant labor trends, and overall decrease in economic growth in the United States and Spain contributed to decreased projected future cash flows for our United States and Europe Money Transfer reporting units. This decrease in projected cash flows resulted in the carrying amounts of these reporting units being greater than the fair values; therefore, goodwill was deemed impaired. Our DolEx trademark in our United States Money Transfer reporting unit was also deemed to be impaired. In addition, we reviewed the long-lived assets of these reporting units for impairment pursuant to the guidance in FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and recorded an impairment charge for certain of our long-lived assets.

The following details the impairment charge resulting from our review (in thousands):

                                           Year Ended May 31, 2009
                Goodwill                  $                 136,800
                Trademark                                    10,000
                Other long-lived assets                         864

                Total                     $                 147,664

Consolidated Operating Income

Consolidated operating income decreased 36% to $161.4 million for fiscal 2009 compared to the prior year. This change resulted in an operating margin of 10.1% for fiscal 2009 compared to 19.7% in the prior year. This decrease was primarily due to the non-cash impairment charge in our Money Transfer segment of $147.7 million related to the write-down of goodwill and indefinite-lived intangible assets, the unfavorable impact of foreign currency exchange rates somewhat offset by the favorable impact of the HSBC UK acquisition.

Consolidated Other Income/Expense, Net

Other income and expense consists primarily of interest income and interest . . .