環匯 (GPN) 2006 Q4 法說會逐字稿

Good morning, and thank you for standing by, and welcome to Global Payments' fourth quarter and year end fiscal 2006 earnings conference call.

At this time, all participants are in a listen-only mode. Later, we will open up the lines for questions and answers. [OPERATOR INSTRUCTIONS] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Elliott. Please go ahead.

Good morning, and welcome Global Payments' fiscal 2006 fourth quarter and year end conference call. Joining me on the call today are Paul Garcia, Chairman, President, and CEO; Jim Kelly, Senior EVP and COO; and Joe Hyde, EVP and CFO.

Before we begin, I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements that involve a number of risks and uncertainties. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

While these statements reflect our best current judgment, they are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases, including our most recent 10-K. We undertake no obligation to revise any of these statements to reflect future circumstances or the occurrence of unanticipated events. In addition, some of the comments made on this call may refer normalized results which are not in accordance with GAAP.

Management believes that normalized results more clearly reflect comparative operating performance. For full reconciliation of normalized GAAP results in accordance with regulation G, please see our press release filed as an exhibit to our Form 8-K dated July 28, 2006, which may be located under the Investor Relations area on our web site at www.globalpaymentsinc.com.

Finally, our prior period earnings per share results and share amounts give retroactive effect to our two for one stock split which was completed through a stock dividend that was distributed on October 28, 2005.

Now, I would like to introduce Paul Garcia. Paul?

Thanks, Jane. Good morning, everyone. The agenda for our call today is as follows. I will summarize our financial results and review recent trends and events, then Joe Hyde will further discuss our financial results. Next, I will discuss our fiscal 2007 outlook and lastly, Jim Kelly, Joe and I will be available for questions and answers. Now, for our financial results.

We're very pleased with our fiscal 2006 accomplishments. For the fourth quarter, our revenue grew 15% to $238.8 million. Our normalized diluted earnings per share grew 28% to $0.41. And our operating margin improved by 110 basis points to 21.9%. For the year, our revenue grew 16% to $908 million and our normalized diluted earnings per share grew 29% to $1.54.

Our operating margin improved 150 basis points to 22.4%. These results reflect continued strong performance in our North American merchant channel, primarily due to ISO growth in the U.S., and the benefit of pricing initiatives in Canada, and a Canadian currency exchange rate that was favorable. In addition, our DolEx consumer money transfer business experienced very strong growth driven primarily by our branch expansion strategy and continuing growth trends.

Now, on to recent events. We're pleased to have completed our joint venture with HSBC within our previously stated time line. And we are very excited about the long-term opportunities that our joint venture will provide. To summarize the deal, we paid HSBC $67.2 million in cash to acquire a 56% ownership interest in the joint venture.

HSBC contributed its existing merchant acquiring channel in 10 Asian Pacific countries and territories and retained a 44% interest. The joint venture will provide credit and debit card payment processing to more than 45,000 merchant outlets in diverse vertical markets. We also formed a 10-year marketing alliance whereby HSBC will refer new merchant customers. We announced the deal in September 2005 and closed it on July 24, 2006.

Now that the lengthy regulatory approval process is behind us, management's full attention is dedicated to several initiatives. Firstly, we are in the planning stage of developing the operational and technical requirements needed to convert the joint venture's existing technology systems on to a more efficient leading edge platform. This conversion will likely occur in a number of sequences and encompasses both the back end and front end platforms, with an initial focus on the back end platform.

Due to the multicountry and multiplatform environment, this conversion effort is expected to require up to four years to complete. We intend to leverage our significant experience with conversions and our successful track record of integrating acquisitions.

Secondly, we are pursuing several initiatives to drive sales growth. Carl Williams is leading our executive team in Hong Kong and intends to focus on adding small and medium-sized merchants, improving sales force training and incentive programs and using a more proactive sales approach. We expect this acquisition will contribute between $47 million to $51 million in revenue from July 24, 2006 through the end of fiscal '07, which would reflect $55 million to $60 million on an annual basis for '07.

This revenue expectation is equivalent to a single-digit growth over the same period, prior year period. As a reminder, nearly 70% of the joint venture's revenue is comprised of Hong Kong and Taiwan, which we believe are attractive markets but are also more mature than the emerging markets of China and India. In particular, credit card issuers in Taiwan have recently experienced significant loan losses on credit card receivables which has caused these banks to issue fewer cards than in the past, and thereby impacting the merchant acquiring market.

Further, HSBC has been eliminating higher risk travel and entertainment customers from the portfolio which is consistent with our practice in North America. Also, HSBC was not previously operating its Asian Pacific merchant acquiring assets as a separate unit. As such, they did not dedicate the significant executive resources building momentum in these areas of the business that we will.

We believe, however, that a renewed focus on the joint venture selling effort combined with the continued development of the Asian Pacific payment market will provide opportunities to improve the organic revenue growth of the joint venture to double digit levels over the long-term. We believe this joint venture will truly become a winning partnership. HSBC, as you know is, a world-class financial institution with extensive local market knowledge of the rapidly-growing Asian Pacific region.

We bring a successful track record of building strong merchant portfolios. In virtually all ways this, joint venture fits with our stated international growth strategy and we look forward to many, many successful years ahead in this region.

Moving on to recent events. In the U.S., we achieved strong growth in our domestic direct channel compared to prior year quarter. For the quarter, our credit and debit card transactions and our revenue for this channel grew in the low 20% change driven primarily by our ISOs. For the full year fiscal '06, our domestic direct transactions grew in the high teens with revenue growth of 17%. For fiscal '07, we're expecting continued mid to high-teen revenue growth for this channel.

In Canada, our credit and debit card transactions grew in the low single digits for the quarter while our revenue grew in the low teens. For the full year, '06, our Canadian transactions grew in the low single digits while revenue growth was 19%. Our Canadian revenue growth outpaced our transaction growth during fiscal '06 largely due to a significantly higher credit card spread as a result of the continued benefit from pricing initiatives and from no longer processing under the negatively-priced Air Canada contract.

In addition, our Canadian revenue benefited from the continued strength of the year-over-year Canadian currency exchange rate. For fiscal '07, we're expecting annual Canadian revenue growth in the high single to low double-digit range. This expected revenue growth is higher than our current transaction growth rates, largely due to an expected fiscal '07 benefit from additional pricing initiatives and from the year-over-year Canadian currency exchange rate, although we anticipate the benefit of these two items will be less in fiscal '07 than during fiscal '06.

Our central and eastern European merchant revenue for the full year fiscal '06 increased 16% largely due to growth in credit and debit card transactions in the low 20% range. Our revenue growth for this channel, however, slowed during the second half of fiscal '06 primarily due to the impact of customer attrition, price reductions granted on contract renewals, and the timing of non-recurring revenue in the prior year, and an unfavorable year-over-year check currency exchange rate.

Our revenue for this channel declined in the low single digits for the quarter. We've yet to experience a meaningful financial impact on the deconversion process of the previously discussed large customer although we're expecting this to occur during fiscal '07, in addition to a continued impact from contract price reductions. As such, our annual fiscal '07 revenue for this channel is expected to decline in the low to mid-single digits.

As previously discussed, fiscal '07 may be a challenging year for revenue growth in this channel. But we remain very pleased with our growth prospects in central and eastern Europe and continue to believe in the long-term attractiveness of this dynamic market. Our domestic and direct revenue declined in the high teens during the quarter. In connection with our new segment reporting format, we've reclassified our legacy funds transfer revenue into our domestic indirect channel for fiscal years '04 and beyond. We'll also refer to this channel going forward as domestic indirect and other to reflect this change.

This change will also impact our reported merchant services and money transfer revenue for fiscal years '04 and beyond as our money transfer segment will now only include our DolEx and Europhil consumer money transfer channels. For the full year fiscal '06, revenue for our domestic indirect and other channel declined 16%. For fiscal '07, we're expecting a continued mid to high-teen revenue decline for this channel.

During the quarter, our U.S. DolEx transactions grew in the high 20% range with revenue growth in the low 20% range. This expansion was driven primarily by strong, same store sales growth and an increasing U.S. branch footprint. As such, we're pleased to announce that we opened more than 40 net new branches during the quarter and ended the fiscal year with a total of 835 U.S. branches.

For the full fiscal year '06, our U.S. DolEx transactions grew in the high 20% range with revenue growth of 19%. In Europe, we completed the fiscal year with 40 branch locations and are beginning to experience promising results, with revenue growth in the mid teens for the quarter.

For fiscal '07, we'll continue to focus on our expanding our domestic and European branch networks and to operate as a low cost provider of high quality money transfer services targeted to Latino customers. For the long-term, we'll also focus on new product opportunities and we reiterate our strategic objective of providing a host of financial services to our customers. However, we believe our short-term opportunity for providing such services remains rather modest, and as such, we adopt expect to realize the significant financial impact from new products during fiscal '07.

Nevertheless, we're expecting a solid year in our consumer money transfer segment with total revenue growth in the mid teen to low 20% range. In summary, we're delighted with our overall strong financial results and accomplishments during this past quarter and year. I'll now ask Joe to further discuss our financial results. Joe?

Thank you, Paul. In our press release, and as posted on our web site, we included GAAP income statements and schedules that reconcile GAAP to normalized results for both the quarter and the fiscal year. Although we did not incur any restructuring charges this quarter, our current and prior fiscal year-to-date GAAP results include $1.9 million and $3.7 million, respectively, in such charges, primarily for employee termination benefits and facility related closure costs. These restructuring charges have been excluded from the following discussion and from our financial guidance.

In addition, we included a segment information schedule in the press release that provides detail on our revenue and operating income for the past three fiscal years as well as our fiscal 2006 interim periods. We intend to provide this information on a quarterly basis during fiscal 2007. Lastly, on June 1, 2006, we adopted the statement of Financial Accounting Standard 123-R on a prospective basis. We expect this adoption, which requires the recognition of stock option expenses, will lower our fiscal 2007 diluted earnings per share by approximately $0.10.

As Paul mentioned, our operating margin improved by 110 basis points compared to last year's quarter. Aside from the revenue increases that Paul discussed, and the related economies of scale benefits on earnings, other factors contributing to this improved leverage during the quarter include lower telecommunication costs and other vendor rate reductions, savings from the exiting of our shared service agreement with NDC Health, a favorable year-over-year Canadian foreign currency impact, lower depreciation expense due to the timing of fully depreciated computer hardware and Canadian merchant terminals, improved leverage in our consumer money transfer segment, and a decline in year over year operating costs from our U.S. customer service centers including our recently-closed Dallas facility.

These favorable factors were partially offset by investments in our direct sales channel including significant growth in our ISO commissions expense, in addition to investments in new U.S. money transfer branches, and in our smaller European branch network.

For the full fiscal year 2006, our normalized operating margin improved by 150 basis points to 22.4%. This improvement was largely due to a similar increase in our merchant services segment operating margin to 28% in fiscal 2006 as a result of the factors that Paul and I have previously described.

For fiscal year 2007, we anticipate that our merchant services operating margin may decline to the 27.0% to 27.4% range. There are several factors driving this potential decline. First, our ISO channel continues to become a larger part of our total Company, which serves to lower our overall operating margin despite contributing to our earnings growth. Further, while our average ISO pricing remained relatively flat in fiscal 2006 compared to the prior year, we're expecting a decline in this pricing during fiscal 2007. This decline is expected largely as a result of a price reduction granted on a multiyear contract renewal for one of our largest ISOs with whom we have a longstanding relationship.

We also granted a significant price reduction to one of our largest non-ISO direct merchants in connection with a multiyear contract renewal. In addition, we continue to invest in sales-related expenses in our non-ISO domestic direct area in an effort to accelerate the growth in this channel. Although the majority of our non-sales related merchant services expenses are expected to increase only modestly during fiscal 2007, we're not expecting to achieve a significant expense savings during the year from vendor rate reductions, technology consolidations or facility closures, at least not to the extent we experienced during fiscal 2006.

We continue to make strong progress in the development of our next generation processing platform in the U.S., but we do not expect to achieve a financial benefit from this project during fiscal 2007.

Lastly, we are expecting our HSBC joint venture to have a dilutive effect on our merchant services margin during fiscal 2007 although we expect this acquisition will be non-dilutive to earnings per share. We expect that our starting point for operating margin on the joint venture will be in the mid to high-teen range. We do not intend to provide fiscal 2007 guidance or provide quarterly updates on this metric due to the current relative size of the joint venture compared to the rest of our Company. We believe, however, that there are opportunities to increase this operating margin over the long-term due to expected revenue growth and efficiency improvements.

Despite the improvement I mentioned in the fourth quarter, our money transfer segment operating margin declined during the year from 17% in fiscal 2005 to 16% in fiscal 2006, primarily, as a result of our Europhil acquisition. As previously discussed, due to the fixed cost nature of our money transfer model and the relatively small size of our European presence, the Europhil branch network negatively impacted the overall money transfer operating margin by approximately 300 basis points during fiscal 2006. However, as a result of expected steady performance from our domestic branches, in addition to an expected strong year from our European branches, we are expecting fiscal 2007 total money transfer operating margin to increase to the high-teen range.

In our new segment format, we included a category called corporate which we define as operating expenses that we do not allocate to our other segments. These expenses 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. For fiscal 2007, reporting purposes, corporate will also include stock option expenses. Our corporate costs have steadily declined as a percentage of total Company revenue since fiscal 2004. For fiscal 2007, we are expecting corporate expenses of approximately $56 million to $60 million which includes an estimated $13 million in stock option expenses.

As a result of our expectations by segment, we are anticipating fiscal 2007 total Company operating margin of 21.7% to 22.2% excluding stock option expenses compared to our fiscal 2006 normalized operating margins of 22.4%. Including stock option expenses, we're expecting fiscal 2007 total Company operating margin of 20.5% to 21.0%. Our total other income of $800,000 for the quarter reflects an improvement over the $1.2 million in expense for the prior year quarter. This improvement is largely due to higher interest income as a result of higher cash balances and investment rates.

During fiscal 2007, we expect that our interest and other income will largely offset our interest and other expense for an approximate net zero balance. Included in this amount is approximately $1 million to $2 million in expected interest expense related to merchant pre-funding in the Asia Pacific region which is consistent with the local market practice. This amount is also impacted by the foreign interest income associated with the $67 million cash purchase price for the HSBC joint venture. We're also expecting $12.5 million to $13.5 million in minority interests net of tax for fiscal 2007.

These amounts would reflect an increase over the prior year due primarily to the impact of the HSBC acquisition and the related 44% minority interest expense net of tax and to expected growth from our joint venture with Comerica Bank. Our tax rate for the 2006 fiscal year was 33.5% which was less than our expected tax rate of 34.1% due to tax planning initiatives and strong international growth. This change favorably impacted our diluted earnings per share for the quarter by $0.01. We're expecting a tax rate of 33.1% during fiscal 2007. We define our tax rate as a provision for income taxes as a percentage of our pre-tax income before minority interests.

Lastly, on the income statement, we are expecting a range of $83 million to $84 million in diluted shares outstanding on average for fiscal 2007. On the cash flow statement, capital spending for the quarter was $7.2 million, primarily for software and infrastructure, including our new Atlanta-based next generation processing platform in the U.S. We anticipate $35 million to $45 million in total capital spending for the 2007 fiscal year. Of this amount, approximately $10 million is due to expected Canadian merchant terminal purchases relating to ENV chip card compliance which we anticipate will be a multiyear effort. The remaining increase over fiscal 2006 is primarily due to our U.S. next generation processing platform and expenditures relating to the HSBC joint venture.

Lastly, on the cash flow statement, our business acquisitions line increased $1.5 million in the quarter, primarily due to the final cash settlement relating to the purchase of the remaining 2% of our MUZO acquisition shares outstanding that we legally completed during the second quarter of fiscal 2006.

Moving to the balance sheet, our reported cash increased only modestly compared to our third quarter balance which is primarily due to strong cash flow generated during the quarter, offset by a significant reduction in cash reserves relating to the previously-described situation. To summarize, in light of suspicious processing activities between October 2005 and January 31, 2006, we withheld $47.6 million in peak cash reserves related to a certain merchant during this period. Since that time, we have applied charge back amounts and certain fees related to this merchant against these cash reserves. As of may 31, 2006, we held $12 million in such cash reserves related to this merchant compared to $35.1 million as of February 28, 2006 for a net reduction during the quarter of $23.1 million.

As of July 18, 2006, we held $11.7 million in such cash reserves and have not experienced any operating losses relating to this merchant. We do not expect to incur a loss relating to this merchant in the future as a result of several factors, including the current level of our cash reserves, the expiration of the applicable Visa MasterCard chargeback time frames, and the current trending of received chargebacks related to this merchant which have recently declined to an immaterial level.

Paul will now discuss our fiscal 2007 guidance and our ongoing strategy. Paul?

Thanks, Joe. For fiscal '07, we're providing annual revenue guidance of $1.048 billion to $1.084 billion, or 15% to 19% growth over $908 million in fiscal '06. In addition, we're providing full year fiscal 2007 diluted earnings per share guidance of $1.69 to $1.77 which excludes the impact of stock option expense, which would reflect growth of between 10% to 15% over our fiscal '06 normalized diluted earnings per share of $1.54.

Including fiscal '07 stock option expense our 2007 diluted earnings per share guidance is $1.59 to $1.67. This guidance reflects the impact of our joint venture with HSBC, but does not include any other significant acquisitions or potential restructuring charges.

We're very proud of our accomplishments and financial results during the past year which reflects the ongoing dedication of our Board, our management team, and all of our associates here at Global Payments. We intend to continue pursuing domestic and international opportunities to position global payments as a solid, long-term revenue and earnings grower. We will now be happy to go to questions.

Thank you, ladies and gentlemen. We will now conduct a question-and-answer session. [OPERATOR INSTRUCTIONS] Our first question today comes from Tony Wible from Smith Barney Citigroup. Please go ahead.

Good morning. Congratulations on a stellar quarter, guys.

Thanks, Tony.

I was hoping to start off with HSBC, since it is a different market and not one where there is a lot of processors in place today, what would you say is the seasonal pattern we would tend to see in HSBC? Do we tend to see the fourth calendar quarter pick up or is it more even keeled?

It shouldn't be anything that significant similar to our U.S. business. The only real seasonality we have is with the money transfer revenue.

I guess in the U.S. though, you do tend to see more activity in the November/December time frame.

They don't celebrate Christmas to anywhere near the extent we do, Tony.

That's where my question is going.

Chinese New Year's is a really big deal, too. I think to your point, we'll see a little bit of that, but I don't want to guess. That's a great question. We'll do a little work on the seasonality trends, but I think that's fair to say. They don't celebrate Christmas to the degree we do in North America. And, obviously, the Chinese New Year is a big deal here in which we don't celebrate. Otherwise, it is probably pretty straight straightforward. It is same kind of mix of merchants, restaurants and retailers and all of the above.

Could you spend some time talking about the domestic money transfer business? I guess Western Union's comments in particular. Did you guys see any impact this quarter relating to that and what are your current thoughts on pricing trends in that particular business?

You know, Tony, we haven't. In fact, I'm going to throw the ball to Jim Kelly in a second who will share with you, actually, some information on kind of year-to-date for June and July, which we normally don't do. But we think it is important based on some of the statements that have been made by other companies. But to answer your question, we still see solid growth. We feel comfortable with the guidance that we provided. We, obviously, took that into consideration when we gave it to you. I'm going to ask Jim to give you a little more color.

As both Joe and Paul mentioned in their comments, both the quarter and year were very strong for the channel. I think in particular, not specific to your question yet, but Europhil, we had talked about Europhil's results six, nine months ago, as it was in a turning phase and they came on with a very strong end of the year and were optimistic, as Joe mentioned in his comments, for a strong year in '07. As it relates to June and July or year-to-date this fiscal year, we have not seen a slowdown in the growth rate on the transaction side. You know, it is difficult to predict the impact of the pending legislation by state or federal, but at this juncture, we have not seen a big impact or any impact to our business.

And with regard to pricing?

As well on pricing, I think the pricing has helped us in the last six months of the year. I think the pricing has held much more stable than we have seen in the past. And it has helped both the margin line and the revenue growth this year.

Great. Last question is more of a housekeeping question. I missed it in the commentary, but you indicated the minority interest, can you recap what that minority interest guidance was and is that pre or post-tax?

It is post-tax and it was $12.5 million to $13.5 million.

Great. Thanks a lot. Congratulations on the quarter, guys.

Thanks, Tony.

Thank you. Mark Marostica from Piper Jaffray. Your line is open.

Thank you. Congratulations, again, on the quarter.

Thanks, Mark.

Regarding the money transfer business, noticing the margin disclosures, we've had some variability throughout the year and particularly in the fourth quarter, the margins seem to ramp over Q3. Could you talk to the reasoning behind that and perhaps what impact removing the legacy funds transfer business from that line item may have had on the margin? Thanks.

The margins you're seeing in the segment disclosure specific to just business. Third quarter runs from December through February. That has historically and probably will remain historically a low point for the business because the business is largely serviced by service jobs and construction jobs and that is historically a low point.

The Mother's Day time period which is the fourth quarter of our year, has been a very strong period since we've bought the business three years ago. And we expect that to continue. It is a fixed cost business. So, when the transactions increase, the costs don't move accordingly, and conversely, if it is a low point on the transaction points, as it relates to the third quarter, then we do not have an ability to off-load those costs during that time period. And you're going to see that trend continue for the foreseeable future. It looks very similar on the Europhil side, as well.

Mark, let me also clarify that the legacy funds transfer revenue and related earnings are all now included effectively in merchant services for all of the period. Some of you may be looking at the Q4 money transfer revenue in '06 compared to a Q4 '05 that includes the legacy funds transfer which would cause it to look like it grew in a low to mid-teen level. You would have to update your Q4 '05 number appropriately. We've given you a full year '05 number. You can take the difference on a ratable basis by quarter, but the money transfer growth was around 20% in the quarter.

Then just to follow up on that, was there any impact at all in the fourth quarter by reclassifying the legacy money transfer business, again, and the impact on the operating margin for money transfer?

I'm not sure I understand exactly what you mean. The numbers in the quarter do not include the legacy funds transfer and those numbers are very, very small and wouldn't have much of an impact on the margin, one way or the other.

Okay. That answers my question. Then, just an update on the timing of the implementation of the next generation processing platform in the U.S. would be helpful.

As Joe mentioned in his comments, we don't expect an impact in this coming year. This is a big project for us as it is moving off of two U.S. platforms on to a single platform for the U.S. and then we'll likely move it for the Canadian business as well as the Asia Pacific business that Jim mentioned. I don't have a time frame to give you other than we don't expect the impact in '07. The work on the project is going quite well but we were doing it in a very measured way.

One final question and I'll turn it over. I recall you mentioned that in -- correct me if I'm wrong -- that you expect some enhancements to the Canadian pricing in '07, but not to the extent of '06. Could you triangulate that for us in terms of the relative difference in pricing increases in both years? Thanks.

You know, I think those have been reflected in the guidance for the year. I don't think we would break it down any further than that.

I think you have an annualization impact, too, of some of the stuff we got last year and some further things we're doing. Other than that, I will back up for a second and comment something earlier, Mark, that you asked and that Tony asked, as well. This is not scientific at this point. There may be another phenomena. I mean, clearly, some of the pending immigration, the bill that passed the House, the bill that passed the Senate, it is not yet law but states are taking actions and sending National Guard, et cetera.

It would be foolish to think it isn't having some impact. Another phenomena is happening. It is not showing up in the numbers which puzzled us. It is very possible, we think, that there may be less people coming in but there might be less people going out. In other words, a lot of immigrants would come to the country and then kind of freely pass back and forth and they're less inclined to do so now.

So, the actual population may not be impacted as dramatically as one would think. So, it is just food for thought. Operator?

Thank you. Adam Frisch from UBS. Your line is open.

Thanks, guys, good morning.

Hi, Adam.

A little surprised with your margin guidance given the strength we've seen in the last several years. Knowing that you've always been successful at driving these higher, should we look at '07 as a temporary aberration as you digest things like HSBC and some of the investments you're making in your business and use it as a new level, or should that be the new level to expect in the future and it will fluctuate modestly from there going forward?

Well, in fiscal '07, we do have the effect of the HSBC acquisition which does have -- in some of the numbers I've given you, you should be able to gauge what the impact is. It is probably up to a 20 to 40-basis-point impact and in terms of year-over-year growth, we, obviously, won't have that in future fiscal years. And we expect that margin to increase over time.

This fiscal year is unique in that, as I mentioned, we don't have a significant amount of expense reductions that are hitting in the course of the year. Telecom, facility consolidations. Not as if we don't think that we won't have those in the future, as Jim mentioned, we are working on our next generation processing platform and we expect to achieve synergies from that over time, as well as the HSBC acquisition.

It just happened that in '07, we don't expect to have an impact. Also the ISO channel is getting a bigger part of the Company. We did give a price concession to a major ISO and a number of factors came together to cause a slight margin deterioration expected in '07, but our expectation for the future is that we're going to continue to seek margin improvements to wherever we can but we don't give guidance, obviously, beyond '08 -- beyond '07. It would be premature to do that. That's our intention.

Okay. Just hitting on the ISO question for a second. At our conference in June, you guys really did well in terms of feedback from the ISOs that were there and you're obviously having a lot of success in that channel. Did the pricing discount that you gave to this one ISO, is that kind of like a one-off thing or do you expect pricing in ISOs pretty much across the board to get more competitive especially as everybody over at First Data is starting to make some more waves in that area?

Who?

Some guy named Ed, I don't know.

Yes, the ISO channel, we've been at this now almost six years. The ISO channel has always been very, and will always be a competitive arena. The comments that Joe made, this was not a competitive takeoff. This was a long-standing relationship. The ISO is substantially bigger than they were when the contract was initially signed and it is not uncommon to see some concessions that are made. I don't think it had anything to do with a market force per se that was new. I think that market force has been there for a long period of time.

Okay. Okay. And then last question for you. Canadian growth grows a little bit in '07 for the reasons you that cited. Thanks for the detail on that.

What other areas do you think pick up the slack there because your top line guidance was pretty impressive? You guys have always been very good at identifying the next major growth catalyst in going out and acquiring either growing it organically or acquiring something to give you the next leg. Does something like the Canadian growth, can you offset it organically, or do you kind of feel like you're ready for another acquisition here?

Adam, we're always looking for good opportunities for acquisitions. We're not -- we're not desperate to make them which a nice position to be in because we have done what we promised we would attempt to do and that's to get an organically growing double-digit Company and that's what we have produced. We're feeling pretty good about that.

The real growth drivers are the ones you that know of. The domestic direct with our ISO growth is terrific. DolEx is also accretive to our overall growth. They're doing just wonderfully. Canada will be a little bit slowed down but still, there's still some chicken on that bone. We think there's some opportunities still with Canada and you saw by that guidance that we clearly are going to grow faster than transactions.

Okay.

All righty.

Thanks, guys.

Thank you.

Greg Smith from Merrill Lynch. Your line is open.

Hi, guys.

Hi, Greg.

Paul, you talked quite a bit about HSBC and some of the issues with the joint venture like specifically in Taiwan as far as maybe a slowdown in card issuance. We've heard a lot of these issues before but it sounded like some of them were new. I just wanted to get -- was this all known in advance or has there been some learning that's gone on within the past few months that have tempered things a little bit? Can you give some color around that?

Taiwan has been an evolving process. When we first started talking to these guys, Taiwan business and Taiwan credit card acceptance rates and issuing rates were the biggest in the world. Per capita, the Taiwanese had more credit cards than Americans even. That bloom is off the rose and they over extended and have some issues. That kind of was the developing -- not that it would have changed our opinion on the wonderful nature of this deal.

What we did change a little bit is although we haven't controlled this portfolio, as of Monday, we control it. Prior to that, we didn't. We were able to have some influence with many of these staff who are now employees of the joint venture and, obviously, of Global Payments because of that. Had some influence to get them to do a pretty good deep dive into the portfolio and get rid of some business that quite frankly was underpriced or was risky.

And because of that, we saw a bit of a hit, too, on that revenue growth. So, that is kind of -- you know, we kind of expected that. This story is about future growth and these wonderful markets. We have such a small amount of business from India. We can't even really do business yet in mainland.

We can get some international business and the Olympics will help drive that but it won't be until the latter part of calendar '07 and beginning of calendar '08 that the Chinese government will allow non-Chinese institutions to process domestic transactions so the opportunities in those markets are just enormous.

Okay. And then in your money transfer business with regards to future acquisitions, would you be willing to do something that could potentially double that business? Do you have that kind of appetite in money transfer?

Typically, what we see is transactions where maybe there are five branches to 40 or 50 branches. I haven't seen another opportunity where you would see a business that's got 800 branches that's a similar model. To date, we haven't been interested in acquiring a business that was in the agent model. Not to say that we wouldn't do it but at this stage, that's not been our strategy.

Okay. Then lastly, is it possible -- I don't think you gave it but is it possible to get an estimate for the DNA line item in FY '07?

We did not, Greg, give an estimate for that. I would probably expect it to either -- most likely will increase. I certainly would not expect it to have the same kind of decrease that we saw during fiscal '06 compared to '05.

How does HSBC impact that?

There will be some additional depreciation and then amortization relating to the intangible assets we've acquired. We also have some intangible assets relating to DolEx and Comerica that are running off this year, 10 years ago we entered into the Comerica acquisition and that was a 10-year asset. DolEx had some intangibles that were three years. So, net, the amortization will likely go up and the depreciation would also likely go up with the increased capital spending.

As we acquired the HSBC business, it was not -- there were not a lot of hard assets as part of the deal, primarily they were terminals and then intangibles.

Okay. Appreciate the color.

Wayne Johnson from Raymond James, please go ahead.

Hi, good morning.

Hi, Wayne.

My question is, I got one on Europhil and one on Atlanta processing facility. On Europhil, can you tell us a little bit about where you stand in New York, how many branches you've opened up there? Have you seen any volume?

You mean DolEx.

I mean DolEx. I apologize, yes.

We have indeed. Jim?

We don't have an account necessarily by state, but we are continuing to grow both through opening branches and acquisitions for both New York and New Jersey and that business is doing well.

Okay. But no actual branch opening update you can give me?

Not -- we're in 18 states, Wayne. We're not going to start reporting state by state, the number of branches. I think we gave some color on New York, New Jersey, when we first opened them but now that they're opened, we'll just talk to the entire business.

Right. Okay. And then in -- as far as destination locations in South America, south of Mexico, you know, how have volumes been there since your acquisition of Europhil?

Europhil continues to piggyback on top of the DolEx settlement network and their transactions are continuing to be heavy into Columbia and Ecuador. But there hasn't been any substantial change other than with the passage of time we're able to bring those two businesses closer together. DolEx and Europhil are running on the same system. We have a number of DolEx guys now who have moved to Europe, to Spain to work in the business. I think that has had a big impact on the growth of the business that we've seen recently. As such, we're aggressively opening branches throughout Spain.

Okay, great. Then one last question on DolEx-related business. As far as the loyalty card, the Amigo card, what kind of services are you offering on that now and I thought when you guys had originally made this acquisition there would be a big drive to add more services, you know, per store. I was just kind of wondering how that strategy was playing out?

I think the strategy is on track. We've added some -- two new services, check cashing and domestic wire transfers are new for this year. We don't expect it is going to have a big impact on these non-money transfer services overall, as Joe or Paul said in their comments.

On the store value card, we're still working through beta. We're currently with a small provider, third party provider who's providing the technology. We're looking to potentially bring some of that in house so when we actually launch it, we'll have more information for you, but we are -- we're quite pleased with the progress that we're making on that front and I think it will be complementary to the growth that we're seeing in the core business.

Okay. Terrific. And then on the Atlanta processing facility, if there is going to be -- if I heard correctly, $10 million in CapEx for fiscal '07. What is it that that CapEx will allow you to do that you're not doing now?

Wayne, let me just clarify, our fiscal '07 expectation for total capital is $35 million to $45 million. The $10 million number I referenced strictly relates to planned spending for EMD chip card capable terminals in the Canadian market.

The Canadian business, unlike the U.S. business we actually buy the terminals and we rent them to our customers. And until recently, these were all non-EMV terminals. We've now redone the systems in Canada to be EMV-compliant as Visa has asked to be by 2009 and the next phase of that is to now change over in -- over a multiyear period, change over the terminal base from non-EMV to EMV. In the U.S., I don't think we've given a specific number as it relates to our processing platform. If anything, actually, the cost that we're investing is slowing down, not speeding up.

How would you characterize the time line for continued data facility consolidation and ultimately in a year from now if we're on this call, how many data facilities do you think will be up and running in North America?

I don't think there will be a change when we're on the call next year. As Joe said in his comments, I don't think we'll see a measurable impact this year. Our desire is to move to as few as possible.

Terrific. Good quarter.

Thanks, Wayne.

Paul Bartolai from Credit Suisse First Boston, your line is open.

Thank you. Good morning. Looking at the domestic direct business, looks like there was another pretty nice pickup in the revenue growth in Q4. Can you give us some color there? Is that the non-ISO business starting to pick up or are you still seeing a further acceleration with the ISOs?

The ISO channel did accelerate in the Q4 relative to Q3. That's where I would attribute most of the improvement to.

Can you just comment on any progress you're seeing on the non-ISO piece of it?

Sure, Paul. We're making some progress. We have -- we brought in new management. Kevin Schultz has re-energized that area and we have introduced some new products. We're aggressively after some new verticals. We have a complete new management team that's re-energized and as you know, it takes awhile to really see an impact so there was very little of that that you saw in those numbers, but we have taken that into consideration with our guidance for fiscal '07. I have an expectation that these results are starting to bear fruit so I'm very optimistic.

Okay, great. As you look at your guidance for '07, it looks like, excluding HSBC, you're about 10% to 14% internally on the top line. Is that mostly just the [growth] ratios in Canada and maybe the customer loss in MUZO? Is there anything else going on there?

Well, I think one of the biggest changes year-over-year from '06 to '07 is the Canadian repricing effect and FX effect which I said -- or Paul said, would be less in '07 compared to '06. Certainly, the central and eastern Europe growth grew 16% in '06 and we're forecasting a modest decline in '07. That also will have an impact although probably to a lesser extent.

Okay, great. Then just last question. Did you give the currency impact in Q4?

We did not. But it was roughly 2%.

All right, great. Thanks. Good job on the quarter.

Thanks, Paul.

Mark Sproule from Thomas Weisel Partners. Your line is open.

Thanks. A couple of real quick questions. On the central and eastern European side, do you guys see that market place as somewhere you'll have to make more acquisitions to really build up that platform, or you know, post some of the transitions you're going through, will the organic growth be able to see some re-acceleration?

We are, in fact, Mark, seeing some decent growth from our existing customer base. But you know, this was some very, very high margin business that, over time, resulted in some pricing reduction so we had the impact of that, and this customer started to convert and that is going to accelerate. That will have an impact for us on this market. We do love this market. And it is only 4.5% to 5% of our total revenue. I think this could be meaningful over time. We still do. We're making some great inroads into Moscow. We have a bunch of people that work for us there in an office there and they're really starting to make some progress. We have some inroads in the Ukraine. We have a sales office in Warsaw. We're getting some business out of our Slovakian operation so --

Somebody take over my queue.

Hello, operator? Okay. So I'm still very optimistic about that business. We knew this customer was going to leave us and -- but I wouldn't read into that that this isn't a big growth opportunity in the future. Now, in terms of finding some acquisitions, we would love to find some acquisitions. We're looking for some. And you know, potentially, we'll get some done in that area.

Understand. Then on the money transfer side, you know, we focused -- or you focused completely on the Latin American/Mexican market. Do you see the HSBC deal closing, an opportunity to expand the base or are you going to continue to retain into that sector?

Yes, that's a great question. We're having that internal debate. There are huge opportunities in almost every one of those countries. A couple in particular. You can guess what they are. Have massive opportunities. I think to justify a DolEx-like service. We're considering that. With HSBC, we actually have a whole bunch of people that work for us now in these countries. So that's a leg up. We, obviously, have a wonderful partner with HSBC. So, we'll see.

You know something interesting. There was an earlier question about our destination points changing meaning is the money just going to Mexico or are we seeing more to central America and South America. That's where Europhil, mostly Mexicans don't go to Spain and Belgium and the U.K. It is mostly central and South Americans that are sending money back through our operations in Europe.

It will be interesting to see that if -- what these immigration changes have and if there are Mexicans that now start migrating to those areas and we'll be watching that pretty carefully. We wonder if it is a balloon. You push on it and it will pop out somewhere else. We'll let you know.

Understand. Thanks.

You're welcome.

Thank you. Larry Berlin, First Analysis, your line is open.

Good morning, guys. How you doing today?

Good, Larry.

Good quarter, overall. Despite the question I'm about to ask you.

Uh-oh.

Yes, no. I'd just like, Joe, if you run through the cash flow from operations. It was a bit less than we had expected for the quarter and then for the year. I suspect it is just accounting and timing of close of quarter and things but thought you could run through that and clarify?

There was no material significant item to discuss. It is largely either working capital or non-cash related balance sheet type items. Cash flow for the year was very strong. The depreciation year-over-year was less compared to Q4 of '05 and that perhaps also could have contributed to a lower overall cash flow growth. I looked at that, as well, and there's really nothing interesting to note in the quarter.

Okay. Thank you very much. See you all soon.

All right, Larry.

Dhruv Chopra from Morgan Stanley. Your line is open.

Good morning, gentlemen. I was just wondering if, you know, outside of the $67 million that you're investing in HSBC, what are some of the other uses of cash you foresee for 2007?

We're hopeful, acquisitions. That's always primary. You have to find the right ones but that's always first in our mind. Joe?

Aside from acquisitions, which again Paul said is by far the highest priority, we'll continue to invest our excess cash, pay dividends at the discretion of the Board. We're not expecting that rate to change and invest in capital projects that I discussed previously.

Okay, great. And then just on the U.S. merchant business, obviously, we've talked about First Data getting more aggressive in the ISO channel and now they've come up with the single price for ISOs, which has historically been your big selling point. I just wanted to get your thought on that and what do you see as the main differentiators between their offering now and where you guys stand?

You know, First Data has and continues to be a formidable competitor and they are investing time and energy in this channel. It is a wonderful channel. But as I said in earlier calls, it is not like we've had this kind of to ourselves. There have been a number of very aggressive competitors in this business. We don't sign up every new ISO. We compete aggressively.

We're successful, we think in our niche which is more mature, larger ISO and quite frankly, some of the products and services that you referenced with First Data really are not aimed at that ISO.

So, we're not colliding with them as much as one would think. They're in at a different inflection point than we. Also, I should hasten to say that all of our major ISOs have signed new renewed deals or are part of an existing long-term agreement, but that in no way makes us feel smug about this channel.

First Data is a tough competitor and remains a tough competitor and will in the future be a tough competitor. They've come out with some good stuff, but it is not necessarily aimed at our segment.

Great. And then, Joe, is it possible to give us a sense on what the stock comp impact was for fiscal '05 if we were to look on an apples-to-apples basis?

Fiscal '05 and '06 will likely be included in the 10-K, probably not the best comparison. We made a number of changes in assumption and in our approach to stock compensation expense for fiscal '07. It is a comparable number. It is not all that different. But our intention for next year is to simply strip out the stock option expense during fiscal '07 from our normalized numbers so you can compare appropriately to fiscal '06, the $1.54 diluted earnings per share number. That's probably a better comparison, but the '06 and '05 will be in the 10-K.

Okay, thanks, guys.

Tom McCrohan from Janney Montgomery Scott. Your line is open.

Hi. Thank you for taking the call. Good quarter.

Thanks, Tom.

I had a couple of clarification questions on the new segment reporting and then a follow-up on the guidance. Could we expect the new disclosures on revenue and operating income, this new segment disclosures to be provided every quarter in connection with the earnings release or is it going to be more of a 10-Q disclosure?

We're intending to provide them in connection with the earnings release.

Okay, great. The $47 million to $51 million of HSBC expected revenues for '07, where can we expect to see that, what line item on the new segment disclosure?

They'll be on the -- their own line item under Asia Pacific.

Okay, I apologize if you said that on the call.

No, we did not.

Okay. It will be on its own line item. And the minority interest at 12.5 to 13.5 after tax, is that all in connection with HSBC?

No, it also includes Comerica. Our existing minority interest which is almost all attributable to our joint venture with Comerica.

Could you give us the break out of how much of the $12.5 million to $13.5 million is HSBC specific?

No, I did not break that out but I gave some pretty detailed comments during my comments on the HSBC projected numbers for revenue and margin.

Yes.

And the associated interest. So I think you can come up with a pretty decent range.

Yes, I ran the math. I just want to make sure there's nothing different with that. On the operating margin guidance, the 21.7 to 22.2 which, as you said, was before stock option expense, is that margin guidance, are there any assumptions within that regarding repricing of other large ISO clients over the next 12 months?

There's none that we know about in the future necessarily. Everything that we are -- know about now has been reflected in the guidance. To the extent there are others in the future it could impact the number.

As Paul said, these don't all occur at the same time but generally all of the major relationships have multiyear agreements that are already in place.

Okay. Thank you.

You're welcome. Operator?

Thank you. Dave Koning from Robert W. Baird, you may go ahead.

Yes, hi, guys. The HSBC deal, you mentioned mid-teens margins, I guess, this year. Is it there anything fundamentally different about that business that couldn't get it to the high 20% range that your current merchant business gets?

I think right now we have no efficiencies. We have virtually taken over what is not the most sufficient platform that HSBC has. That's one of the reasons why these guys are interested in doing this with us. They're looking for us to bring efficiencies. But this could take up to four years to really wring all the efficiencies out of that deal. So, we're simply now just taking over this business. We've cleaned up some of the credit issues. We're going to add a bunch of sales resources and try to drive the top line. It will take a little bit of time but to get to your question, fundamentally, it should be comparable type of influences and that would produce similar margins.

Great. Thank you.

You're welcome.

Thank you. Tien-tsin Huang from J.P. Morgan, your line is open.

Hi, thanks. Good morning. Did you guys sign any new ISOs this quarter? I may have missed that.

We didn't announce any of them and we continue to sign smaller ISOs, nothing I guess of any significant magnitude.

How does the pipeline look for signing up new ISOs and I guess has your win rate changed at all in the last few months?

You know, Tien-tsin, we primarily focus on bigger ones. I think it looks pretty good. But understand we're kind of elephant hunting and to that end, I think we're -- you know, we feel pretty comfortable. Once again, all of that is taken into the guidance. If you are trying to get at are we really feeling an impact of -- from any competitors, I would say nothing that we have felt in any significant way.

Okay. Can you also just comment on merchant volume trends intra-quarter maybe for June and July if you have it. I'm curious to see if there's noticeable change in the strength or the health of the consumer.

We don't have any June and July stuff to share with you. We did that kind of uniquely with DolEx because of the issues raised by some of our competitors, but I would say that the trends we have seen both in average ticket spread have remained pretty constant. Joe, you want to add anything to that?

That's a fair description.

Lastly, I guess, hate to beat a dead horse, can you help us just compare and contrast some more on why maybe DolEx is not seeing some of the weakness that Western Union Mexico is seeing. Is it really the branch model that's the difference? I guess we can pontificate about this for days.

You know, Tien-tsin, I think that's what it would be would be pontification and probably -- of dubious accuracy. I really don't know. First of all, I can't opine what's happening with those guys. I just don't know. I can only tell you what we see with us. We haven't seen much fallout. I think it's possible that what I said earlier is what's happening.

At least the management of DolEx believes that. You're having less immigrants leave, perhaps less coming in, but less actually leaving because we're seeing a little bit of a trend shift on historic times when people will go home and then come back. We're not seeing the fallout that we have seen.

Other than that, this is -- this is a -- this is an amorphous kind of moving deal. Who knows where this bill will end up? Who knows what kind of impact will happen? We're watching it very closely and what the states are doing. And you know, all we can do is keep you guys informed on anything we see and we'll endeavor to do that.

Okay, great. I do appreciate all the disclosure. Thank you.

It's a pleasure. Operator?

Liz Grausam from Goldman Sachs, your line is open.

Hi. Wondering if you could help with us the competitive structure you see out in Asia PAC region? Who are your main competitors and how would you characterize your market share at this point in time?

Liz, it is pretty big in the area where is we are, in fact, getting most of the revenue like Hong Kong and Taiwan. I think we have a majority of the market. We're probably the leader, one or two in most of those markets. We have a diminutive market share in place like India, a bank called ICICI is the big leader there. We have a fair amount of business in Singapore. It's not a huge market. We're probably two or three in Malaysia, Kuala Lumpur, that area.

But in China, it is hard to -- it is so fragmented and once again, it is only international transactions we're probably getting a fair share of that. It is very small. The bottom line is it is all about the future.

But you know, these are not without competitors though. There are strong competitors in every one of these markets. We're not the only guys that see the opportunity and potential in these markets. Stay tuned.

Do you see an opportunity to acquire more assets in the market, in areas where you're not as strong?

I think the answer is yes. And also our partner, HSBC, is willing to be of some assistance in any way they can that regard. Yes. We're looking at opportunities there and I would hope to be able to do that.

How would you characterize the pricing trends in that market relative to other areas?

Coming down a little bit. We've seen some -- we've seen some downward, but nothing -- no dramatic trends at this time. The market is just kind of moving around a lot. They have a very unusual phenomenon. A lot of these markets, Liz, they have numerous terminals at the point of sale for numerous processors. So you say that's your merchant. Someone else might say, no, that's my merchant. They may choose which card to put on which terminal with which transaction. It is a very different market.

Okay. Thanks a lot.

You're welcome.

Robert Dodd, Morgan Keegan, your line is open.

Just one quick question, guys, on Canada. How much of the improvement that you are seeing in pricing going forward is a mixed shift. Obviously, with debit transactions being the dominant piece of the market and the lower revenue per transaction as credit grows, is that having a positive effect on your spread? And how much of the benefit is that accounting for, if any?

I don't think it is as much of a mixed shift debit as has been and continues to be a significant part of the business. There have been some association, interchange changes over the last couple of years that's largely been the catalyst for the initiatives that we talked about and I think that has more of it, more to do with it than a mix shift.

Okay, thanks.

Julian. Julian Bu from Lehman Brothers. Your line is open.

Thanks. Good morning. Just a quick question on the margin guidance. Trying to get a sense how constrictive that is given you guys have been such a strong margin expansion story over the past few years. Last year, after the margin expanded 150 basis points, now you're guiding for the mid point. Margins to be down 40. So, close to a 200-basis-point difference. You talk about HSBC deal might have 20 to 40 basis points impact. I'm just curious how big the ISO pricing discount might cause to the margin?

The ISO impact is probably one of the larger impacts that's driving the potential decline aside from the HSBC impact that you mentioned. Other than that, and the ISO channel is a big part of the Company today. That will have an effect on us. The guidance that we gave is the numbers that we see sitting here today. It is our best estimate and we believe that they're reasonable and we believe we'll come in within those ranges. If they change in the future, depending on Q1, Q2, Q3 results, if we think we're not going to be at those ranges, we'll update those numbers.

Thanks. So what would make you raise the ranges? What do you need to see?

Sorry?

What do you need to see to make you raise the ranges?

Well, just outperformance in the actual results in the quarters, perhaps.

You mean volume growth?

Could be volume growth. It could be improvement in the non-ISO sales area.

Expense reductions.

Expense reductions, any number of factors that could cause the overall profitability and margin of the Company to be better than what we're currently anticipating.

Okay, thanks. Just a real quick one regarding the ISO channel. What were your largest ISOs [INAUDIBLE] merchant services, it seems they're charging their sales people a fee plus $0.065 cents per transaction. It would appear you have to charge them less than that. I'm just curious. Is that a new kind of restructure, you don't charge based on spreads, but rather based on the fee per transaction?

Julian, most of the ISOs are indeed a fee per transaction because we do process for larger ISOs, they do buy their services from us. We charge them per authorization, per settlement, per customer support, on and on and on for many of them.

You could refer to the green sheets. I don't think the ISO that you referenced versus many others that are in the business, I don't think their pricing is -- varies that much from one organization to the next. It is relatively consistent.

Okay. Thanks a lot.

You're welcome.

Thank you. Andrew Jeffrey from Robinson Humphrey. Your line is open.

Hi. Good morning. Could you elaborate a little bit on the balance sheet impact of HSBC vis-a-vis the pre-funding of these merchant receivables and what you think the magnitude of that might be in '07?

The balance sheet, primary balance sheet impact is just a reduction of cash relating to the purchase price. We'll also have some intangible assets that you'll see go up as a result. As Jim said, there's really no other hard assets, necessarily, that we're purchasing. In terms of the merchant pre-funding, I did give an estimate in my comments for what the effect would be on interest expense. I believe I gave a $1 million to $2 million funding impact on interest expense for fiscal '07. We do not intend to -- I don't think that you'll see a big debt-related number associated with that merchant pre-funding, the bank will continue to assist with us that and you'll just see the higher interest expense.

And part of our deal, unlike the CIBC arrangement where we took on the obligation five years ago to fund the merchants on a separate line of credit that we have with both National Bank of Canada and now with HSBC, the bank has retained that obligation and we pay our pro rata piece of the interest expense.

Oh, I see. Does that mean the receivables don't show up on Global's balance sheet? We just see it at the P&L?

Not related to the funding piece, no.

Okay, then, and, Paul, could you give us an update on the ongoing efforts to build out the central and eastern European merchant sales force as far as how you think the training is going with the banks and how much success they're having in recruiting other banks to the network?

Andrew, that's a great question. The efforts in central and eastern Europe and Russia has been to sign financial institutions. That's why that is a slower build. Now, when you get one of these guys, it is a great, great thing.

We have re-upped G.E. and some other major customers and done some wonderful things there and expanded our reach. But we're not actually calling on individual merchants at this point with a merchant sales force. We're relying on our bank partners to do that so we have an indirect model, which we call it here in the U.S., in play in Europe.

And can you just comment on how successful your financial institution partners have been in terms of ramping that business or should we infer from the guidance that it is still very much a work in progress?

I think it is a work in progress but those that -- actually, the transaction accounts are pretty good.

The banks, themselves, in terms of signing merchants and growing, I think, are doing very well.

Absolutely.

There are these anomalies that we've talked about for several years that have had an impact on the business.

That's why I'm still very enthusiastic about that business.

Great. Thanks a lot.

Thank you. Operator?

Thank you. Ladies and gentlemen, this conference will be available for replay starting today at 1:00 p.m. and ending at midnight on August 11, 2006. If you wish to listen to the replay, please dial 1-800-846-0403, or international participants can dial 203-369-3675. This concludes our conference for today. Thank you for your participation. You may now disconnect.