For an understanding of the significant factors that influenced our results, the following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this report. This management's discussion and analysis should also be read in conjunction with the management's discussion and analysis and consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended May 31, 2009.

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 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 10 in the notes to the unaudited 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 clients. 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 other 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 and second 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 Spain 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

On June 12, 2009, we completed the purchase of the remaining 49% of HSBC Merchant Services LLP (the "LLP") from HSBC Bank plc ("HSBC UK"). Total consideration for such remaining interest was $307.7 million in cash. We used existing lines of credit to complete the transaction. We acquired our initial majority ownership interest in the LLP on June 30, 2008.

On July 10, 2009, we entered into a new $300.0 million term loan agreement ($230.0 million and £43.5 million) with a syndicate of financial institutions. We used 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.

Revenues increased $35.6 million during the three months ended August 31, 2009 compared to the prior year's comparable period. Macroeconomic conditions have caused our average dollar per transaction (average ticket) amounts to decline across all of our geographic regions compared to the prior year with the United States experiencing the greatest decline. However, we continue to expand market share in each of our direct merchant acquiring markets around the world. Our North America merchant services segment reported growth primarily driven by our direct ISO channel which continues to drive expanding market share in the United States as evidenced by our 20% transaction growth compared to the prior year's comparable period. In Canada, revenue decreased due to an unfavorable foreign currency exchange impact and macroeconomic driven softening in our Canadian transaction volumes. Revenues increased 29% in our International merchant services segment compared to the prior year's comparable period. This growth reflects the impact of reporting a full quarter of results of our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP and our acquisition of UCS on April 30, 2009. Also contributing to this growth was our acquisition of GPAP Philippines on September 4, 2008. Our Central European indirect processing business continues to be challenged, but we have renewed our two largest customers for multi-year periods. Our money transfer business continues to face a difficult environment for United States construction and immigration trends.

Operating margins were affected by the negative currency exchange rates and modest softening across all of our businesses due to the macroeconomic environment. For the three months ended August 31, 2009 currency exchange rate fluctuations decreased our revenues by $21.0 million and our earnings by $0.07 per diluted share. To calculate this impact we converted our fiscal 2010 actual revenues and expenses at fiscal 2009 currency exchange rates. Further fluctuations in currency exchange rates or decreases in consumer spending could cause our results to differ from our current expectations.

On September 22, 2009, we entered into a purchase agreement to acquire all of the outstanding stock of the leading United States provider of fully integrated payment processing and software solutions for fundraising activities. On September 28, 2009, we completed the transaction and acquired the entity for $22 million in cash. The purpose of this acquisition was to expand Global's direct acquiring business into vertical markets that, to date, have been underpenetrated from a merchant acquiring perspective.

Results of Operations

The following table shows key selected financial data for the three months ended
August 31, 2009 and 2008, this data as a percentage of total revenue, and the
changes between three months ended August 31, 2009 and 2008, in dollars and as a
percentage of the prior year's comparable period.



                                         Three                             Three
                                         Months                            Months
                                         Ended                             Ended
                                       August 31,          % of          August 31,          % of
                                          2009          Revenue(1)          2008          Revenue(1)       Change        % Change
                                                                     (dollar amounts in thousands)
Revenues:
United States                         $    222,767              50 %    $    200,696              49 %    $ 22,071             11 %
Canada                                      81,225              18            85,944              21        (4,719 )           (5 )

North America merchant services            303,992              69           286,640              71      $ 17,352              6

Europe                                      80,467              18            61,602              15        18,865             31
Asia-Pacific                                25,473               6            20,718               5         4,755             23

International merchant services            105,940              24            82,320              20        23,620             29

Money transfer                              31,378               7            36,797               9        (5,419 )          (15 )

Total revenues                        $    441,310             100 %    $    405,757             100 %    $ 35,553              9 %

Consolidated operating expenses:
Cost of service                       $    162,828            36.9 %    $    144,177            35.5 %    $ 18,651             13 %
Sales, general and administrative          185,836            42.1           168,483            41.5        17,353             10

Operating income                      $     92,646            21.0 %    $     93,097            22.9 %    $   (451 )            0 %

Operating income for segments:
North America merchant services       $     75,921                      $     83,069                      $ (7,148 )           (9 )%
International merchant services             28,749                            20,402                         8,347             41
Money transfer                               3,403                             4,478                        (1,075 )          (24 )
Corporate                                  (15,427 )                         (14,852 )                        (575 )           (4 )

Operating income                      $     92,646                      $     93,097                      $   (451 )            0 %

Operating margin for segments:
North America merchant services               25.0 %                            29.0 %                        (4.0 )%
International merchant services               27.1 %                            24.8 %                         2.3 %
Money transfer segment                        10.8 %                            12.2 %                        (1.4 )%

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

Revenues

We derive our revenues from three primary sources: charges based on volumes and fees for services, 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.

For the three months ended August 31, 2009, revenues increased 9% to $441.3 million compared to the prior year's comparable period. We attribute this revenue growth primarily to growth in our International merchant services and our North America merchant services segments. We intend to continue to grow our domestic and international presence, build our direct ISO sales channel, assess opportunities for profitable growth through acquisitions, pursue enhanced products and services for our customers, and leverage our existing business model.

Our revenues have been affected by fluctuations in foreign currency exchange rates. For the three months ended August 31, 2009, currency exchange rate fluctuations reduced our revenues by $21.0 million.

North America Merchant Services Segment

For the three months ended August 31, 2009, revenue from our North America merchant services segment increased 6% to $304.0 million compared to the prior year's comparable period.

We have continued to grow our United States channel by adding small and mid-market merchants in diversified vertical markets, primarily through our ISO channel. For the three months ended August 31, 2009, our United States direct credit and debit card processed transactions grew 20% and our total United States revenue grew 11% compared to the prior year period. For the three months ended August 31, 2009 compared to the prior year's comparable period, our United States credit and debit card average dollar value of transaction, or average ticket, decreased approximately 10%.. 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 a 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 the three months ended August 31, 2009, our Canadian revenue decreased 5% compared to the prior year period. This decline was due to an unfavorable Canadian currency exchange rate. In addition, during the three months ended August 31, 2009, our average ticket in Canada declined in the mid-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 the three months ended August 31, 2009, International merchant services revenue increased 29% to $105.9 million compared to the prior year period. Our Europe merchant services revenue for the three months ended August 31, 2009 increased 31% to $80.5 million compared to the prior year period. This growth was primarily due to the impact of reporting a full quarter of results of our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP for the three months ended August 31, 2009 compared to the prior year comparable period. Also contributing to this growth was to our acquisition of UCS on April 30, 2009. Our Asia-Pacific merchant services revenue for the three months ended August 31, 2009 increased 23% to $25.5 million compared to the prior year period. The growth was due to our acquisition of Global Payments Asia-Pacific Philippines Incorporated on September 4, 2008.

Money Transfer Segment

Our money transfer segment relates to all revenue originating from the money transfer branches that we operate in the United States and Europe. For the three months ended August 31, 2009, revenue from our money transfer segment decreased

15% to $31.4 million compared to the prior year's comparable period. Our money transfer segment transactions for the three months ended August 31, 2009 decreased 18% compared to the prior year's comparable period.

As a result of our continuing efforts to close unprofitable branches, our branch footprint decreased to 781 branches as of August 31, 2009, compared to 870 branch locations as of August 31, 2008. On a sequential basis, our branch footprint as of August 31, 2009 decreased by 37 locations compared to our branch footprint as of May 31, 2009. This decrease in branches was the result of the closure of underperforming locations and the sale of some of our United Kingdom and Belgium branches. We believe that an extended downturn in the construction market, immigrant labor trends and a decrease in overall economic growth have negatively affected our money transfer segment.

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 13% to $162.8 million for the three months ended August 31, 2009 compared to the prior year's comparable period. As a percentage of revenue, cost of service increased to 36.9% of revenue for the three months ended August 31, 2009 from 35.5% for the prior year's comparable period. The growth in cost of service expenses was due to the impact of reporting a full quarter of results of our June 30, 2008 acquisition of 51% of HSBC Merchant Services LLP for the three months ended August 31, 2009 compared to the prior year comparable period, our UCS acquisition, 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 10% to $185.8 million for the three months ended August 31, 2009 compared to the prior year's comparable period. As a percentage of revenue, these expenses increased to 42.1% for the three months ended August 31, 2009 compared to 41.5% in the prior year's comparable period. The increase in sales, general and administrative expenses is due to our acquisition of UCS, growth in the Asia-Pacific region, and commission payments to ISOs resulting from the increased revenue in this sales channel.

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 9% to $75.9 million for the three months ended August 31, 2009 compared to the prior year's comparable period. The operating margin was 25.0% and 29.0% for the three months ended August 31, 2009 and 2008, respectively. Operating margin and operating income for the three months ended August 31, 2009 was negatively impacted by fluctuations in foreign currency exchange rates when compared to the prior year's comparable period. Growth in the ISO channel also negatively impacted margins for the three months ended August 31, 2009. 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 41% to $28.7 million for the three months ended August 31, 2009 compared to the prior year's comparable period. The operating margin was 27.1% and 24.8% for the three months ended August 31, 2009 and 2008, respectively. The increase in operating margin is due to higher operating margins in the United Kingdom and in the Asia-Pacific region..

Money Transfer Segment

Operating income in the money transfer segment decreased 24% to $3.4 million for the three months ended August 31, 2009 compared to the prior year's comparable period. This decrease resulted in an operating margin of 10.8% for the three months ended August 31, 2009, compared to 12.2% in the prior year's comparable period. This decrease in operating margin and operating income was primarily due to the extended downturn in the construction market, immigrant labor trends, and a decrease in overall economic growth, each having a negative effect on our money transfer segment.

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 4% to $15.4 million for the three months ended August 31, 2009 compared to the prior year's comparable period.

Consolidated Operating Income

During the three months ended August 31, 2009, our consolidated operating income decreased $0.5 million to $92.6 million compared to consolidated operating income of $93.1 million in the prior year. This decrease was primarily due to the unfavorable impact of foreign currency exchange rates offset by the favorable impact of growth in our International merchant services segment.

Consolidated Other Income/Expense, Net

Other income and expense consists primarily of interest income and interest expense. Other expense, net increased to $3.4 million for the three months ended August 31, 2009 compared to income of $0.9 million in the prior year's comparable period. This increase in other expense, net was primarily due to higher debt balances and, to a lesser extent, lower investment income. Interest rates decreased during the three months ended August 31, 2009 when compared to the prior year. This decline in interest rates partially offset the impact of increased debt balances on interest expense and contributed to lower interest income.

Provision for Income Taxes

Our effective tax rates, reflected as the provision for income taxes divided by income before income tax, including the effect of noncontrolling interest, were 31.4% and 32.9% for the three months ended August 31, 2009 and 2008, respectively.

Noncontrolling Interest, Net of Tax

Noncontrolling interest, net of tax decreased to $4.6 million from $8.3 million for the three months ended August 31, 2009 and 2008, respectively. The decrease was due to our recent acquisition of the remaining 49% of HSBC Merchant Services LLP.

Net Income Attributable to Global Payments and Diluted Earnings Per Share

During the three months ended August 31, 2009, we reported net income attributable to Global Payments of $57.8 million ($0.71 diluted earnings per share) compared to $57.5 million ($0.71 diluted earnings per share) in the prior year's comparable period.

Liquidity and Capital Resources

At August 31, 2009, we had cash and cash equivalents totaling $1,072.3 million. Of this amount, we consider $167.6 million to be available cash, which generally excludes settlement related and merchant reserve cash balances. Settlement related cash balances represent surplus funds that we hold on behalf of our member sponsors when the incoming amount from the card networks precedes the member sponsors' funding obligation to the merchant. At August 31, 2009, 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. At August 31, 2009, our cash and cash equivalents included $178.3 million related to Merchant reserves. 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 the guidelines set by the card networks. See Cash and cash equivalents and Settlement processing assets and obligations under Note 1 in the notes to the unaudited consolidated financial statements for additional details.

Net cash provided by operating activities increased $628.7 million to $696.5 million for the three months ended August 31, 2009 from the prior year's comparable period. The increase in cash flow from operating activities was primarily due to an increase in settlement related cash due to the timing of month end cut-off as discussed above. See Settlement processing assets and obligations under Note 1 in the notes to the consolidated financial statements for additional details.

Net cash used in investing activities decreased $433.0 million to $11.1 million for the three months ended August 31, 2009 from the prior year's comparable period, primarily due to our $441.6 million investment in a partnership with HSBC UK during the three months ended August 31, 2008. Capital expenditures increased to $11.1 million for the three months ended August 31, 2009 from the prior year's comparable period. These expenditures primarily relate to technology and merchant terminal spending.

For the three months ended August 31, 2009, we used $41.7 million in cash for financing activities as we paid down debt of $27.5 million and made distributions to noncontrolling interests of $14.0 million. The purchase of our 49% interest in the LLP of $307.7 million is reflected as a financing cash outflow because it was treated as an equity transaction pursuant to FAS 160. This outflow was largely offset by proceeds from our $300.5 million term loan. For the three months ended August 31, 2008, we generated $217.8 million cash provided by financing activities due to proceeds from our $200 million term loan agreement. See Long-Term Debt and Credit Facilities below for a more detailed discussion of our borrowing activities.

We believe that our current level of available cash and borrowing capacity under our lines of credit described below, together with future cash flows from operations, are sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future. For fiscal 2010, we do not have any material capital commitments, other than commitments under operating leases and planned expansions.

We regularly evaluate cash requirements for current operations, commitments, . . .