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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

For the transition period from                              to                             

Commission file number 1-11073

FIRST DATA CORPORATION

www.firstdata.com

6200 SOUTH QUEBEC STREET, GREENWOOD VILLAGE, COLORADO 80111

(Address of principal executive offices) (Zip Code)                      

Registrant’s telephone number, including area code (303) 967-8000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

2% Senior Convertible Contingent Debt Securities

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

Common shares of the registrant outstanding at January 31, 2004 (excluding treasury shares) were 717,762,498. The aggregate market value, as of June 30, 2003 of such common shares held by non-affiliates of the registrant was approximately $30.7 billion. (Aggregate market value estimated solely for the purposes of this report. This shall not be construed as an admission for the purposes of determining affiliate status.)

DOCUMENTS INCORPORATED BY REFERENCE

Part III: Portions of Registrant’s Proxy Statement relating to the Annual Meeting of

Stockholders to be held on May 21, 2003

PART I

ITEM 1.    BUSINESS

General

First Data Corporation (“FDC” or “the Company”) provides electronic commerce and payment services solutions for approximately 3.1 million merchant locations, 1,400 card issuers and millions of consumers, making it easy, fast and secure for people and businesses to buy goods and services using virtually any form of payment. The Company provides money transfer services through its Western Union and Orlandi Valuta money transfer agent networks that consist of approximately 182,000 agent locations in more than 195 countries and territories. The Company also provides credit, debit, private-label, smart and stored-value card issuing and merchant transaction processing services and check guarantee and verification services throughout the United States and on a more limited basis in the United Kingdom, Australia, Canada, Asia, Mexico, the Middle East and Western Europe.

FDC was established in its current form in 1992 through an initial public offering in connection with a spin-off from American Express. In 1995, the Company merged with First Financial Management Corporation, which included Western Union Financial Services, Inc. (“Western Union”) and much of what is now First Data Merchant Services (“FDMS”).

FDC is incorporated in Delaware, and its principal executive offices are located at 6200 S. Quebec Street, Greenwood Village, CO 80111, telephone (303) 967-8000, internet address www.firstdata.com. The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are available free of charge through the “Invest” portion of the Company’s web site, www.firstdata.com, as soon as reasonably practical after they are filed with the Securities and Exchange Commission. You may obtain a copy of the Company’s Audit Committee charter, Compensation and Benefits Committee Charter, Corporate Governance Committee Charter, Executive Committee Charter, Oversight Committee Charter and Code of Conduct, without charge through the “Governance” portion of the Company’s web site, listed above, or by writing attention to Investor Relations at the address listed above.

The Company operates in four business segments: payment services, merchant services, card issuing services and emerging payments. The following provides a brief overview of the segment operations:

Payment Services Segment

The payment services segment is comprised of businesses that provide money transfer services to consumers and businesses whether they be from one location to another or through the issuance of an official check or money order by a bank or other institution. It is headquartered in Denver, Colorado with significant operations in St. Charles, Missouri and has over 182,000 agent locations throughout the world. A brief explanation of the segment’s service offerings is presented below.

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Merchant Services Segment

The merchant services segment is comprised of businesses that facilitate the acceptance of consumer transactions at the point of sale, whether it be transactions at a physical merchant location, over the Internet or at an ATM. It is headquartered in Melville, New York and has significant operations in Hagerstown, Maryland, Houston, Texas and Coral Springs, Florida. A brief explanation of the segment’s service offerings is presented below.

Card Issuing Services Segment

The card issuing services segment primarily encompasses domestic and international card processing for card issuers. Its headquarters and most significant operations are located in Omaha, Nebraska. A brief explanation of the segments’ service offerings is presented below.

Emerging Payments Segment

The emerging payments segment consists of a majority interest of approximately 75% in eONE Global, LP (“eONE”) and its subsidiaries discussed herein. eONE is focused on identifying, developing, commercializing and operating emerging payment systems and related technologies in three areas: government payments, mobile payments, and enterprise payments. It is headquartered in Napa, California with its most significant operations in Denver, Colorado. A brief explanation of the segments’ service offerings is presented below.

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The remainder of the Company’s business units are grouped in the “all other and corporate” category, which includes Teleservices, a provider of voice-center services to telecommunications and financial services industries, First Data Voice Services, a provider of Interactive Voice Response (“IVR”) services and Corporate operations.

FDC’s facilities in the United States provide the data center infrastructure that processes a majority of the Company’s transactions. FDC’s operations in the United Kingdom, Germany and Australia represent the Company’s most significant foreign transaction processing locations. The United Kingdom and Australia operations process transactions for card issuing services clients located outside of North America and the Germany operations sells and services POS devices throughout Europe. Merchant services and payment services domestic and international transactions are processed through the data centers located in the United States. Other than the electronic routing of transactions through these data centers, the merchant services and payment services international operations are managed and operate outside the United States. Each of the Company’s four business segments has an international presence through various regional or country offices where sales, customer service and/or administrative personnel are based. These international operations generate revenues from customers and consumers located and operating outside of the United States. Revenues generated from processing transactions at locations outside of the United States, primarily in Australia and the United Kingdom for the card issuing segment, and in Germany for the merchant segment, represented 6% or less of the Company’s consolidated revenues for each of the three years in the period ended December 31, 2003. Long-lived assets attributable to international operations with processing locations based outside of the United States represented approximately 9% and 5% of consolidated total long-lived assets at December 31, 2003 and 2002, respectively.

The Company’s business strategy continues to focus on enhancing its core businesses. Among the actions the Company believes are necessary to maintain its market position are focused efforts to expand internationally, develop new products and services and enhance its processing platforms in response to Company growth, client requirements, changing technology and expanding e-commerce initiatives. The Company also continues to generate recurring revenue by developing long-term contractual relationships with clients to support the Company’s core businesses.

FDC considers strategic investment and acquisition opportunities, as well as divestitures. Acquisitions supplement FDC’s internal efforts to access new markets and client groups, while divestitures have been completed for business units lacking sufficient financial prospects or strategic importance. No assurance can be given with respect to the timing, likelihood or the financial or business effect of any possible acquisitions or divestitures.

Significant Business Developments

The following discusses significant business developments that occurred during 2003.

Proposed Merger with Concord EFS

In April 2003, the Company signed a definitive agreement to merge with Concord in an all stock transaction. Concord is an electronic transaction processor that operates in two segments, network services and payment services which provide services similar to FDC’s ATM and PIN-based businesses and the merchant acquiring business discussed above. Network services provides ATM processing, debit card processing, deposit risk management and STAR network access principally for financial institutions. Payment services provides point of sale processing, settlement and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants and trucking companies.

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In shareholder meetings held on October 28, 2003, the shareholders of FDC and the shareholders of Concord each approved the merger of the two companies. Prior to these meetings on October 23, 2003, the DOJ along with District of Columbia and eight states, filed a lawsuit against FDC and Concord in United States District Court for the District of Columbia, seeking a permanent injunction against the merger of the two companies. On December 15, 2003, FDC announced an agreement with the DOJ that will allow the Company to complete the pending merger with Concord. The agreement provides for FDC’s divestiture of its 64% ownership of NYCE. Concurrent with reaching agreement with the DOJ, the Company and Concord amended the merger agreement, modifying the exchange ratio from 0.40 to 0.365 FDC common shares for every Concord common share. Because the Company and Concord renegotiated the terms of the merger since the date of the first special shareholders meeting, including the consideration to be received by the shareholders, Concord shareholders must vote on whether to approve the terms of the amended merger agreement. Concord has scheduled this special shareholders meeting to be held on February 26, 2004. If approved by Concord shareholders, the Company expects the merger will close shortly thereafter. FDC is not required to hold a similar shareholder meeting.

In connection with the acquisition of Concord, FDC will issue approximately 170 million shares of FDC common stock to Concord shareholders, and issue options to purchase approximately 21 million shares of FDC common stock. This consideration equates to an approximate purchase price, including acquisition related costs, of $7 billion. Upon completion of the merger, based on the number of FDC and Concord shares and options outstanding on January 16, 2004, FDC’s shareholders immediately prior to the merger will own approximately 81% of FDC’s outstanding shares on a fully diluted basis, and Concord’s former shareholders will own approximately 19%. The exchange of shares in the merger is expected to qualify as a tax-free reorganization, allowing Concord shareholders to defer any gain on their shares for U.S. income tax purposes.

2003 Acquisitions

On March 24, 2003 the Company acquired TeleCash Kommunikations-Service GmbH (“TeleCash”). TeleCash is a Germany-based seller and servicer of POS terminals and an electronic payment network operator. This acquisition allows the Company to expand its commitment to meet the international payment processing needs of banks and merchants.

In August 2003 Western Union purchased a majority interest in Eposs Limited (“Eposs”), a Cambridge, UK-based seller of prepaid cellular telephone services in Europe and Asia.

Other acquisitions during 2003 include:

On December 22, 2003 the Company announced it signed and entered into a Merger Implementation Agreement to acquire 100% of Cashcard Australia Limited, a provider of ATM services in the Australian marketplace. The transaction remains subject to Cashcard shareholder and judicial approval, as well as satisfaction of other closing conditions. The transaction will allow for FDC’s entry into the fast growing Australian merchant ATM deployment market. The transaction will create opportunities for FDC and Cashcard clients, expanding the delivery of services such as credit and debit POS processing, deployment of merchant ATM’s, check authorization and money transfer. In February 2004, the Australian Competition and Consumer Commission notified the Company that it would not oppose the acquisition. The Company anticipates closing the transaction during the second quarter of 2004.

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First Data Products and Services Segment Information

The Company operates in four business segments: payment services, merchant services, card issuing services and emerging payments. Financial information relating to each of the Company’s segments is set forth in Note 16 to the Company’s Consolidated Financial Statements in Item 8, which is incorporated herein by reference. A discussion of factors potentially affecting the Company’s operations is set forth in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is incorporated herein by reference.

Payment Services Segment

The payment services segment consists of the Company’s consumer-to-consumer money transfer, consumer-to-business bill payment, official check and money order, prepaid services and other related product and service offerings. Payment services revenues from external customers, operating profit, and assets represent the following percentages of FDC’s consolidated revenues, total reported segment and all other and corporate operating profit and consolidated assets:

A brief explanation of the segment’s businesses is presented below.

Description of Payment Services Segment Operations

In the payment services segment, the Company primarily derives its revenues from three sources: transaction fees charged to consumers; investment income earned on the investment of funds received from the sale of payment instruments (primarily official checks and money orders); and in certain transactions the Company generates revenue by acquiring foreign currency at wholesale exchange rates and providing the currency to consumers at retail exchange rates.

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The majority of the segment’s revenues are derived from money transfer transactions. Money transfer transactions generated 81%, 80% and 80% of the segment’s revenues for the years ended December 31, 2003, 2002 and 2001, respectively. The table below presents the components of money transfer revenues as a percentage of total money transfer revenue:

Consumer-to-consumer money transfer

As a provider of consumer-to-consumer nonbank money transfer services, Western Union and its subsidiaries have an agent network of more than 59,000 agent locations in North America (United States, Canada and Mexico) and more than 123,000 international agent locations that provide consumer-to-consumer money transfer services in more than 195 countries and territories. The primary users of this service are people who need to send or receive cash quickly to meet emergency situations or to send funds to family in other locations. Consumer-to-consumer money transfer transactions totaled 81.0 million in 2003 compared to 67.8 million in 2002, and 55.8 million in 2001.

The Company enters into agency agreements with third parties to provide its money transfer services. Outside North America, many of the agreements are with banks and national post offices, whose networks currently represent approximately 75% of the international agent locations. Certain agents of the Company maintain sub-agent networks within their territory. In a typical consumer-to-consumer money transfer transaction, a consumer goes to one of the Company’s third-party agent locations, completes a form and pays the agent a fee. The sending agent enters the transaction data into the Company’s data processing system, from which it is processed by the Company and made available for payment at agent locations throughout the Company’s network. The intended recipient of the money transfer can enter any Western Union agent location in the destination country and the agent pays out the transferred amount upon presentation of identification by the recipient. The fee paid by the sender is generally based on the principal amount of the transaction and the location to which the funds are to be transferred. This transaction fee is set by the Company and is recorded as revenue. The Company derives additional revenue from currency exchange spreads in its international and Mexico money transfer business. These spreads are the difference between the retail currency exchange rate provided to the individual consumer and the wholesale rate received when Western Union generally trades in larger blocks of dollars or other currencies in the international money market. Generally, there are two agent locations involved in a money transfer transaction, the agent initiating the transaction (the “send agent”) and the agent disbursing funds (the “receive agent”). The send and receive agents each earn a commission generally based on a percentage of the fee charged to the customer. These commissions are included in “cost of services” in the Consolidated Statements of Income. Outside the United States, some agents also share in the foreign exchange revenue associated with money transfer transactions.

Western Union settles with the vast majority of its agents in U.S. dollars and euros. The Company utilizes derivatives, primarily forward contracts and purchased put options, to hedge against the risks associated with currency fluctuations. Limited foreign currency risk arises with respect to the agent settlement process. The foreign currency exchange risk is limited because the majority of money transfer transactions are paid shortly after they are initiated and agent settlements occur daily in most instances.

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Consumer-to-business bill payment services

Western Union offers several bill payment services, including transferring payments from consumers to utility companies, collection agencies, finance companies, mortgage lenders, and other billers; initiating e-commerce bill payments through multiple sources; and remitting mortgage payments from a customer’s account directly to their mortgage lender. The Company’s branded consumer-to-business transactions totaled 134.0 million in 2003, compared to 119.3 million in 2002 and 98.5 million in 2001. The consumer-to-business transactions for 2003, 2002, and 2001 include E Commerce Group and Paymap (both acquired in the second quarter 2002) as if they were consolidated subsidiaries as of January 1, 2001, to provide a more meaningful comparison.

Official checks and money orders

IPS issues official checks, which are primarily sold through financial institutions and money orders, which are sold at financial institutions and Western Union agent locations. Official checks serve as an alternative to a bank’s own disbursement items such as cashiers or bank checks.

IPS’s money order and official check services generate revenue primarily through IPS’s ability to invest funds pending settlement. IPS invests these funds in high–quality, lower-yielding investments to minimize its exposure to credit risks. These investments primarily are in high-quality municipal bonds. In a money order transaction, a consumer purchases a money order from an agent. The agent selling the money order generally remits the funds collected from the consumer to IPS within a matter of days of the transaction date. An agent generally does not receive a commission on the sale of a money order, but is compensated by charging a fee to the consumer. In an official check transaction, a consumer will procure an official check from one of IPS’s agents, typically a financial institution. The official check agent generally is required to remit the funds collected from the consumer to IPS the following day. IPS pays its official check agents commissions based on short-term variable rates and the balance of outstanding official checks. IPS considers this to be a revenue sharing arrangement and, therefore, nets the commissions paid to official check agents against the revenues it earns from its investments.

Prepaid services

ValueLink develops, implements and manages prepaid stored-value card programs (i.e, gift cards) with brick and mortar, Internet and international applications for national, regional and local retailers. The full-service stored value/gift card program offers transaction processing services, card acquisition and customer service for over 190 national brands.

Payment Services Seasonality

Payment services revenues and earnings generally tend to be highest in the fourth quarter due to the holiday season in the United States and other countries and lowest in the first quarter. Seasonality does not have a significant impact on the results of operations.

Payment Services Backlog

Western Union continued to expand its agent base through new signings domestically and internationally during the year. As of January 31, 2004, Western Union had a backlog of approximately 16,000 agent locations and expects to finish 2004 with more than 210,000 worldwide agent locations.

Payment Services Geographic Mix and Revenues

No individual foreign country accounted for more than 6%, 6% and 7% of the segment’s revenues from external customers for the years ended December 31, 2003, 2002 and 2001, respectively. Revenues generated from foreign currency spreads represented 10%, 10% and 11%, respectively, of payment services revenues for the years ended December 31, 2003, 2002 and 2001, respectively.

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Payment Services Significant Customers

No individual consumer makes up greater than 10% of the payment services segment revenue. Certain Western Union agents facilitate a large number of transactions; however, no individual agent accounts for greater than 5% of payment services revenue.

Merchant Services Segment

The merchant services segment is comprised of businesses that facilitate the acceptance of consumer transactions at the point of sale, whether it be transactions at a physical merchant location, over the Internet or at an ATM.

Merchant services revenues from external customers, operating profit, and assets represent the following percentages of FDC’s consolidated revenues, total reported segment and all other and corporate operating profit and consolidated assets:

A brief explanation of the segment’s businesses is presented below.

Description of Merchant Services Segment Operations

In the merchant services segment, the Company primarily derives its revenues from transaction and processing service fees collected from merchant credit and debit card transactions.

Merchant Acquiring

FDMS provides merchant credit and debit card transaction processing services. Including the merchant alliances, TASQ and TeleCash, FDMS accounts for the majority of the merchant segment’s revenue. Its services include authorization, transaction capture, settlement, chargeback handling, and Internet-based transaction processing. The vast majority of these services pertain to transactions in which consumer payments to merchants are made through MasterCard or VISA.

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FDMS’s revenues are generated from:

The Company and its alliances provided merchant processing services to approximately 3.1 million merchant locations in 2003. The Company and its alliances provided full service merchant card processing primarily on VISA and MasterCard transactions and PIN-based debit at the point-of-sale. The North America merchant dollar volume totaled $664.7 billion in 2003, compared to $547.8 billion in 2002, and $485.6 billion in 2001, and North America merchant transactions processed totaled 12.2 billion in 2003, compared to 9.9 billion in 2002 and 8.7 billion in 2001.

Key elements of FDMS’s strategy in the merchant services segment continues to involve its alliances with banks and other financial institutions and implementation of international, debit and Internet commerce initiatives. Under the alliance program, FDMS and a bank form a joint venture, either contractually or through a separate legal entity. Merchant contracts are contributed to the venture by the Company and/or the bank. New merchant business is solicited by the alliance’s (and in some cases, the financial institution’s) sales force. Each alliance requires successful management of the relationship between the Company and the financial institution alliance partner. FDMS benefits by providing processing services for the alliance and its merchant customers, while the financial institution partner benefits by maintaining the merchant banking relationship. Alliance financial institutions provide card association sponsorship, clearing, and settlement services. FDMS provides transaction processing and related functions; both owners may provide management, marketing, and other administrative services. As of December 31, 2003, there were 31 participating banks in the program. These alliance structures take on different forms, including being consolidated subsidiaries, equity method investments and revenue sharing arrangements.

The alliance strategy could be affected by further consolidation among financial institutions. Two of the Company’s most significant alliance relationships are with J.P. Morgan Chase and Bank One, who have recently announced their intent to merge. Merchant services expects that the shift in payment methods from cash and check to electronic and card-based payments will continue to benefit the Company’s internal growth. Internet commerce, international expansion, and an increased number of debit transactions present growth opportunities for the merchant services segment.

During 2003, merchant services focused on the following market centric investment strategies:

The alliance strategy continues to be successful in reducing merchant attrition.

Processing services provided include transaction authorizing and posting, fraud and risk management services and settlement.

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There are a number of different entities involved in a merchant transaction including the cardholder, card issuer, merchant, merchant acquirer, electronic processor and card association for credit and signature debit transactions, and debit network for PIN-based debit transactions. The card issuer is the financial institution that issues the credit or debit card, authorizes transactions after determining whether the cardholder has sufficient available credit or funds for the transaction, and provides funds for the transaction. Some of these functions may be performed by an electronic processor (such as First Data Resources) on behalf of the issuer. The card association is VISA or MasterCard or a debit network (such as STAR or NYCE) that routes the transactions between FDMS and the card issuer. The merchant is a business from which a product or service is purchased by a cardholder. The acquirer (such as FDMS or one of its alliances) contracts with merchants to facilitate their acceptance of transaction cards. A merchant acquirer may do its own processing or, more commonly, may outsource those functions to an electronic processor such as FDMS. The acquirer/processor serves as an intermediary between the merchant and the card issuer by:

A transaction occurs when a cardholder purchases something from a merchant who has contracted with FDMS, an alliance or an FDMS processing customer. When the merchant swipes the card through the point-of-sale terminal (which is often sold or leased, and serviced by FDMS), FDMS obtains authorization for the transaction from the card issuer through the card association or debit network, verifying that the cardholder has sufficient credit or adequate funds for the transaction. Once the card issuer approves the transaction, FDMS or the alliance “acquires” the transaction from the merchant and then transmits it to the applicable debit network or card association, which then routes the transaction information to the card issuer. Upon receipt of the transaction, the card issuer delivers funds to FDMS via the card association or debit network. Generally, FDMS funds the merchant after it receives the money from the card association or debit network. Each participant in the transaction receives compensation for processing the transaction. For example, in a transaction using a VISA or MasterCard for $500.00 with a merchant “discount rate” (i.e., fee) of 2%, the card issuer will fund the association $492.50 and bill the cardholder $500.00 on its monthly statement. The card association will retain assessment fees of $0.50 and forward $492.00 to FDMS. FDMS will retain $2.00 and pay the merchant $490.00. The $7.50 retained by the card issuer is referred to as interchange and it, like assessment fees, is set by the card association.

FDMS and its alliances, as merchant acquirers, have certain contingent liabilities for the transactions acquired from merchants. This contingent liability arises in the event of a billing dispute between the merchant and a cardholder that is ultimately resolved in the cardholder’s favor. In such a case, the transaction is “charged back” to the merchant and the disputed amount is credited or otherwise refunded to the cardholder. If the Company or alliance is unable to collect this amount from the merchant, due to the merchant’s insolvency or other reasons, the Company or alliance will bear the loss for the amount of the refund paid to the cardholder. In most cases, this contingent liability situation is unlikely to arise because most products or services are delivered when purchased, and credits are issued on returned items. However, where the product or service is not provided until sometime following the purchase (e.g., airline or cruise ship tickets), the risk is greater. The Company mitigates its risk by obtaining collateral from merchants considered higher risk because they have a time delay in the delivery of services, operate in industries that experience chargebacks or are less creditworthy.

Check verification and guarantee services

TeleCheck revenues are earned primarily by charging merchant fees for check verification or guarantee services. The majority of TeleCheck’s business involves providing check guarantee services for checks received by merchants. Under the guarantee service, when a merchant receives a check in payment for goods and services,

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the transaction is submitted to and analyzed by TeleCheck. TeleCheck will either accept or decline the check for warranty coverage under its guarantee service. If TeleCheck approves the check for warranty coverage and the merchant accepts the check, the merchant will deposit the check in its bank account. If the check is returned unpaid by the merchant’s bank and the returned check meets the requirements for warranty coverage, TeleCheck is required to purchase the check from the merchant at its face value. TeleCheck then owns the purchased check and pursues collection of the check from the check writer. As a result, TeleCheck bears the risk of loss if it is unable to collect the returned check from the check writer. TeleCheck earns a fee for each check it guarantees, which is generally determined as a percentage of the check amount. TeleCheck guarantee services are also offered utilizing TeleCheck’s Electronic Check Acceptance^® service (“ECA^®”), which converts a paper check written at the point-of-sale into an electronic item, enabling funds to be moved from the check writer’s account into the merchant’s account electronically.

Under the verification service, when a merchant receives a check in payment for goods or services, the transaction is submitted to and analyzed by TeleCheck, which will either recommend the merchant accept or decline the check. If the merchant accepts the check, the merchant will deposit the check in its bank account. If the check is returned unpaid by the merchant’s bank, TeleCheck is not required to purchase the check from the merchant and the merchant bears all risk of loss on the check. TeleCheck earns a fee for each check submitted for verification, which is generally a fixed amount per check.

ATM and PIN based processing

As noted above, the Company operated NYCE as its debit and ATM network business during 2003. Subsequent to consummating the acquisition of Concord and in accordance with the Company’s agreement with the DOJ, FDC’s interest in NYCE will be sold. NYCE’s results of operations in 2004 will be included in the Company’s results as a discontinued operation. In the merchant acquiring process flow described above, NYCE and STAR represent the debit network. Their fees differ from those presented in the example in that the debit network charge less for the transaction than do the card associations since there is substantially less risk involved in the transaction because the transaction is not approved unless there are sufficient funds in the customers’ bank account. Revenue is primarily earned on a fee-per-transaction basis.

Gaming Services

FDFS is a majority owner of Global Cash Access, LLC (“GCA”), and the Company consolidates its operations. GCA provides cash access, financial management and customer relationship marketing technologies to the gaming industry, and it has a presence in approximately 1,000 gaming properties. GCA processes approximately $11.7 billion in funds through 60.2 million ATM, credit and debit cash advance and check guarantee transactions annually. Revenues are primarily earned on a per transaction basis.

Other Services

The merchant segment generates revenue from other sources including the sale and leasing of point-of-sale devices and royalty income.

Merchant Services Seasonality

Merchant services revenues and earnings are impacted by the volume of consumer usage of credit cards, debit cards, and checks written at the point of sale. Merchant services experiences increased point of sale activity during the traditional holiday shopping period in the fourth quarter, the back to school buying period in the third quarter, and around other nationally recognized holidays.

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Merchant Services Geographic Mix and Revenues

Revenues from external customers attributable to transactions originating in the United States accounted for 94% of merchant services’ revenues for the year ended December 31, 2003, and 97% for the years ended December 31, 2002 and 2001. The balance of the segment’s revenues from external customers is attributable to transactions originating outside of the United States. No individual foreign country accounted for more than 2% of the segment’s revenues for any of the three years in the period ended December 31, 2003.

Merchant Services Significant Customers

The Company has significant merchant alliance relationships with three financial institutions in the merchant services segment, of which two were accounted for under the equity method of accounting and the other was consolidated. Revenues associated with the alliance relationships with these three institutions combined represent approximately 24% of the merchant services segment revenues. Upon termination of these alliance relationships, the Company has certain rights to acquire all or a portion of the applicable merchant portfolios, depending on the circumstances of such termination.

Card Issuing Services Segment

The card issuing services segment primarily encompasses domestic and international card processing.

Card issuing services revenues from external customers, operating profit, and assets represent the following percentages of FDC’s consolidated revenues, total reported segment and all other and corporate operating profit and consolidated assets:

A brief explanation of the segment’s businesses is presented below.

Description of Card Issuing Services Segment Operations

Card Issuing and Processing Services

The card issuing services segment provides products and processing services to card issuers, including financial institutions, retailers, oil companies, consumer finance companies and other card issuers. Financial institution clients include a wide variety of banks, savings and loan associations and credit unions. Processing services provided include account maintenance, transaction authorizing and posting, statement generation and

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printing, embossing, fraud and risk management services and settlement. The Company’s card accounts on file were 347.8 million at December 31, 2003 and 325.2 million at December 31, 2002.

The Company provides a full array of services throughout the period of each card’s use, starting from the moment a card-issuing client processes an application for a transaction card. The Company’s in-house embossing facility produces cards for new accounts and at renewal dates (established by the client) for existing card accounts. FDR’s fraud management services monitor the unauthorized use of cards which have been reported to be lost, stolen, or which exceed credit limits. The Company’s fraud detection systems help identify fraudulent transactions by monitoring each cardholder’s purchasing patterns and flagging unusual purchases. Transactions are processed and posted to the cardholder’s account. Cardholder statements are prepared and mailed directly to cardholders using the Company’s in-house mail facilities. Other services provided include cardholder database analysis, cardholder behavior scoring, customized communications to cardholders and proprietary oil card processing services.

Currently, FDC’s operations in the United Kingdom and Australia are the Company’s principal processing facilities located outside the United States. FDC had 31.2 million international card accounts on file at December 31, 2003 compared to 27.2 million at December 31, 2002. Services provided generally mirror the Company’s domestic services. The Company also provides third-party bankcard processing to customers in Canada and portions of Latin America. In Australia, FDC operates the largest independent electronic funds transfer network in that country, providing ATM, Electronic Funds Transfer (“EFT”), POS, smartcard, pay-by-phone and Internet payment processing services to more than 400 financial institutions, card issuers and merchant clients, as well as providing credit and merchant account processing services similar to the domestic operations.

Revenues for card issuing and processing services are derived from fees payable under contracts that primarily depend on the number of cardholder accounts on file, both active and inactive, and to a lesser extent, transactions processed. FDR provides a multitude of transaction-based services, which are separately priced and negotiated with clients. Most contracts provide for the payment of minimum annual processing fees, payable without regard to transaction volume. In some instances, FDR may make an advance payment to a client upon the signing or extension of a processing contract with the Company. FDR makes these payments primarily to compensate new clients for dedicating the resources to change service providers or to outsource an internal service function.

Card Processing Software

The Company sells its VisionPLUS credit card transaction processing software to international financial institutions, retailers and third party processors. Additionally, the Company is beginning to use this software as its platform to provide processing services to international financial institutions. The Company also generates revenue from custom programming services for certain customers and from software licensing and maintenance fees from its VisionPLUS software. Most of the revenues are earned internationally.

Other Card Issuing Services

Other services provided by this segment include business solutions in the areas of risk and fraud management and information verification associated with granting of credit, debt collection and customer service.

Card Issuing Services Backlog

At January 31, 2004, the segment had a pipeline of 70 million accounts. The Company expects to convert its entire backlog of 70 million accounts in 2004.

Card Issuing Services Seasonality

Card issuing services results of operations are primarily driven by the number of accounts on file that remain fairly constant and are not affected by seasonality.

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Card Issuing Services Geographic Mix and Revenues

Revenues from external customers attributable to transactions originating in the United States accounted for 82%, 83% and 84% of card issuing services revenues for each of the years ended December 31, 2003, 2002 and 2001. Revenues derived from external customers of the Company’s processing subsidiary in the United Kingdom represented 12%, 10% and 12% of card issuing services revenues for the years ended December 31, 2003, 2002 and 2001, respectively. Other than the United Kingdom, no individual foreign country accounted for more than 3% of the segment’s revenues from external customers for any of the three years in the period ended December 31, 2003.

Card Issuing Services Significant Customers

The Company has significant relationships with three customers in the card issuing services segment. Combined, these customers represent approximately 33% of the card issuing services segment revenue. One of these customers, Bank One Corp., has announced its intention to deconvert its accounts on file before the end of 2004 and has the option to continue to process through FDC’s system through September 2005. Another one of these customers, J.P. Morgan Chase, has announced plans to merge with Bank One Corp.

Emerging Payments Segment

The emerging payments segment consists of a majority ownership interest of approximately 75% in eONE and its subsidiaries discussed herein. eONE is focused on identifying, developing, commercializing and operating emerging payment systems and related technologies in three areas: government payments, mobile payments and enterprise payments.

Emerging payments revenues from external customers, operating profit, and assets represent the following percentages of FDC’s consolidated revenues, total reported segment and all other and corporate operating profit and consolidated assets:

A brief explanation of the segment’s businesses is presented below.

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Description of Emerging Payments Segment Operations

In the segment services highlighted above, the Company incurs software and market development expenses to pursue emerging payment opportunities. The largest revenue source is comprised of fees based on transaction volumes processed and is recognized at the time a transaction is processed. This segment also provides professional services, primarily to governmental entities, project work and software.

Emerging Payments Seasonality

The Company does not believe the emerging payments segment is affected by seasonality.

Emerging Payments Geographic Mix and Revenues

The majority of revenue for the emerging payments business is derived from the govONE business that resides domestically.

Emerging Payments Significant Customers

Emerging payments has a significant customer relationship with one customer that represents approximately 41% of the segment’s revenue. Through govONE, a subsidiary of eONE, the Company provides electronic tax processing services as a subcontractor for a partner bank which has contracted with the U.S. Department of the Treasury, Financial Management Service (FMS), to be a provider of the Electronic Federal Tax Payment Service (“EFTPS”). In January 2004, govONE and its partner bank submitted a renewal proposal to FMS which indicated it would select a single provider of EFTPS services. govONE is currently one of the two providers. The current EFTPS contract has been extended for an indefinite period, not to exceed December 31, 2004.

All Other and Corporate

The remainder of the Company’s business units are grouped in the all other and corporate category, which includes Teleservices, First Data Voice Services and corporate operations.

Teleservices is a provider of voice-center services to telecommunications and financial services industries. The Company operates two sophisticated voice operations centers in the United States that provide a full range of high-volume, inbound telephone operator services, including customer support, directory assistance and multilingual customer service. First Data Voice Services is a provider of interactive voice services. First Data Voice Services offers customized toll-free telephone interactive voice services that gather, process and distribute information for client needs for both promotional and long-term projects. Revenues from these services consist of fees paid by clients, which are generally based on call volume, duration and the number of transactions.

Corporate operations include administrative and shared service functions such as the executive group, acquisitions group, legal, tax, treasury, human resources, information technology, and procurement. Costs incurred by corporate that are directly related to a segment are allocated to the respective segment. A majority of overhead costs, including shared services, is allocated to the segments based on a percentage of the segment’s revenue.

Marketing

FDC markets its services through a variety of channels including direct solicitation and general advertising. Generally, each business unit has a separate dedicated sales force that, in addition to its own product offerings may also cross sell services of the other business units to provide a full suite of product offerings. The Company

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markets on a worldwide and nationwide basis for card issuing services products and a combination of worldwide, nationwide and regionally for its payment services products. Most of the merchant services businesses are marketed regionally by sales forces associated with the merchant alliances.

The most significant marketing and advertising program supports the Western Union brand name and public awareness of Western Union’s services. These advertising programs include the use of television, radio and print media.

In the merchant services segment direct sales efforts by Company employees, bank alliance partner employees and independent sales organizations have been effective in signing new merchant clients. Additionally, alliance partners provide referrals to their respective alliance’s dedicated sales force from their bank branches. This often occurs when a merchant opens a new account at a bank and the bank refers the merchant to the alliance to obtain transaction-processing services.

Intellectual Property

FDC owns many trademarks, patents and other intellectual property that are important to its future success. The only intellectual property right which is individually material to the Company or any of its business segments is the Western Union trademark that is widely recognized and is associated with quality and reliable service. Loss of the proprietary use of the Western Union trademark or a diminution in the perceived quality associated with that name could harm the Company’s growth in the money transfer business.

Most of the segments’ services and products are based on proprietary software that is updated to meet customer needs and remain competitive. Protecting the Company’s rights to its proprietary software and the patents related to them is critical, as it allows the Company to offer distinctive services and products to customers, which differentiates it from competitors. The patent protection associated with the Company’s systems and software expires at different times over the next one to 20 years.

Regulation

Various aspects of FDC’s service areas are subject to federal and state regulation, as well as regulation by foreign jurisdictions, which, depending on the nature of any noncompliance, may result in the suspension or revocation of any license or registration at issue, as well as the imposition of civil fines and criminal penalties. Certain of the Company’s services also are subject to rules promulgated by various payment networks, such as VISA and MasterCard as more fully described below.

Banking

The Company’s First Financial Bank (“FFB”) is a Colorado industrial bank which conducts limited banking functions in connection with affiliated Company businesses. It is subject to regulation and examination by the Federal Deposit Insurance Corporation and the Division of Banking of the Colorado Department of Regulatory Agencies. First Data Loan Company Canada (“FDLCC”), through which the Company conducts its merchant acquiring activities in Canada, is a Canadian loan company subject to regulation and examination by the Office of the Superintendent of Financial Institutions and to various provincial registration and licensing requirements. These financial institution subsidiaries are also subject to various national and local banking and consumer protection laws and regulations that apply to the activities they conduct in their respective jurisdictions.

Because the Company’s card issuing and merchant processing businesses provide data processing services for financial institutions, they are subject to examination by the Federal Financial Institutions Examination Council, an interagency body comprised of the federal bank and thrift regulators and the National Credit Union Association.

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Association Rules

FFB is a member of VISA and MasterCard and is subject to the rules of those associations, including a capital requirement based on the merchant credit card processing volume and risk profile of the merchant transactions cleared through FFB. FDLCC is a member of MasterCard in Canada and subject to MasterCard rules. Both FDR and FDMS are registered with VISA and MasterCard as service providers for member institutions. As such, the Company is subject to applicable card association rules, which could subject it to a variety of fines or penalties that may be levied by the card associations for certain acts and/or omissions on the part of the Company, its acquirer customers and/or their merchants. The Company mitigates this risk by maintaining an extensive card association compliance function. The Company is also subject to rules promulgated by the National Automated Clearing House Association relating to payment transactions processed by the Company using the Automated Clearing House Network.

Credit Reporting Regulations

Certain TeleCheck activities are subject to the Federal Fair Credit Reporting Act, various similar state laws and the Gramm-Leach-Bliley Act based on TeleCheck’s maintenance of a database containing the check-writing histories of consumers and the use of that information in connection with its check verification and guarantee services. The collection business within TeleCheck is subject to the Fair Debt Collection Practices Act and various similar state laws.

TeleCheck may become subject to further regulation in the future as legislatures, both federal and state, enact additional legislation aimed at regulating the collection, storage and use of data and databases regarding consumers. In particular, legislation reducing or eliminating access to and use of information on drivers licenses, requiring blocking of access to credit reports or scores or mandating score or scoring methodology disclosure could reduce the effectiveness of TeleCheck’s risk management tools or otherwise increase its costs of doing business.

Money Transfer Licensing and Regulation

In the United States, most states license money transfer services providers and issuers of payment instruments (such as official checks and money orders) and many require, among other things, that proceeds from the sales of such instruments be invested in high-quality marketable securities prior to the settlement of the transactions. Such licensing laws also may cover matters such as regulatory approval of agent locations and the filing of periodic reports by the licensee. The Company is required to obtain and maintain licenses to conduct such operations, which generally require the Company or the licensed subsidiary to demonstrate and maintain levels of net worth and/or liquidity. In addition, the Company’s services related to money transfers also are regulated at the state level by banking commissions or similar authorities, which impose similar requirements.

The Company’s payment services business also is subject to regulation in the United States by the federal government including anti-money laundering regulations and certain restrictions on transactions to or from certain individuals, entities or countries. In addition, the money transfer business is subject to some form of regulation in each of the 195 countries and territories in which such services are offered. These regulations include limitations on what types of entities may offer money transfer services, limitations on the amount of principal that can be moved into or out of a country, limitations on the number of money transfers that may be sent or received by a customer, agreements on the rates of exchange between currencies, and regulations intended to help detect and prevent money laundering. The Company has developed compliance programs to monitor regulatory requirements and developments, and to implement policies and procedures to help satisfy these requirements. The Company’s money transfer network operates through independent agents in most countries, and the Company’s ability to directly control such agents’ compliance activities is limited. However, the Company has developed compliance programs which include agent training and monitoring to assist such agents to meet legal and regulatory compliance requirements. Additionally, the Company continues to enhance its compliance policies and programs to help augment its compliance efforts.

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Notwithstanding these efforts, the number and complexity of regulatory authorities around the world pose a significant challenge to the Company’s money transfer business. A violation of law may result in civil or criminal penalties or a prohibition against a money transmitter and/or its agents from providing money transfer services in a particular jurisdiction. Following the events of September 11, 2001, the United States and certain other countries have imposed or are considering a variety of new regulations focused on the detection and prevention of money transfers to or from terrorists and other criminals. The Company continues to implement policies and procedures to help satisfy these requirements. These additional efforts increase the Company’s cost of doing business. The Company believes that the trend toward additional regulation will continue.

Foreign and domestic governments may impose new rules on money transfers, including regulations which (i) prohibit transactions to or from certain individuals, entities or countries; (ii) impose additional reporting requirements in connection with money transfers; (iii) limit the entities capable of providing money transfer services; (iv) limit or restrict the revenue which may be generated from money transfers, including revenue derived from foreign exchange; (v) require additional consumer disclosures; or (vi) limit the number or principal amount of money transfers which may be sent to or from the jurisdiction.

Escheat Regulations

The Company is subject to escheat laws which require the Company to turn over to the states certain property of others held by the Company that has been unclaimed for a specified period of time, such as, in the payment services segment, money orders and other payment instruments that have not been presented for payment or, in the merchant services segment, account balances that cannot be returned to a merchant following discontinuation of its relationship with the Company. A number of the Company’s subsidiaries hold property subject to state escheat laws and the Company has an ongoing program to comply with those laws. The Company is subject to audit by the states with regard to its escheatment practices and, in 2002, nineteen states notified the Company of their intent to audit the Company’s escheatment practices. These audits by the states have not yet been initiated.

Other

The Company also provides certain services that are subject to (i) international and United States anti-money laundering laws such as the Bank Secrecy Act, (ii) privacy regulations such as the Gramm-Leach-Bliley Act, which provides for certain notices of privacy policies and the right to opt out of certain uses of nonpublic personal information to be given to consumers and customers of financial institutions, and limits the use, reuse and disclosure of certain nonpublic personal information, and (iii) the Fair Debt Collection Practices Act. Additionally, the Company and its subsidiaries are subject to various state and federal laws, which regulate competition. The Company continues to implement policies and programs as well as adapt its business practices and strategies to help it comply with these laws and regulations.

Competition

First Data has a strong competitive position in each of the three main segments in which it competes; payment services, merchant services and card issuing services. FDC faces significant competition in each of its business segments. The Company also competes with companies that internally perform processing or other related services offered by FDC. In addition, the Company believes that changes in enacted regulations and other legislation as well as other new technologies related to electronic commerce may impact the competitive environment in which the Company operates.

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The competitive environments in which each segment operates are described below:

Payment Services Segment—In the payment services segment, Western Union’s money transfer business competes with established financial institutions, international and regional money transfer providers and numerous niche or corridor providers as well as couriers, mail services and informal networks that deliver money. The Company also competes with bank wire transfer services. Companies using emerging technology associated with the Internet, ATMs and other media are also providing money transfer services in ways that compete with Western Union. In addition, the Company faces several smaller established competitors in providing commercial money transfer services. FDC’s official check and money order businesses compete primarily with financial institutions with in-house check products and with postal money orders and official checks and money orders of other providers, respectively.

The most significant competitive factors in the payment services segment relate to price, quality and reliability of service and agent locations.

Merchant Services Segment—The Company’s merchant services business and its alliances compete with several smaller national service providers and financial institutions that provide these services to their merchant customers. In many cases, the merchant alliances also compete against each other for the same business. FDC’s check guarantee and verification compete principally with two other national companies. The Company also faces significant competition from regional, national and international operators of ATM networks.

The most significant competitive factors relate to price, customer service, breadth of features and functionality, scalability and flexibility of infrastructure.

Card Issuing Services Segment—FDC’s card issuing segment competes with several other third-party cardholder processors in the United States, certain international processors as well as financial institutions that possess in-house operations to manage card issuance and maintenance.

The most significant competitive factors are price, system performance and reliability, breadth of features and functionality, disaster recovery capabilities and business continuity preparedness, data security, scalability and flexibility of infrastructure and customer service.

In both the merchant services and card issuing segments, the card associations—VISA and MasterCard—are increasingly offering products and services that compete with those of the Company. As discussed more fully in Item 3 (“Legal Proceedings”) below, the Company has counter sued VISA for using its market power and rule making ability to prevent the Company from competing with VISA for certain network services. It is not possible to determine at this time how and to what extent that litigation, and the card associations’ increased interest in electronic payment services, may affect the Company’s competitive position.

Emerging Payments Segment—govONE has one competitor of similar size in connection with the EFTPS government contract. eONE’s other businesses all have numerous competitors due to the emerging nature of the respective markets and no competitor is considered dominant.

Significance of Certain Customer Relationships

The Company does not have any significant customers that account for 10% or more of total consolidated revenues. Refer to the above segment discussions, which address significant customer relationships within the segments.

Industry Trends

Technological capabilities required for the rapid and efficient creation, processing, handling, storage and retrieval of information are becoming increasingly complex. These capabilities require significant development

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efforts, capital expenditures and processing expertise, and have contributed to a trend toward the outsourcing of processing services, which benefits the Company. The evolution of these capabilities is creating new competitors with innovative solutions, and also is driving an industry-wide consolidation, which is creating more established competitors. The Company is involved with payment solutions technologies, such as wireless paperless products, stored-value cards and other custom payment solutions. These technologies will continue to be a significant factor when considering the growth of the Company with respect to the continued conversion from paper processing to electronic transaction processing.

The merchant services segment expects that the shift from cash and check transactions to electronic and card transactions will continue to create growth opportunities. Bank industry consolidation impacts existing and potential clients in FDC’s service areas, primarily in card issuing services and merchant services. In addition, certain merchant processing alliance relationships have been impacted as a result of consolidations. In the aggregate, bank mergers have not significantly affected the Company to date. However, FDC could lose business in connection with future client mergers if the surviving or acquiring entity utilizes in-house processing services or those of a competitor of the Company. Currently there are two mergers that could have a significant impact to the Company. Those mergers are the J.P. Morgan Chase and Bank One Corp. merger and the Bank of America and FleetBoston merger.

Employees and Labor Relations

At January 31, 2004, the Company employed approximately 29,000 employees, approximately 95% of which were full-time employees. FDC has approximately 2,700 employees in the United Kingdom, a portion of which are members of UNIFI (formerly the Banking Insurance & Finance Union). In addition, Western Union has two four-year labor contracts (expiring August 6, 2004) with the Communications Workers of America, and AFL-CIO and its local 1177, both representing employees in the United States, which accounts for approximately 1,200 Western Union employees primarily located in Bridgeton and St. Charles, Missouri. The Company is currently renegotiating the labor contracts. The majority of the Company’s employees are not otherwise represented by any labor organization. The Company believes that its relations with its employees and the labor organizations identified above are good.

As of December 31, 2003, the Company and its subsidiaries owned or leased approximately 198 domestic (U.S.) properties, and approximately 95 properties internationally. These facilities are used for operational, sales and administrative purposes, and are all currently being utilized.

Payment services has principal operations in Greenwood Village and Englewood, Colorado; Westerville, Ohio; Bridgeton and St. Charles, Missouri; Montvale, New Jersey; Dublin, Ireland and Paris, France. Merchant services’ principal operations are conducted in Melville, New York; Hagerstown, Maryland; Coral Springs,

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Florida; Moorpark, California; Houston, Texas; Stuttgart, Germany and Sydney, Australia. The principal operations for card issuing services are located in Omaha, Nebraska; Orlando, Florida; Basildon, England; and Sydney, Australia. Emerging payments’ principal operations are located in Englewood, Colorado; Pittsburgh, Pennsylvania; Cincinnati, Ohio; San Francisco, California; Stuttgart and Frankfurt, Germany. The Company’s all other and corporate facilities include the Company’s corporate offices in Greenwood Village and Englewood, Colorado and other principal facilities in Atlanta, Georgia, Daytona, Florida, Corpus Christi, Texas and Omaha, Nebraska.

The Company believes that its facilities are suitable and adequate for its current business; however, the Company periodically reviews its space requirements and may acquire new space to meet the needs of its businesses or consolidate and dispose of or sublet facilities which are no longer required.

VISA U.S.A. Inc. litigation

As previously reported, on April 15, 2002, VISA U.S.A. Inc. filed a complaint in the United States District Court for the Northern District of California, San Francisco Division, against the Company and its subsidiaries First Data Resources, Inc. and First Data Merchant Services Corporation (“the VISA action”).

With VISA’s knowledge, these subsidiaries have been internally authorizing and settling certain VISA credit card transactions without the use of the VISA network for a number of years. VISA U.S.A. Inc. alleged that these actions constitute federal trademark infringement, federal trademark dilution, false designation of origin and false impression of association, breach of contract and breach of the covenant of good faith and fair dealing. VISA U.S.A. Inc. seeks a declaratory judgment, an injunction, damages in an amount to be proven at trial, costs of suit, and attorney fees. The Company intends to vigorously defend this action.

On November 5, 2002, the Company and two of its subsidiaries filed counterclaims in the Visa action. In the counterclaim, the Company alleges that VISA International and VISA U.S.A., Inc. (collectively “VISA”), have abused their market power to prevent the Company from internally processing VISA credit card transactions outside of the VISA network through private arrangements. The Company also alleges that VISA has barred the Company and its customers from using private arrangements to bypass the VISA network, requiring the Company’s customers to pay for VISA’s network services regardless of whether the customers use those services, uses its fee structure to raise the costs of rivals and potential rivals, imposes unreasonable conditions on rivals’ access to their network and deters and prevents its members from using more efficient providers of network services such as the Company. Based on this and other conduct, the counterclaim asserts claims of monopolization, attempt to monopolize, tying, unfair competition, violations of the Cartwright Act, defamation, trade libel, interference with prospective economic advantage, and breach of contract. The Company seeks trebled and punitive damages, attorneys’ fees and costs, restitution and disgorgement, and injunctive relief.

Cruz action

As previously reported, in 2001, Ana Cruz and Nubia Godoy each filed class action lawsuits based on similar factual allegations in the United States District Court for the Eastern District of New York against the Company and its subsidiary, Western Union Financial Services, Inc. These actions have been consolidated into a single action in which plaintiffs Ana Cruz, Ramata Sly, Clare Sambrook and Albert Lewis Vale filed a Second Consolidated Amended Class Action Complaint asserting claims on behalf of a putative worldwide class (the Cruz action). The putative class includes all consumers who used the services of Western Union or Orlandi Valuta to transmit money by wire (a) from the United States to a foreign country or territory (excluding Mexico) from January 1, 1995 to the date when defendants modified their send forms or receipts consistent with the settlement in the putative class action filed by Luis Pelayo and Oscar Perales against Western Union Financial

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Services, Inc. in the United States District Court for the Northern District of Illinois (the “Pelayo action”); (b) from the United States to a foreign country or territory (excluding Mexico) from the date when defendants had modified their send forms or receipts consistent with the Pelayo settlement to December 31, 2002; (c) from the United States (excluding California) to Mexico from September 1, 1999 to the date when defendants modified their send forms or receipts consistent with the Pelayo settlement; (d) from the United States (excluding California) to Mexico from the date when defendants had modified their send forms or receipts consistent with the Pelayo settlement to December 31, 2002; (e) from foreign country or territory to the United States from January 1, 1995 to the date when defendants modified their send forms or receipts consistent with the Pelayo settlement; and (f) from a foreign country or territory to the United States from the date when defendants had modified their send forms or receipts consistent with the Pelayo settlement to December 31, 2002, provided that the international money transfer transaction sent by the consumer during each of these periods referenced above involved a currency exchange and was within a country corridor that produced an average foreign exchange revenue per transaction gain of at least $1.00. Plaintiffs in the Cruz action assert that defendants impose an undisclosed “charge” when they transmit consumers’ money by wire to international locations, in that the exchange rate used in these transactions is less favorable than the exchange rate that Western Union receives when it trades dollars in the international money market. Plaintiffs further assert that Western Union’s failure to disclose this “charge” in the transactions violates 18 U.S.C. section 1961 et seq. and state deceptive trade practices statutes, and also assert claims for civil conspiracy. Plaintiffs seek injunctive relief, compensatory damages in an amount to be proven at trial, treble damages, punitive damages, attorneys’ fees, and costs of suit.

On September 30, 2002, the parties in the Cruz action jointly filed papers seeking an order preliminarily approving a proposed settlement. The proposed settlement, which is subject to preliminary and final approval by the court, includes the following terms: (1) Western Union (and, with respect to money transfer transactions from the U.S. other than California to Mexico, Orlandi Valuta) will issue coupons for discounts on future international money transfer transactions to customers who transferred money from the U.S. to certain countries other than Mexico between January 1, 1995 and approximately March 31, 2000 (for certain services, Western Union will issue coupons for transactions conducted as late as December 31, 2001), from anywhere in the U.S. other than California to Mexico between September 1, 1999 and March 31, 2000 (again, for certain services, Western Union will issue coupons for transactions conducted as late as December 31, 2001), from countries other than Canada to the U.S. between January 1, 1995 and approximately March 31, 2000, and from Canada to the U.S. between January 1, 1995 and approximately July 31, 2002; (2) injunctive relief requiring Western Union and Orlandi Valuta to make additional disclosures regarding their foreign exchange practices; (3) defendants will pay plaintiffs’ reasonable attorneys’ fees, expenses and costs; and (4) defendants will pay the costs of notice to the class and settlement administration. The Court granted preliminary approval of the proposed settlement, granted approval of the proposed form and manner of class notice, and scheduled a Fairness Hearing for April 9, 2004. The Court also denied without prejudice the motion for an injunction barring and enjoining the prosecution of any action that asserts claims that will be resolved by the settlement. If the settlement is not approved, the Company intends to vigorously defend this action.

Settlement of Department of Justice Merger Litigation

As previously reported, on October 23, 2003, the United States Department of Justice (“DOJ”), along with District of Columbia and eight states, filed a lawsuit against the Company and Concord EFS, Inc. (“Concord”) in the United States District Court for the District of Columbia. The plaintiffs alleged that the Company’s proposed acquisition of Concord will substantially reduce competition among Personal Identification Number (“PIN”) debit networks for retail transactions in violation of Section 7 of the Clayton Act. The plaintiffs sought a permanent injunction against the merger of the two companies and costs of the action. The eight states and the District of Columbia also sought reasonable attorney fees.

On December 14, 2003, the Company and Concord entered into an agreement with the DOJ, the eight states and the District of Columbia on terms that will allow the companies to complete their proposed merger. The agreement calls for the Company to divest its 64% ownership of NYCE Corporation (“NYCE”) within 150 days

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after the Court’s signing of the Hold Separate Stipulation and Order or five days after entry of a final judgment, whichever is later, to an acquirer acceptable to the Department of Justice. The time period may be extended for up to 90 days. If NYCE is not divested within that time period, the DOJ may apply for the appointment of a trustee selected by the DOJ to effect the divestiture of NYCE. The Stipulation requires that NYCE be operated as an independent, economically viable and competitive business concern, uninfluenced by FDC’s acquisition of Concord, while the divestiture of FDC’s interest in NYCE is pending. Following divestiture, the Company may not reacquire any ownership interest in NYCE for ten years from the date of the final judgment.

Department of Justice Investigation

On February 4, 2004, Western Union received a Civil Investigative Demand (“CID”) from the DOJ and has been informed that the civil antitrust investigation is focused on contractual relationships between the Company’s money transfer business and its money transfer agents. The Company also has been informed that several states have opened or are considering opening investigations concerning the competitive aspects of the company’s money transfer business. The investigations are at an early stage and there is no indication that any action will be taken as a result of the investigations.

Final Settlement of Amorsolo Action

As previously reported, on August 4, 2003, the court issued an order granting final approval of a settlement in the putative class action filed by Julieta Amorsolo and Apolonio Ezequiel Viruel Torres against the Company and its subsidiaries Western Union Financial Services, Inc. and Orlandi Valuta in the Superior Court of the State of California for the County of Los Angeles (the Amorsolo action). The court also issued an order on August 14, 2003, granting the award of the plaintiffs’ attorneys’ fees and costs and the award of individual benefits to the class representatives. The time to appeal these orders of the court has expired, and no notice of appeal has been received. The terms of the settlement will now be implemented, and the implementation of the settlement will result in the resolution of all claims asserted against the Company, Western Union, and Orlandi Valuta.

The putative class consists of those persons who have used Western Union’s or Orlandi Valuta’s services after August 31, 1999 to transmit money from California to Mexico, or who have used the Western Union or Orlandi Valuta money transfer services to transmit money from California to Mexico and have opted out of the nationwide settlement in the Pelayo action. Plaintiffs claim that Western Union and Orlandi Valuta charge an undisclosed “commission” when they transmit consumers’ money by wire to Mexico, in that the exchange rate used in these transactions is less favorable than the exchange rate that Western Union receives when it trades dollars in the international money market. Plaintiffs assert that Western Union’s failure to disclose this “commission” in its advertising and in the transactions violates state law. Plaintiffs seek injunctive relief, imposition of a constructive trust, an accounting, restitution, compensatory and statutory damages alleged to be in excess of $500 million, statutory penalties in an amount of $1,000 for each offense, punitive damages, attorneys’ fees, prejudgment interest, and costs of suit.

The settlement provides for the following: (1) Western Union and Orlandi Valuta will issue coupons for discounts on future money transfer transactions from California to Mexico to class members who transferred money from California to Mexico between January 1, 1987 and March 31, 2000; (2) the Company also will make a cy pres payment of $1.5 million to be distributed to charitable organizations that assist the Mexican and Mexican-American communities in the State of California; (3) injunctive relief requiring Western Union and Orlandi Valuta to make additional disclosures regarding their foreign exchange practices and to include a provision in new and renewed contracts with agents in Mexico prohibiting the imposition of an undisclosed charge on recipients of money transfers; and (4) reasonable attorneys’ fees, expenses and costs as well as the costs of settlement notice and administration.

From time to time the Company is involved in various other litigation matters arising in the ordinary course of its business, none of which management believes, either individually or in the aggregate, currently is material to the Company.

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ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company held a Special Meeting of Stockholders on October 28, 2003. At the meeting, the stockholders approved the issuance of shares of First Data Corporation common stock as contemplated by the Agreement and Plan of Merger, dated as of April 1, 2003, among First Data Corporation, Monaco Subsidiary Corporation, a wholly owned subsidiary of First Data Corporation, and Concord EFS, Inc. The results of the voting were as follows:

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PART II

ITEM 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for the Company’s common stock is the New York Stock Exchange (“NYSE”), ticker symbol FDC. The following table sets forth, for the indicated calendar periods, the reported intraday high and low sales prices of the common stock on the NYSE Composite Tape and the cash dividends per share of common stock. The sales prices and dividends noted below have been retroactively restated for all periods to reflect the impact of a stock split that was distributed on June 4, 2002. At January 31, 2004, the registrant had 3,028 common stockholders of record.

The timing and amount of future dividends will be (i) dependent upon the Company’s results of operations, financial condition, cash requirements and other relevant factors, (ii) subject to the discretion of the Board of Directors of the Company, and (iii) payable only out of the Company’s surplus or current net profits in accordance with the General Corporation Law of the State of Delaware.

The following table presents stock repurchase programs authorized by the Board of Directors from 2000 through 2003, disclosing total shares purchased under each program and the associated cost (in millions):

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ITEM 6.    SELECTED FINANCIAL DATA

The following data should be read in conjunction with the Consolidated Financial Statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations included elsewhere in this annual report.

The Notes to the Consolidated Financial Statements contain additional information about various acquisitions (accounted for as purchases), dispositions and certain charges and benefits resulting from restructurings, impairments, litigation and regulatory settlements, investment gains and losses and divestitures, which affect the comparability of information presented. Certain prior years’ amounts have been restated to conform to the current year presentation. The Company classified NYCE as a discontinued operation in the fourth quarter 2003. The data below has been restated from historically reported results to reflect the impact.

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ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Business Overview

First Data Corporation (“FDC” or “the Company”), with headquarters in Denver, Colorado, operates electronic commerce and payment services businesses that serve approximately 3.1 million merchant locations, 1,400 card issuers and millions of consumers. FDC operates in four business segments: payment services, merchant services, card issuing services and emerging payments. A brief description of each segment’s operations is provided below.

Payment Services Segment

The payment services segment is comprised of businesses that provide money transfer services to consumers and businesses whether they be electronically from one location to another or through the issuance of an official check or money order by a bank or other institution. It is headquartered in Denver, Colorado with significant operations in St. Charles, Missouri and has more than 182,000 agent locations throughout the world. A brief explanation of the segment’s service offerings is presented below.

Merchant Services Segment

The merchant services segment is comprised of businesses that facilitate the acceptance of consumer transactions at the point of sale, whether it be transactions at a physical merchant location, over the Internet or at an automated teller machine (“ATM”). It is headquartered in Melville, New York and its significant operations are in Hagerstown, Maryland, Houston, Texas and Coral Springs, Florida. A brief explanation of the segment’s service offerings is presented below.

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Card Issuing Services Segment

The card issuing services segment primarily encompasses domestic and international card processing for card issuers. Its headquarters and most significant operations are located in Omaha, Nebraska. A brief explanation of the segment’s service offerings is presented below.

Emerging Payments Segment

The emerging payments segment consists of a majority ownership interest of approximately 75% in eONE Global, LP (“eONE”) and its subsidiaries discussed herein. eONE is focused on identifying, developing, commercializing and operating emerging payment systems and related technologies in three areas: government payments, mobile payments, and enterprise payments. It is headquartered in Napa, California with its most significant operations in Denver, Colorado. A brief explanation of the segment’s service offerings is presented below.

The remainder of the Company’s business units are grouped in the “all other and corporate” category, which includes Teleservices, a provider of voice-center services to telecommunications and financial services industries, First Data Voice Services, a provider of Interactive Voice Response (“IVR”) services and corporate operations.

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Business Developments

The Company’s growth strategy is focused on internal revenue growth, supplemented by acquisitions. The Company seeks strategic acquisitions that fit within its core competencies, allow expansion into adjacent markets, or provide entry into new international markets. The Company continues to extend its global reach, leveraging its enterprise capability, and continues to introduce new products and technologies to the marketplaces the Company serves around the world.

In April 2003, the Company signed a definitive agreement to merge with Concord in an all stock transaction. Concord is an electronic transaction processor that operates in two segments, network services and payment services, which provide services similar to FDC’s ATM and PIN-based debit businesses and the merchant acquiring business discussed above. Network services provides ATM processing, debit card processing, deposit risk management and STAR network access principally for financial institutions. Payment services provides point of sale processing, settlement and related services, with specialized systems focusing on supermarkets, major retailers, gas stations, convenience stores, restaurants and trucking companies.

In shareholder meetings held on October 28, 2003 the shareholders of FDC and the shareholders of Concord each approved the merger of the two companies. Prior to these meetings, on October 23, 2003, the DOJ along with District of Columbia and eight states, filed a lawsuit against FDC and Concord in United States District Court for the District of Columbia, seeking a permanent injunction against the merger of the two companies. On December 15, 2003, FDC announced an agreement with the DOJ that will allow the Company to complete the pending merger with Concord. The Stipulation requires that NYCE be operated as an independent, economically viable and competitive business concern, uninfluenced by FDC’s acquisition of Concord, while the divestiture of FDC’s interest in NYCE is pending. The agreement provides for FDC’s divestiture of its 64% ownership of NYCE. Concurrent with reaching agreement with the DOJ, the Company and Concord amended the merger agreement, modifying the exchange ratio from 0.40 to 0.365 FDC common shares for every Concord common share. Because the Company and Concord renegotiated the terms of the merger since the date of the first special shareholders meeting, including the consideration to be received by the shareholders, the law requires Concord shareholders to vote on whether to approve the terms of the amended merger agreement. Concord has scheduled a special shareholders meeting to be held on February 26, 2004. If approved by Concord shareholders, the Company expects the merger will close shortly thereafter. FDC is not required to hold a similar shareholder meeting.

To complete the transaction pursuant to the exchange ratio, FDC will issue approximately 170 million shares of FDC common stock to Concord shareholders, and issue options to purchase approximately 21 million shares of FDC common stock. This consideration equates to an approximate purchase price, including acquisition related costs, of $7 billion. Upon completion of the merger, based on the number of FDC and Concord shares and options outstanding on January 16, 2004, FDC’s stockholders immediately prior to the merger will own approximately 81% of FDC’s outstanding shares on a fully diluted basis, and Concord’s former shareholders will own approximately 19%. The exchange of shares in the merger is expected to qualify as a tax-free reorganization, allowing Concord shareholders to defer any gain on their shares for U.S. income tax purposes. Until closing of the Concord transaction, Concord and FDC remain competitors in their respective debit network and merchant processing businesses and FDC is subject to limitations on access to competitively sensitive information from Concord. However, it is public knowledge that several of Concord’s debit network customer contracts are coming up for renewal and that Concord recently announced that some of its debit network customers have given notice of intent to not renew their contracts. In addition, Concord is subject to various litigation matters, including pre-existing securities litigation, which are expected to continue following closing of the transaction.

With respect to the divestiture of FDC’s 64% ownership interest in NYCE, as required in connection with the Concord acquisition, the timing of this divestiture and the value ultimately received for its interest in NYCE may be subject to a number of variables outside of the control of the Company. While the Company has received

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numerous preliminary expressions of interest to purchase its interest in NYCE, the dynamics of a compelled divestiture, subject to DOJ approval, of a 64% ownership interest coupled with restrictions in the agreement with the DOJ on the Company’s exercise of control over NYCE pending completion of the divestiture and pre-existing rights of the minority owners, both as shareholders of NYCE and as NYCE network customers, all could act as constraints on the Company’s ability to maximize the value of its interest in NYCE in the divestiture process. If the Company’s interest in NYCE has not been divested by mid-May, subject to a right to extend until mid-August with the consent of the DOJ, the Court could appoint a trustee to effect the sale of the Company’s interest in NYCE.

A significant portion of the Company’s revenue growth comes from growth in transactions and dollar volumes generated by existing customers. This internal growth, combined with long-standing client relationships and contracts, generates the recurring revenues on which the Company’s business model is largely based. The length of contracts varies across the Company’s business units, but most are for multiple years. Western Union agent contracts generally run from three to five years; most merchant services alliance agreements, which account for a significant portion of the Company’s merchant services business, have terms between five and ten years; and card issuing services contracts generally have terms between five and ten years. A majority of the Company’s customer contracts are renewed and many significant business relationships have extended far past their initial terms.

FDC’s acquisitions typically complement existing products and services, enhance the Company’s product lines and/or expand its customer base. The Company leverages its existing brands, alliance branding relationships and infrastructure (e.g., established sales force, distribution channels, including its 182,000 worldwide Western Union agent locations and approximately 3.1 million merchant locations, etc.) to complement and introduce the acquired company’s products to new markets, customers and geographic areas. Due to the complementary nature of the Company’s acquisitions, FDC expects to enhance the revenue and earnings potential of acquired companies soon after acquisition.

Payment Services Segment

Payment services, which primarily is comprised of Western Union, continues to focus on international growth by 1) expanding and diversifying its global distribution network; 2) building the brand and enhancing the consumer experience; and 3) leveraging channels and diversifying product offerings. Western Union continues to execute against these key strategies outlined below to drive growth.

Expand and diversify the global distribution network:

Western Union currently has approximately 182,000 agent locations in more than 195 countries and territories with a backlog of 16,000 locations that are expected to be activated in the next 12 months. During 2003, Western Union signed several significant new international agents, which contributed to the increase of approximately 31,000 locations in 2003. Two countries with significant long-term potential for the Company are China and India. Western Union has agreements with the post offices in both countries, as well as agreements with a bank in China and banks and retail locations in India. Currently, Western Union has approximately 25,000 agent locations in China and India combined. In addition to China and India, Western Union added locations in Australia, Eastern Europe, and parts of the Middle East and Africa. Like most other Western Union international locations, these new locations will likely require between three to five years to realize their potential. The Company’s U.S. domestic money transfer business remains strong. New domestic locations are being strategically added to the network to match the international demand. During 2003, a multi-year contract extension was signed with one of Western Union’s key agents, which included the addition of approximately 500 locations in Texas, California and Indiana.

Build the brand and enhance the consumer experience:

Each year, Western Union makes marketing investments to build brand awareness and to support long term growth. In 2003, global marketing focused on building brand awareness, simplifying transactions at the point-of-

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sale, increasing customer retention and transaction frequency through loyalty programs and other marketing programs to drive transaction growth. Western Union improved the consumer experience through a variety of initiatives, including simplifying the transaction at the point-of-sale and usage of loyalty cards.

Leverage channels and diversify product offerings:

Western Union offers a diverse portfolio of products serving the consumer-to-consumer, consumer-to-business, and prepaid markets. Today, transactions begin at the counter, by telephone, ATM, on-line at www.westernunion.com, or at one of the Company’s 6,000 direct connect locations, where consumers are guided through transactions in their native language by one of the Company’s customer service professionals. Western Union continues to test new services including Direct to Bank and Cash to Card, as well as assess additional strategic global acquisitions to continue to meet the needs of a diverse consumer base. The 2002 strategic acquisitions of Paymap and E Commerce Group have been integrated into Western Union, providing additional product and service offerings to existing Western Union customers. In addition, the 2003 acquisition of a majority ownership interest in Eposs Ltd, (“Eposs”), a Cambridge, U.K.-based seller of prepaid cellular services in Europe and Asia is expected to provide international expansion by leveraging the Western Union network already in place in many key countries.

Western Union operates in a very competitive environment. The Company continues to experience vigorous competition in the traditional money transfer business and is encountering expanded competition from banks and ATM providers that are targeting money transfer services with new product offerings. To effectively compete with these new channels, the Company continues to develop new services and distribution channels as noted above. The Company continues to invest significant amounts in its global advertising campaign to build the Western Union brand. Part of this campaign is the introduction of a variety of loyalty card programs, to enhance Western Union marketing efforts through proactively managing customer relationships. By using the cards, customers have the opportunity to gain benefits such as special merchandising offers, as well as a significant reduction in transaction time. These loyalty programs are designed to enhance the customer’s experience by consistently providing a higher quality of service, while not sacrificing the security and dependability of transactions.

Money transfers are affected by immigration and the ability of migrants to remit money home. While immigration growth could be slowed by tightened immigration requirements, immigration will continue as migrants from developing nations are attracted by the superior job opportunities in the developed world. Furthermore, low birthrates and an aging population in many European countries indicate that these countries will continue to have a need to attract migrant workers. The ongoing recovery in the U.S. and Europe suggests that in the near term migrant workers could enjoy rising employment and wage gains, boosting their ability to send money home.

Western Union’s money transfer business to, from or within a country may be affected by a number of political, regulatory compliance and economic factors. From time to time, transactions within or between countries may be limited or prohibited by law. Additionally, economic or political instability may make money transfers to, from or within a particular country impracticable, as when banks are closed, devaluation of the currency makes it difficult to manage exchange rates, or civil unrest makes access to Western Union agent locations unsafe. Immigration patterns, new regulations, changing economic conditions, the geo-political environment, competition and other factors can impact both transactions and revenues. Events such as these during 2003 included Western Union suspending its business in Venezuela for approximately two months of the first quarter due to new regulations imposed by the Venezuelan government. The impact of these events had less than a 1% effect on Western Union’s international revenue and transaction growth. Additionally, Israel’s growth rates continue to be negatively impacted due to political unrest.

The Company’s money transfer business is subject to regulation in the United States by the federal government and most of the states. In addition, the money transfer business is subject to some form of regulation

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in each of the more than 195 countries and territories in which such services are offered. The Company has developed compliance programs to monitor regulatory requirements and developments, and to implement policies and procedures to help satisfy these requirements. It is important to recognize, however, that the Company’s money transfer network operates through independent agents in most countries. The Company continues to enhance compliance programs focused on agent training and monitoring to help ensure legal and regulatory compliance by its agents.

Some of the compliance enhancements and policies have been developed in direct response to results from an examination of Western Union by the New York State Banking Department (the “Banking Department”) in 2002. The Banking Department identified alleged deficiencies relating to transaction reporting and agent supervision requirements under federal and state regulations. To resolve the matter, without any admission of wrongdoing, Western Union entered an agreement with the Banking Department related to Western Union’s enhanced regulatory compliance program requiring a monetary payment of $8.0 million to the Banking Department. Western Union also reached an agreement with the U.S. Department of the Treasury (the “Treasury Department”) on March 6, 2003 regarding the Treasury Department’s determinations related to filings required under the Bank Secrecy Act (“BSA”) for transactions occurring throughout the United States. Western Union agreed, without admitting or denying the Treasury Department’s determinations, to make a monetary payment of $3.0 million to the Treasury Department and also agreed to file additional reports and enhance its compliance program. The monetary payments of $11.0 million were recorded as litigation and regulatory settlement charges in the Company’s 2002 results of operations. Additionally, on August 14, 2003, without any admission of wrongdoing, Western Union entered into a Consent Agreement with the California Department of Financial Institutions (“California Consent Agreement”) pursuant to which the Company agreed to enhance its compliance program in California to ensure compliance with the BSA and the California Financial Code relating to money transmission. Pursuant to the California Consent Agreement, Western Union agreed to dedicate resources of at least $5 million through 2006 to its California compliance program. The Company continues to enhance its regulatory compliance activities and monitor transactions to ensure compliance with domestic and international regulations. During 2003, the Company spent an incremental $18.5 million on compliance activities compared to 2002.

Notwithstanding these efforts, the number and complexity of regulatory authorities around the world pose a significant challenge to the Company’s money transfer business. A violation of law may result in civil or criminal penalties or a prohibition against a money transmitter and/or its agents from providing money transfer services in a particular jurisdiction. Following the events of September 11, 2001, the United States and certain other countries have imposed, or are considering, a variety of new regulations focused on the detection and prevention of money transfers to or from terrorists and other criminals. The Company continues to implement policies and procedures to help satisfy these requirements. These additional efforts increase the Company’s costs of doing business. In addition, competitors who may not satisfy these regulatory requirements, but who continue to operate, may pose a competitive disadvantage to the Company. The Company believes that the trend toward additional regulation will continue.

On February 4, 2004, Western Union received a Civil Investigative Demand (“CID”) from the DOJ and has been informed that the civil antitrust investigation is focused on contractual relationships between the Company’s money transfer business and its money transfer agents. The Company also has been informed that several states have opened or are considering opening investigations concerning the competitive aspects of the Company’s money transfer business. Because the investigations are at an early stage, the Company cannot predict the outcome of the investigations and their effect on the Company’s business.

Merchant Services Segment

Within the merchant services segment, the Company will expand its position in the credit, signature and PIN-based debit processing market through the acquisition of Concord, if approved by Concord’s shareholders. The acquisition of Concord includes the STAR debit network, which is a national debit network in the United States. Concord also provides merchant processing services to approximately 450,000 merchants that will

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complement the existing merchant customer base. As noted above, FDC agreed to divest its 64% ownership of NYCE as part of its agreement with the DOJ to allow the merger with Concord.

The Company continues its commitment to its merchant alliance strategy, growing the international business and expanding into adjacent markets. The Company’s international expansion was furthered during 2003 by the acquisition of TeleCash Kommunikations—Service GmbH (“TeleCash”), which is a Germany-based seller and servicer of POS terminals and an electronic payment network operator. Additionally, the Company sold an agent bank portfolio and extended a long-term processing contract with the acquirer. This transaction aligned approximately 170 small agent banks with the acquirer and strengthened an existing strategic relationship. The transaction provides an enhanced channel for merchant services to expand processing services for new merchant accounts by matching a previously unaligned portfolio with a processing partner specializing in agent banks.

The banking industry has experienced dynamic changes during the past few years, which are expected to continue. Recently, J.P. Morgan Chase and Bank One Corp. and earlier in the year Bank of America and FleetBoston Financial Corp. announced their intent to merge. The Company currently is assessing the impact these mergers may have on its operations and the potential impact on ongoing relationships with these customers. Further consolidation among financial institutions could negatively impact FDC’s alliance strategy, especially where the banks involved are committed to merchant processing businesses that compete with the Company. On the other hand, the acquisition of new merchant business by an existing alliance bank can result in such business being contributed to the alliance.

There also have been developing trends in the competitive landscape with the emergence of VISA becoming a more predominate competitor. In addition to its role in the settlement of VISA transactions and its ownership of the Interlink branded debit network, VISA is expanding its suite of service offerings to merchants and financial institutions. Such services may result in VISA significantly expanding its presence in the merchant acquiring market. As previously noted, several of Concord’s STAR debit network customers have given notice of their intent to not renew their contracts. Several of these customers may convert to VISA’s Interlink debit network.

Merchant services segment revenues are driven largely by the number of transactions (and, to a lesser degree, dollar volumes) processed by the Company; therefore, this segment is the least insulated from economic slowdowns. Several economic indicators show consumer spending was relatively soft in 2003 until the summer, when consumer spending became more robust because of the ongoing recovery in the labor market and the general economy. Enhancing this growth and counterbalancing the future impacts of a soft economy is consumers’ increased use of credit, debit and stored-value cards in place of cash and checks, although decreased use of checks negatively affects the Company’s check guarantee and verification business. The Company expects that if consumer spending increases in correlation to an improved economy, the Company will experience a relatively proportionate increase in transactions.

The industry has seen a shift to the use of PIN-based debit cards from credit, signature debit, check and cash. The Company expects the growth in the PIN-based debit market to exceed the credit market and believes the acquisition of the STAR debit network, as part of the Concord merger, will firmly establish the Company within this market. The increased usage of debit cards at the point of sale may have a negative impact on the Company’s check guarantee and verification business as customers may shift away from the use of checks.

Trends in consumer spending between national, regional and boutique merchants impact revenue and operating margins. Revenue per transaction and operating margins from national merchants typically are less than regional and boutique merchants and have contributed significantly to the three to five percent price compression the Company has experienced. As consumers shift spending to national merchants and the Company accepts lower pricing for national merchant contracts, results of operations could be negatively impacted if increased transaction volume is not sufficient to compensate for the lower pricing. Merchant services’ client mix has the effect of mitigating the effects of movement of consumers from one category of merchant to another since it is well represented in each category and will be even better represented upon consummation of the pending Concord merger. The Company historically has mitigated price compression through expense reductions and enhanced product offerings.

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Along with international expansion and an increased number of credit and debit transactions, payments processed over the Internet represent a growth opportunity for the merchant services segment. Internet payments continue to account for a small portion of the segment’s transactions. While transactions over the Internet may involve increased risk, the Company continues to enhance its fraud detection and other systems to address such risks.

Card Issuing Services Segment

The Company continues to obtain scale and leverage in the card issuing business by making the best use of its existing capacity. The key initiatives in the segment are as follows: convert the 70 million of primarily retail accounts in the pipeline, leverage the cash flows of the business, maximize productivity as well as system capacity in output services and plastics, and grow through expansion into adjacent markets.

The Company has strong relationships and many long-term customer contracts with approximately 1,400 card issuing customers. The average length of contracts with these customers is approximately seven years, with the top 15 customers averaging approximately 10 years. These long-term contracts generally require a notice period prior to the end of the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a change in control. The termination fees paid upon the occurrence of such events are primarily designed to cover any balance sheet exposure associated with the contract and, in some cases, may cover a portion of lost future revenue and profit. However, the termination fees are not designed, in all instances, to cover the potential loss of future revenue and profit. Although these contracts may be terminated upon certain occasions, the contracts provide the segment with a steady revenue stream since a vast majority of the contracts are honored through the contracted termination date. The above noted merger between J.P. Morgan Chase and Bank One Corp. could result in Chase having the right to terminate the contract early based on certain provisions of the contract.

As part of its international growth strategy, the Company entered into a processing agreement with CUETS, a card processing company for Canadian credit unions. In the Asia Pacific and Latin American regions, the Company continued leveraging software solutions, most notably its VisionPLUS software. The VisionPLUS platform is operating in Shanghai, which will allow the Company to process for China Everbright Bank, a recently signed outsourcing contract. Additionally, the Company began processing for Westpac Banking Corporation in Australia on the VisionPLUS platform in 2003. In addition, the Company’s operations in the United Kingdom are expanding and have signed several agreements with new customers in Europe.

The underlying economic drivers of card issuance are population demographics and employment. New cardholders are predominantly people aged 18-24, a demographic segment that has been growing at a faster pace than the general population in recent years. Strengthening in the economy typically results in an improved credit risk profile, allowing card issuers to be more aggressive in their marketing campaigns to issue more cards.

The Company continues to increase its card accounts on file. As of December 31, 2003, the Company had a total of 347.8 million accounts on file. Of this total, 316.6 million were domestic and 31.2 million were international. As previously noted, the Company has a pipeline of 70 million accounts, which are primarily retail accounts, and all are to be converted by the end of 2004. During 2003, retail accounts generated approximately 26% of the revenue of a bankcard account. Due to expected changes in both bankcard and retail client mix and product usage from 2003 to 2004, retail accounts are expected to generate less than 26% of the revenue of a bankcard account in 2004 as noted above. The Company expects 2004 operating profit margins to be approximately the same as in 2003. The effects of client mix, and the card type mix shifting more heavily towards retail versus bankcards, will cause revenues to grow more slowly than accounts on file. As the client and card mix changes, the Company addresses its cost structure to maintain a relatively consistent operating profit margin.

The Company expects growth in accounts on file to exceed revenue growth due to the effects of client mix, the card type mix shifting more heavily towards retail versus bankcard, and the associated revenue per account

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on file. Over the last two years, the mix of accounts on file has moved towards retail. Retail accounts have increased from 25% to 34% of card issuing services’ total card accounts on file. Future growth in accounts on file is expected to continue from retail cards, which is discussed in more detail below in the segment’s results of operations discussion. Although there will be a reduction of revenue for the segment, the Company restructured certain activities in the third quarter of 2003 to adjust its cost structure and is pursuing opportunities to utilize capacity in the print/mail and plastic production areas, that will become available as a result of the planned upcoming deconversion.

In connection with a customer’s acquisition of a bankcard portfolio, a customer decided to take nearly 20 million bankcard accounts to a client’s in-house system. The client agreed to convert more than that number of retail accounts onto the Company’s system by the end of 2004. In addition, as previously announced, Bank One Corp. notified the Company of its intention not to renew its contract for processing services, which will result in approximately 42 million bankcard accounts currently on file being deconverted by what is anticipated to be the fourth quarter 2004. However, Bank One has the option of continuing to process through FDC’s system through September 2005. Based on the above and internal growth from its existing card account base, which takes into account the subprime market discussed in the segment results, the Company expects to have approximately 360 million accounts on file by year-end 2004.

Consolidation of card portfolios either via financial institution consolidation or sale, has led to an increasingly concentrated client base, which results in a changing client mix toward larger customers. In addition to the planned mergers of J.P. Morgan Chase and Bank One and Bank of America and FleetBoston, Citibank acquired the Sears portfolio and Royal Bank of Scotland acquired People’s portfolio. J.P. Morgan Chase, FleetBoston, People’s, Bank One Corp. and Citibank retail are all currently contracted customers of the Company and combined account for approximately 28% of the segment’s revenue.

During 2003, card issuing services installed certain system upgrades and enhancements in connection with its redesign of the North American card processing system, which was completed in the first quarter of 2003. Ongoing client specific system development will occur to support cardholder account conversions. Any unexpected delay in contracted client-specific system development could postpone certain conversions scheduled for 2004 and affect the segment’s revenue and operating profit.

Emerging Payments Segment

Through govONE Solutions, LP (“govONE”), a subsidiary of eONE Global, LP (“eONE”), the Company provides electronic tax processing services as a subcontractor for a partner bank, which has contracted with the Treasury Department, Financial Management Service (“FMS”), to be a provider of the Electronic Federal Tax Payment Service (“EFTPS”). In January 2004, govONE and its partner bank submitted a renewal proposal to FMS which indicated it would select a single provider of EFTPS services. govONE is currently one of only two providers of this service. The current EFTPS contract has been extended for an indefinite period, not to exceed December 31, 2004. In connection with the formation of the eONE partnership in November 2000, the Company agreed to contribute up to $100 million to eONE, its approximately 75% owned subsidiary, in the event that govONE’s contract with its partner bank related to the EFTPS contract is not renewed or is renewed on terms which are materially worse than the current contract and have a material adverse effect on the business of govONE. At this time, the Company does not know if a contribution will be required or, if required, the amount of such contribution.

Encorus is negotiating a long-term contract to provide mobile commerce transaction processing services to several international wireless phone providers. This contract is expected to be signed in the first quarter of 2004 with acceptance testing by the phone providers scheduled to be completed in the third quarter. Revenues from these services are subject to consumer market adoption. eONE’s balance sheet exposure related to Encorus Technologies (“Encorus”) goodwill and intangibles totaled approximately $33 million at December 31, 2003.

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Other

Management continues to look for ways to eliminate barriers across all lines of business to more efficiently and effectively operate the business as one company. The Company is beginning to more effectively cross sell products within the FDC family and continues to look for new and more effective ways to leverage its market presence across the enterprise. To enhance this effort, the Company announced on January 30, 2004, the creation of the Domestic Enterprise Payments organization. This new organization will consist of a number of elements, including the existing merchant services business and certain departments within card issuing services. Upon closure of the merger, the majority of Concord’s operations also will be part of this organization. Additionally, two other new organizations, Enterprise Sales and Enterprise Utilities, will be part of the Domestic Enterprise Payments organization. The Enterprise Sales organization will focus on major customers and prospects across the organization. The Enterprise Utilities organization will consolidate common functions and activities, which now exist across certain segments and within Concord upon the closing of the merger. These functions and activities include call centers, customer service operations, output services and settlement operations. Transaction processing efforts, including First Data Net also will be part of Enterprise Utilities. This organization is expected to be in place by the end of the first quarter 2004 and may impact, along with the Concord integration, the reporting segments.

The Company continues to streamline operations and reduce costs as it continues to enhance its business model. The Company has been successful with the implementation of Six Sigma initiatives, a widely adopted methodology to measure and improve a company’s operations performance by identifying and eliminating the defects in processes, and streamlining operational costs across the Company through the development of shared services functions. Additionally, the Company continues to upgrade its business continuity plans to address new systems and platforms and continues to focus on security around its systems and facilities.

2003 Acquisitions

On March 24, 2003, the Company acquired TeleCash. TeleCash is a Germany-based seller and servicer of point-of-sale terminals and an electronic payment network operator. This acquisition allows the Company to expand its commitment to meet the international payment processing needs of banks and merchants.

In August 2003, Western Union purchased a majority interest in Eposs, a Cambridge, U.K.-based seller of prepaid cellular telephone services in Europe and Asia.

Other acquisitions during 2003 include:

On December 22, 2003, the Company announced it signed and entered into a Merger Implementation Agreement to acquire 100% of Cashcard Australia Limited, a provider of ATM services in the Australian marketplace. The transaction remains subject to Cashcard shareholder and judicial approval, as well as satisfaction of other closing conditions. The transaction will allow for FDC’s entry into the fast growing Australian merchant ATM deployment market. The transaction will create opportunities for FDC and Cashcard clients, expanding the delivery of services such as credit and debit POS processing, deployment of merchant ATM’s, check authorization and money transfer. In February 2004, the Australian Competition and Consumer Commission notified the Company that it would not oppose the acquisition. The Company anticipates closing the transaction during the second quarter of 2004.

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Components of Revenue and Expenses

The following briefly describes the components of operating revenue and expenses as presented in the Consolidated Statements of Income. Descriptions of the revenue recognition policies are included in Note 1 of the Consolidated Financial Statements.

Transaction and processing service fees—Revenues are based on a per transaction fee, a percentage of dollar volume processed, accounts on file or some combination thereof. These revenues represent 85% of FDC’s revenues and are most reflective of the Company’s core business performance. Payment services segment revenue is primarily earned from transaction fees charged to consumers sending money transfers. Within the merchant services segment, revenue is comprised primarily of fees charged to merchants and processing fees charged to alliances accounted for under the equity method. Merchant discount revenue from credit card and signature debit card transactions acquired from merchants is recorded net of interchange and assessments charged by the credit card associations. Revenue from PIN-based debit card transactions are recorded gross with the associated network fee recorded in cost of services. Merchant services revenues include check guarantee and verification fees which are charged on a per transaction basis or as a percentage of the face value of the check. Card issuing services revenue is comprised primarily of fees charged to the issuing bank based on cardholder accounts on file, both active and inactive, and to a lesser extent, transaction volumes processed.

Investment income, net—Revenue is derived primarily from interest generated by settlement assets within the payment services and merchant services segments, and realized net gains and losses from such assets. This revenue is recorded net of commissions to official check agents and associated hedges.

Professional services—Revenue is recognized from custom programming and system consulting services by the card issuing segment and by GovConnect in the emerging payments segment.

Software licensing and maintenance—Software licensing and maintenance revenue is generated primarily from the VisionPLUS software in the card issuing segment and from Velosant and Encorus in the emerging payments segment.

Product sales and other—Sales and leasing of point-of-sale devices in the merchant services segment are the primary drivers of this revenue component, providing a recurring revenue stream. This component also includes incentive payments, contract termination fees, royalty income and gain/loss from the sale of merchant alliance portfolios, which occur less frequently but are considered part of ongoing operations.

Reimbursable postage and other—This component and the off-setting expense caption represent postage, telecommunications and similar costs that are passed through to customers.

Cost of services—This caption includes the costs directly associated with providing services to customers and includes the following: telecommunications costs, personnel and infrastructure costs to develop and maintain applications and operate computer networks and associated customer support, PIN-based debit network fees, losses on check guarantee services and merchant chargebacks, commissions paid to money transfer agents, depreciation and amortization expense, and other operating expenses.

Cost of products sold—These costs include those directly associated with product and software sales such as cost of point-of-sale devices, merchant terminal leasing costs, and software licensing and maintenance costs and associated amortization and depreciation.

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Selling, general and administrative—This caption primarily consists of salaries, wages, and related expenses paid to sales personnel, administrative employees and management, advertising and promotional costs and other selling expenses.

Results of Operations

The following discussion for both results of operations and segment results refers to the twelve-month period ended December 31, 2003 versus the same period in 2002. Consolidated results should be read in conjunction with segment results, which provide more detailed discussions around certain Consolidated Statements of Income components. As discussed above, the Company classified NYCE as a discontinued operation in the fourth quarter 2003. Results of Operations for 2003 and 2002 reflect NYCE as a discontinued operation. The 2002 Consolidated Results, Merchant Services Segment Results and Card Issuing Services Segment Results have been adjusted from those previously reported to exclude NYCE’s results of operations.

2003 Compared with 2002

Consolidated Results

Operating revenues overview

The increase in total revenues was driven by all reported segments experiencing positive revenue growth in 2003, the strongest being the payment services and merchant services segments with growth rates of 15% and 14%, respectively. All other and corporate experienced a decline in revenue in 2003. Acquisitions contributed to reported total revenue growth, primarily related to the merchant services segment. The following provides highlights of revenue growth while a more detailed discussion is included in the Segment Results section below:

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Operating expenses overview

Other operating expenses, net

Other operating expenses related to restructuring, asset impairments and litigation and regulatory settlements totaled $39.1 million and $73.9 million in 2003 and 2002 respectively. See detailed information provided below.

2003 Activities

Restructuring charges

The restructuring charges were comprised of severance totaling $30.1 million and $0.3 million related to lease termination losses. Severance charges resulted from the termination of approximately 740 employees across the organization, representing all levels of employees and less than 3% of the Company’s workforce. Cost

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savings related to these restructurings were approximately $15 million for 2003. The Company expects savings of approximately $54 million during 2004. The following describes the nature and timing of the restructuring plans by segment:

Reversal of restructuring accruals

The Company reversed $2.5 million of prior period restructuring accruals. The change in estimate was due to the favorable resolution of a customer contract related to the discontinuance of the Payment Card Solutions operations in the second quarter 2001, favorable terminations of lease agreements related to the third quarter 2000 card issuing services restructuring and an adjustment of severance costs related to the first quarter 2002 emerging payments restructuring.

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The following table summarizes the Company’s utilization of restructuring accruals for the years ended December 31, 2002 and 2003 (in millions):

Impairments

The Company recognized $6.2 million of asset impairment charges, the majority of which related to the lack of sufficient demand to support the Company’s investment in its domestic micro-chip smart card product.

Litigation and regulatory settlements

A litigation charge of $5.0 million was recorded related to a lawsuit associated with the merchant services segment.

2002 Activities