Commentary on Fiscal 2016 Second Quarter Financial Results
Global Payments delivered high-single digit normalized organic adjusted net revenue growth (on a constant currency basis), cash operating margin expansion (on a constant currency basis) and mid-teens cash earnings per share growth, despite significant negative impacts of foreign currency translation. Each of these accomplishments exceeded the company’s budget expectations and its stated cycle guidance.
On December 15, 2015, the company provided the following fiscal 2016 second quarter financial results:
•
Adjusted net revenue grew 5% to $518 million, compared to $494 million in the second quarter of fiscal 2015, or 12% on a constant currency basis.
•
Cash earnings per share grew 15% to $0.76, compared to $0.66 in the second quarter of fiscal 2015, or 29% on a constant currency basis.
•
Cash operating margins were 29.6%, expanding 60 basis points on a constant currency basis year over year.
•
GAAP revenues grew 4% to $722 million, compared to $697 million in the second quarter of fiscal 2015, and GAAP earnings per share were $0.60, compared to $0.55 in the prior year.

Additional highlights for the quarter include:
North America
•
North America Segment adjusted net revenue growth was 7% with cash operating income growth of 9%, including the effects of unfavorable currency trends in Canada.
•
Performance was driven by adjusted net revenue growth of 13% in the United States, reflecting high-single digit normalized organic growth from direct channels (including OpenEdge, which grew in the high-teens).
•
Local currency growth in Canada was in line with the company’s expectations for the quarter, but was more than offset by the weak Canadian dollar which unfavorably impacted North America adjusted net revenue growth by 400 basis points.
•
Cash operating margins for North America expanded 50 basis points, or 150 basis points on a constant currency basis.

Europe
•
Europe Segment adjusted net revenue growth was flat in U.S. dollars for the quarter on a year-over-year basis, but increased 12% on a constant currency basis.
•
Europe constant currency adjusted net revenue growth was driven by double-digit volume and transaction growth in Spain and mid-teens organic growth in the United Kingdom.
•
Cash operating income grew 5% on a constant currency basis and cash operating margins declined for the quarter in line with the company’s expectations, largely due to the annualization of market-based pricing impacts in Spain.

Asia-Pacific
•
Asia-Pacific Segment adjusted net revenue grew 9% for the quarter, or 19% on a constant currency basis.
•
Normalized organic adjusted net revenue growth for Asia-Pacific was mid-single digits on a constant currency basis.
•
Ezidebit, which annualized in the first half of the fiscal second quarter, produced over 20% organic revenue growth in local currency.
•
Cash operating margins in Asia expanded 30 basis points, or 50 basis points on a constant currency basis.

1


Other Items
•
The company generated free cash flow of approximately $115.5 million in the second quarter, which it defines as cash provided by operating activities1, excluding the impact of changes in settlement assets and obligations, less capital expenditures and distributions to noncontrolling interests.
•
During the second quarter, after accounting for the two-for-one stock split in the form of a stock dividend paid during the quarter, the company repurchased approximately 626,000 shares at an average price of $59.87 per share for a total of $37.5 million.
•
Capital expenditures totaled $19.4 million for the quarter.

1 Net cash used in operating activities, calculated in accordance with GAAP, was $59 million for the second quarter.
Non-GAAP Financial Measures
We supplement revenues, income, earnings per share information and cash flows determined in accordance with U.S. GAAP by providing income and related earnings per share on a “cash earnings” basis, Adjusted Net Revenue and Free Cash Flow in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations. Reconciliations of the non-GAAP measures to the most directly comparable GAAP measure are included in the attached schedules.




2


SCHEDULE 1
UNAUDITED GAAP CONSOLIDATED STATEMENTS OF INCOME
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
 
Three Months Ended November 30,
 
Six Months Ended November 30,
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
722,350

 
$
697,291

 
3.6
 %
 
$
1,471,146

 
$
1,402,186

 
4.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of service
270,565

 
257,796

 
5.0
 %
 
543,231

 
517,635

 
4.9
 %
Selling, general and administrative
328,620

 
315,511

 
4.2
 %
 
666,978

 
636,169

 
4.8
 %
 
599,185

 
573,307

 
4.5
 %
 
1,210,209

 
1,153,804

 
4.9
 %
 
 
 
 
 

 
 
 
 
 
 
Operating income
123,165

 
123,984

 
(0.7
)%
 
260,937

 
248,382

 
5.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
Interest and other income
1,292

 
1,282

 
0.8
 %
 
2,434

 
2,474

 
(1.6
)%
Interest and other expense
(14,126
)
 
(10,350
)
 
36.5
 %
 
(27,369
)
 
(21,360
)
 
28.1
 %
 
(12,834
)
 
(9,068
)
 
41.5
 %
 
(24,935
)
 
(18,886
)
 
32.0
 %
 
 
 
 
 

 


 


 

Income before income taxes
110,331

 
114,916

 
(4.0
)%
 
236,002

 
229,496

 
2.8
 %
Provision for income taxes
(27,253
)
 
(29,660
)
 
(8.1
)%
 
(59,876
)
 
(59,806
)
 
0.1
 %
Net income
83,078

 
85,256

 
(2.6
)%
 
176,126

 
169,690

 
3.8
 %
Less: Net income attributable to noncontrolling interests, net of income tax
(4,307
)
 
(10,475
)
 
(58.9
)%
 
(10,708
)
 
(19,543
)
 
(45.2
)%
Net income attributable to Global Payments
$
78,771

 
$
74,781

 
5.3
 %
 
$
165,418

 
$
150,147

 
10.2
 %
 
 
 
 
 
 
 

 

 

Earnings per share attributable to Global Payments(1):
 
 
 
 
 
 
 
 
 
 
 
    Basic
$
0.61

 
$
0.55

 
10.9
 %
 
$
1.27

 
$
1.11

 
14.4
 %
    Diluted
$
0.60

 
$
0.55

 
9.1
 %
 
$
1.27

 
$
1.10

 
15.5
 %
 
 
 
 
 
 
 

 

 

Weighted-average shares outstanding(1):
 
 
 
 
 
 
 
 
 
 
 
    Basic
129,505

 
134,754

 
 
 
129,919

 
135,528

 
 
    Diluted
130,353

 
135,474

 
 
 
130,752

 
136,358

 
 

(1) Earnings per share data and weighted-average shares outstanding for prior periods reflect a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

3


SCHEDULE 2
UNAUDITED CASH EARNINGS ATTRIBUTABLE TO GLOBAL PAYMENTS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
 
Three Months Ended November 30,
 
Six Months Ended November 30,
 
2015
 
2014
 
% Change
 
2015
 
2014
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted net revenue
$
518,302

 
$
493,665

 
5.0
 %
 
$
1,055,255

 
$
988,877

 
6.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of service
230,284

 
219,124

 
5.1
 %
 
462,202

 
440,157

 
5.0
 %
Selling, general and administrative
134,810

 
127,215

 
6.0
 %
 
276,277

 
258,017

 
7.1
 %
 
365,094

 
346,339

 
5.4
 %
 
738,479

 
698,174

 
5.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
153,208

 
147,326

 
4.0
 %
 
316,776

 
290,703

 
9.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Interest and other income
1,292

 
1,282

 
0.8
 %
 
2,434

 
2,474

 
(1.6
)%
Interest and other expense
(14,126
)
 
(10,350
)
 
36.5
 %
 
(27,369
)
 
(21,360
)
 
28.1
 %
 
(12,834
)
 
(9,068
)
 
41.5
 %
 
(24,935
)
 
(18,886
)
 
32.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
Income before income taxes
140,374

 
138,258

 
1.5
 %
 
291,841

 
271,817

 
7.4
 %
Provision for income taxes
(35,637
)
 
(37,348
)
 
(4.6
)%
 
(76,796
)
 
(70,950
)
 
8.2
 %
Net income
104,737

 
100,910

 
3.8
 %
 
215,045

 
200,867

 
7.1
 %
Less: Net income attributable to noncontrolling interests, net of income tax
(5,236
)
 
(11,648
)
 
(55.0
)%
 
(12,515
)
 
(21,951
)
 
(43.0
)%
Net income attributable to Global Payments
$
99,501

 
$
89,262

 
11.5
 %
 
$
202,530

 
$
178,916

 
13.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share attributable to Global Payments(1):
 
 
 
 
 
 
 
 
 
 
 
Basic
$
0.77

 
$
0.66

 
16.7
 %
 
$
1.56

 
$
1.32

 
18.2
 %
Diluted
$
0.76

 
$
0.66

 
15.2
 %
 
$
1.55

 
$
1.31

 
18.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding(1):
 
 
 
 
 
 
 
 
 
 
 
Basic
129,505

 
134,754

 
 
 
129,919

 
135,528

 
 
Diluted
130,353

 
135,474

 
 
 
130,752

 
136,358

 
 

(1) Earnings per share data and weighted-average shares outstanding for prior periods reflect a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

See Schedules 7 and 8 for a reconciliation of adjusted net revenue and cash earnings to the most comparable GAAP measures.

See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.



4


SCHEDULE 3
UNAUDITED SEGMENT INFORMATION
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(Dollars in thousands)
 
 
Three Months Ended November 30,
 
 
 
 
 
 
2015
 
2014
 
 % Change
 
 
GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
511,335

 
$
325,889

 
$
488,776

 
$
305,559

 
4.6
 %
 
6.7
 %
Europe
 
158,016

 
139,414

 
159,974

 
139,565

 
(1.2
)%
 
(0.1
)%
Asia-Pacific
 
52,999

 
52,999

 
48,541

 
48,541

 
9.2
 %
 
9.2
 %
Total revenues
 
$
722,350

 
$
518,302

 
$
697,291

 
$
493,665

 
3.6
 %
 
5.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
79,121

 
$
100,040

 
$
74,246

 
$
85,419

 
6.6
 %
 
17.1
 %
Europe
 
62,012

 
68,188

 
64,563

 
70,395

 
(4.0
)%
 
(3.1
)%
Asia-Pacific
 
11,857

 
14,515

 
11,880

 
13,138

 
(0.2
)%
 
10.5
 %
Corporate
 
(29,825
)
 
(29,535
)
 
(26,705
)
 
(21,626
)
 
11.7
 %
 
36.6
 %
Operating income
 
$
123,165

 
$
153,208

 
$
123,984

 
$
147,326

 
(0.7
)%
 
4.0
 %


 
 
Six Months Ended November 30,
 
 
 
 
 
 
2015
 
2014
 
 % Change
 
 
GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 GAAP
 
 Adjusted Net Revenue and Cash Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
1,042,192

 
$
666,320

 
$
992,782

 
$
620,834

 
5.0
%
 
7.3
%
Europe
 
326,373

 
286,355

 
322,762

 
281,401

 
1.1
%
 
1.8
%
Asia-Pacific
 
102,581

 
102,581

 
86,642

 
86,642

 
18.4
%
 
18.4
%
Total revenues
 
$
1,471,146

 
$
1,055,256

 
$
1,402,186

 
$
988,877

 
5.0
%
 
7.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
 
North America
 
$
162,635

 
$
203,473

 
$
152,183

 
$
174,734

 
6.9
%
 
16.4
%
Europe
 
134,745

 
145,219

 
131,608

 
140,705

 
2.4
%
 
3.2
%
Asia-Pacific
 
24,089

 
28,325

 
18,437

 
19,965

 
30.7
%
 
41.9
%
Corporate
 
(60,532
)
 
(60,242
)
 
(53,846
)
 
(44,701
)
 
12.4
%
 
34.8
%
Operating income
 
$
260,937

 
$
316,775

 
$
248,382

 
$
290,703

 
5.0
%
 
9.0
%

See Schedule 9 for a reconciliation of adjusted net revenue and cash earnings segment information to the most comparable GAAP measures.

See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.


5



SCHEDULE 4
UNAUDITED CONSOLIDATED BALANCE SHEETS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except share data)
 
November 30, 2015
 
May 31, 2015
 
 
 
 
ASSETS
 
  
 
Current assets:
 
  
 
Cash and cash equivalents
$
988,457

 
$
650,739

Accounts receivable, net of allowances for doubtful accounts of $437 and $468, respectively
202,931

 
202,390

Claims receivable, net of allowances for doubtful accounts of $9,091 and $2,684, respectively
7,812

 
548

Settlement processing assets
1,403,914

 
2,394,822

Prepaid expenses and other current assets
52,707

 
41,416

Total current assets
2,655,821

 
3,289,915

Goodwill
1,577,455

 
1,491,833

Other intangible assets, net
665,667

 
560,136

Property and equipment, net
367,541

 
374,143

Deferred income taxes
26,252

 
30,428

Other
35,365

 
32,846

Total assets
$
5,328,101

 
$
5,779,301

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Lines of credit
$
685,178

 
$
592,629

Current portion of long-term debt
—

 
61,784

Accounts payable and accrued liabilities
309,117

 
312,647

Settlement processing obligations
1,256,458

 
2,033,900

Income taxes payable
16,892

 
14,228

Total current liabilities
2,267,645

 
3,015,188

Long-term debt
1,915,803

 
1,678,283

Deferred income taxes
202,630

 
202,855

Other noncurrent liabilities
15,924

 
19,422

Total liabilities
4,402,002

 
4,915,748

Commitments and contingencies
 
 
 
Equity:
 
 
 
Preferred stock, no par value; 5,000,000 shares authorized and none issued
—

 
—

Common stock, no par value; 200,000,000 shares authorized; 129,362,187 issued and outstanding at November 30, 2015 and 130,557,676 issued and outstanding at May 31, 2015
—

 
—

Paid-in capital
132,401

 
148,742

Retained earnings
917,989

 
795,226

Accumulated other comprehensive loss
(245,234
)
 
(185,992
)
Total Global Payments shareholders’ equity
805,156

 
757,976

Noncontrolling interests
120,943

 
105,577

Total equity
926,099

 
863,553

Total liabilities and equity
$
5,328,101

 
$
5,779,301


6


SCHEDULE 5
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
 
Six Months Ended November 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
176,126

 
$
169,690

Adjustments to reconcile net income to net cash provided by operating activities:

 
 
Depreciation and amortization of property and equipment
35,697

 
33,055

Amortization of acquired intangibles
41,809

 
36,117

Share-based compensation expense
13,472

 
9,145

Provision for operating losses and bad debts
11,257

 
7,432

Deferred income taxes
2,900

 
(982
)
Other, net
2,198

 
(387
)
Changes in operating assets and liabilities, net of the effects of acquisitions:

 

Accounts receivable
(4,271
)
 
17,521

Claims receivable
(18,723
)
 
(4,881
)
Settlement processing assets and obligations, net
208,446

 
(13,778
)
Prepaid expenses and other assets
(14,097
)
 
3,903

Accounts payable and other liabilities
(3,329
)
 
(31,503
)
Income taxes payable
2,585

 
1,604

Net cash provided by operating activities
454,070

 
226,936

Cash flows from investing activities:
 
 
 
Business, intangible and other asset acquisitions, net of cash acquired
(241,934
)
 
(223,651
)
Capital expenditures
(36,246
)
 
(33,290
)
Principal collections on financing receivables
—

 
219

Net proceeds from sales of investments and business
—

 
10,528

Net cash used in investing activities
(278,180
)
 
(246,194
)
Cash flows from financing activities:
 
 
 
Net borrowings on lines of credit
101,464

 
90,593

Proceeds from issuance of long-term debt
3,030,175

 
1,080,000

Principal payments of long-term debt
(2,852,175
)
 
(872,679
)
Payment of debt issuance costs
(4,934
)
 
—

Repurchase of common stock
(71,748
)
 
(179,724
)
Proceeds from stock issued under share-based compensation plans
6,317

 
17,099

Common stock repurchased - share-based compensation plans
(11,579
)
 
(15,705
)
Tax benefit from share-based compensation plans
6,521

 
3,599

Purchase of subsidiary shares from noncontrolling interest
(7,550
)
 
—

Distributions to noncontrolling interests
(8,158
)
 
(15,485
)
Dividends paid
(2,602
)
 
(2,693
)
Net cash provided by financing activities
185,731

 
105,005

Effect of exchange rate changes on cash
(23,903
)
 
(23,150
)
Increase in cash and cash equivalents
337,718

 
62,597

Cash and cash equivalents, beginning of the period
650,739

 
581,872

Cash and cash equivalents, end of the period
$
988,457

 
$
644,469


7


SCHEDULE 6
UNAUDITED RECONCILIATION OF FREE CASH FLOW TO GAAP MEASURES
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)

 
Three Months Ended
 
November 30, 2015
Net cash used in operating activities
$
(59,322
)
Changes in settlement processing assets and liabilities, net
194,230

Capital expenditures
(19,388
)
Distributions to noncontrolling interests
—

Free Cash Flow(1)
$
115,520


(1) Free Cash Flow is a non-GAAP measure. See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.





8


SCHEDULE 7
UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS TO GAAP MEASURES
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
 
 
Three Months Ended November 30, 2015
 
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenue and Cash Earnings
Revenues
 
$
722,350

$
(204,048
)
$
—

$
—

$
518,302

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
   Cost of service
 
270,565

(18,601
)
(21,510
)
(170
)
230,284

   Selling, general and administrative
 
328,620

(185,447
)
(7,006
)
(1,357
)
134,810

 
 
599,185

(204,048
)
(28,516
)
(1,527
)
365,094

 
 
 
 
 
 
 
Operating income
 
123,165

—

28,516

1,527

153,208

 
 
 
 
 
 
 
Interest and other income
 
1,292

—

—

—

1,292

Interest and other expense
 
(14,126
)
—

—

—

(14,126
)
 
 
(12,834
)
—

—

—

(12,834
)
Income before income taxes
 
110,331

—

28,516

1,527

140,374

(Provision for) benefit from income taxes
 
(27,253
)


(9,243
)
859

(35,637
)
Net income
 
83,078

—

19,273

2,386

104,737

Less: Net income attributable to noncontrolling interests, net of income tax
 
(4,307
)
—

(929
)
—

(5,236
)
Net income attributable to Global Payments
 
$
78,771

$
—

$
18,344

$
2,386

$
99,501

Shares outstanding4
 
130,353

 
 
 
130,353

Diluted earnings per share4
 
$
0.60

$
—

$
0.14

$
0.02

$
0.76

 
 
 
 
 
 
 
 
 
Three Months Ended November 30, 2014
 
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenue and Cash Earnings
Revenues
 
$
697,291

$
(203,626
)
$
—

$
—

$
493,665

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
   Cost of service
 
257,796

(20,409
)
(18,263
)
—

219,124

   Selling, general and administrative
 
315,511

(183,217
)
(5,079
)
—

127,215

 
 
573,307

(203,626
)
(23,342
)
—

346,339

 
 
 
 
 
 
 
Operating income
 
123,984

—

23,342

—

147,326

 
 
 
 
 
 
 
Interest and other income
 
1,282

—

—

—

1,282

Interest and other expense
 
(10,350
)
—

—

—

(10,350
)
 
 
(9,068
)
—

—

—

(9,068
)
Income before income taxes
 
114,916

 
23,342

—

138,258

Provision for income taxes
 
(29,660
)
—

(7,688
)
—

(37,348
)
Net income
 
85,256

—

15,654

—

100,910

Less: Net income attributable to noncontrolling interests, net of income tax
 
(10,475
)
—

(1,173
)
—

(11,648
)
Net income attributable to Global Payments
 
$
74,781

$
—

$
14,481

$
—

$
89,262

Shares outstanding4
 
135,474

 
 
 
135,474

Diluted earnings per share4
 
$
0.55

$
—

$
0.11

$
—

$
0.66


1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company.

2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense and the related income tax benefits of each.
3 Represents charges related to employee termination benefits and the related income tax effects for the three months ended November 30, 2015, as well as, certain other adjustments to our income tax provision.

4 Shares outstanding and diluted earnings per share for prior periods reflect a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.

9


SCHEDULE 8
UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS TO GAAP MEASURES
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands, except per share data)
 
 
Six Months Ended November 30, 2015
 
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenue and Cash Earnings
Revenues
 
$
1,471,146

$
(415,891
)
$
—

$
—

$
1,055,255

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
   Cost of service
 
543,231

(40,019
)
(42,909
)
1,899

462,202

   Selling, general and administrative
 
666,978

(375,872
)
(13,472
)
(1,357
)
276,277

 
 
1,210,209

(415,891
)
(56,381
)
542

738,479

Operating income
 
260,937

—

56,381

(542
)
316,776

 
 
 
 
 
 
 
Interest and other income
 
2,434

—

—

—

2,434

Interest and other expense
 
(27,369
)
—

—

—

(27,369
)
 
 
(24,935
)
—

—

—

(24,935
)
 
 
 
 
 
 
 
Income before income taxes
 
236,002

—

56,381

(542
)
291,841

(Provision for) benefit from income taxes
 
(59,876
)
 
(18,211
)
1,291

(76,796
)
Net income
 
176,126

—

38,170

749

215,045

Less: Net income attributable to noncontrolling interests, net of income tax
 
(10,708
)
—

(1,807
)
—

(12,515
)
Net income attributable to Global Payments
 
$
165,418

$
—

$
36,363

$
749

$
202,530

 
 
 
 
 
 
 
Shares outstanding4
 
130,752

 
 
 
130,752

Diluted earnings per share4
 
$
1.27

$
—

$
0.27

$
0.01

$
1.55

 
 
 
 
 
 
 
 
 
Six Months Ended November 30, 2014
 
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenue and Cash Earnings
Revenues
 
$
1,402,186

$
(413,309
)
$
—

$
—

$
988,877

 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
   Cost of service
 
517,635

(41,361
)
(36,117
)
—

440,157

   Selling, general and administrative
 
636,169

(371,948
)
(9,145
)
2,941

258,017

 
 
1,153,804

(413,309
)
(45,262
)
2,941

698,174

Operating income
 
248,382

—

45,262

(2,941
)
290,703

 
 
 
 
 
 
 
Interest and other income
 
2,474

—

—

—

2,474

Interest and other expense
 
(21,360
)
—

—

—

(21,360
)
 
 
(18,886
)
—

—

—

(18,886
)
 
 
 
 
 
 
 
Income before income taxes
 
229,496

—

45,262

(2,941
)
271,817

(Provision for) benefit from income taxes
 
(59,806
)
—

(11,732
)
588

(70,950
)
Net income
 
169,690

—

33,530

(2,353
)
200,867

Less: Net income attributable to noncontrolling interests, net of income tax
 
(19,543
)
—

(2,408
)
—

(21,951
)
Net income attributable to Global Payments
 
$
150,147

$
—

$
31,122

$
(2,353
)
$
178,916

 
 
 
 
 
 
 
Shares outstanding4
 
136,358

 
 
 
136,358

Diluted earnings per share4
 
$
1.10

$
—

$
0.23

$
(0.02
)
$
1.31


1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company.

2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense and the related income tax benefits of each.

3 For the three months ended November 30, 2015, represents employee termination benefits and the related income tax effects, as well as certain other adjustments to our income tax provision. For the six months ended November 30, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia and the related income tax effect.

4 Shares outstanding and diluted earnings per share for prior periods reflect a two-for-one stock split in the form of a stock dividend paid on November 2, 2015.

See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.

10


SCHEDULE 9
UNAUDITED RECONCILIATION OF ADJUSTED NET REVENUE AND CASH EARNINGS SEGMENT INFORMATION TO GAAP MEASURES
GLOBAL PAYMENTS INC. AND SUBSIDIARIES
(In thousands)
 
Three Months Ended November 30,
 
2015
 
2014
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenues and Cash Earnings
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenues and Cash Earnings
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
North America
$
511,335

$
(185,446
)
$
—

$
—

$
325,889

 
$
488,776

$
(183,217
)
$
—

$
—

$
305,559

Europe
158,016

(18,602
)
—

—

139,414

 
159,974

(20,409
)
—

—

139,565

Asia-Pacific
52,999

—

—

—

52,999

 
48,541

—

—

—

48,541

Total revenues
$
722,350

$
(204,048
)
$
—

$
—

$
518,302

 
$
697,291

$
(203,626
)
$
—

$
—

$
493,665

 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
North America
$
79,121

$
—

$
13,688

$
225

$
93,034

 
$
74,246

$
—

$
11,173

$
—

$
85,419

Europe
62,012

—

6,006

170

68,188

 
64,563

—

5,832

—

70,395

Asia-Pacific
11,857

—

1,816

842

14,515

 
11,880

—

1,258

—

13,138

Corporate
(29,825
)
—

7,006

290

(22,529
)
 
(26,705
)
—

5,079

—

(21,626
)
Operating income
$
123,165

$
—

$
28,516

$
1,527

$
153,208

 
$
123,984

$
—

$
23,342

$
—

$
147,326


 
Six Months Ended November 30,
 
2015
 
2014
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenues and Cash Earnings
 
GAAP
Net Revenue Adjustment1
Cash Earnings Adjustments2
Other3
Adjusted Net Revenues and Cash Earnings
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
North America
$
1,042,192

$
(375,872
)
$
—

$
—

$
666,320

 
$
992,782

$
(371,948
)
$
—

$
—

$
620,834

Europe
326,373

(40,018
)
—

—

286,355

 
322,762

(41,361
)
—

—

281,401

Asia-Pacific
102,581

—

—

—

102,581

 
86,642

—

—

—

86,642

Total revenues
$
1,471,146

$
(415,890
)
$
—

$
—

$
1,055,256

 
$
1,402,186

$
(413,309
)
$
—

$
—

$
988,877

 
 
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
 
 
North America
$
162,635

$
—

$
27,141

$
225

$
190,001

 
$
152,183

$
—

$
22,551

$
—

$
174,734

Europe
134,745

—

12,374

(1,900
)
145,219

 
131,608

—

12,038

(2,941
)
140,705

Asia-Pacific
24,089

—

3,394

842

28,325

 
18,437

—

1,528

—

19,965

Corporate
(60,532
)
—

13,472

290

(46,770
)
 
(53,846
)
—

9,145

—

(44,701
)
Operating income
$
260,937

$
—

$
56,381

$
(543
)
$
316,775

 
$
248,382

$
—

$
45,262

$
(2,941
)
$
290,703


1 Represents adjustments to revenues for gross-up related payments (included in operating expenses) associated with certain wholesale lines of business to reflect economic benefits to the Company.

2 Represents adjustments to exclude acquisition-related amortization expense and share-based compensation expense.

3 For the three months ended November 30, 2015, represents employee termination benefits. For the six months ended November 30, 2014, represents a gain on the sale of a component of our Russia business that leased ATMs to our sponsor bank in Russia.

See "Non-GAAP Financial Measures" discussion on page 12 of this Exhibit.


11



NON-GAAP FINANICAL MEASURES

We supplement revenues, income, earnings per share information and cash flows determined in accordance with U.S. GAAP by providing income and related earnings per share on a “cash earnings” basis, Adjusted Net Revenue and Free Cash Flow in this document to assist with evaluating our performance. In addition to GAAP measures, management uses these non-GAAP measures to focus on the factors the company believes are pertinent to the daily management of our operations. Management believes Adjusted Net Revenue more closely reflects the economic benefits to the Company's core business and allows for better comparisons with industry peers. We believe Free Cash Flow is a useful measure of our ability to service debt, return capital to shareholders, invest in the business, and demonstrate value creation of our underlying operations. Management uses these non-GAAP metrics, together with other metrics, to set goals for and measure the performance of its business and to determine incentive compensation. Our Adjusted Net Revenue, income and earnings per share reported on a cash earnings basis and Free Cash Flow should be considered in addition to, and not as substitutes for, revenues, income, earnings per share and cash flows determined in accordance with GAAP. Our measures of Adjusted Net Revenue, income and earnings per share on a cash earnings basis and Free Cash Flow reflect management's judgment of particular items, and may not be comparable to similarly titled measures reported by other companies.

Adjusted Net Revenue excludes gross-up related payments associated with certain wholesale lines of business to reflect economic benefits to the Company. On a GAAP basis, these payments are presented gross in both revenues and operating expenses. We define Free Cash Flow as cash provided by operating activities, excluding the impact of changes in settlement assets and obligations, less capital expenditures and distributions to noncontrolling interests each of which is derived from our consolidated statement of cash flows.

Income and the related earnings per share on a cash earnings basis exclude acquisition-related amortization expense, share-based compensation and certain other items specific to each reporting period as more fully described in the accompanying reconciliations in Schedule 7, Schedule 8 and Schedule 9. The tax rate used in determining the net income impact of cash earnings adjustments is either the jurisdictional statutory rate in effect at the time of the adjustment or the jurisdictional expected annual effective tax rate for the period, depending on the nature and timing of the adjustment.

12