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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended February 29, 2004

OR

For the transition period from              to             .

Commission file number 001-16111

GLOBAL PAYMENTS INC.

(Exact name of registrant as specified in charter)

Registrant’s telephone number, including area code: 770-829-8234

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

The number of shares of the issuer’s common stock, no par value outstanding as of March 26, 2004 was 37,857,382.

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GLOBAL PAYMENTS INC.

FORM 10-Q

For the quarterly period ended February 29, 2004

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

GLOBAL PAYMENTS INC.

(In thousands, except per share data)

See Notes to Unaudited Consolidated Financial Statements.

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UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

GLOBAL PAYMENTS INC.

(In thousands, except per share data)

See Notes to Unaudited Consolidated Financial Statements.

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CONSOLIDATED BALANCE SHEETS

GLOBAL PAYMENTS INC.

(In thousands, except share data)

See Notes to Unaudited Consolidated Financial Statements.

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UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

GLOBAL PAYMENTS INC.

(In thousands)

See Notes to Unaudited Consolidated Financial Statements.

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NOTES TO UNAUDITED CONSOLIDATED

FINANCIAL STATEMENTS

FEBRUARY 29, 2004

NOTE 1—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business, Consolidation and Presentation—Global Payments Inc. (“Global Payments” or the “Company”) is an integrated provider of high volume electronic transaction processing and value-added end-to-end information services and systems to merchants, multinational corporations, financial institutions, consumers and government agencies. These services are marketed through various sales channels to customers as two distinct service offerings: merchant services and money transfer.

The unaudited consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. These financial statements have been prepared on the historical cost basis in accordance with accounting principles generally accepted in the United States, and present the Company’s financial position, results of operations, and cash flows. Intercompany transactions have been eliminated in consolidation.

The Company has prepared the unaudited consolidated financial statements included herein, pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate and the information presented is not misleading. It is suggested that these financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended May 31, 2003. The prior year presentation of the line of credit with related party on the consolidated balance sheet has been changed to conform to the current year presentation. In the opinion of management, the information furnished reflects adjustments of a normal and recurring nature and includes those adjustments necessary for a fair presentation of the financial information for the interim periods reported.

Use of estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

Revenue—

Merchant Services Offering.

Card information and transaction processing services revenue are primarily based on a percentage of transaction value or on a specified amount per transaction. This revenue is recognized as such services are performed. Revenue for processing services provided directly to merchants is recorded net of interchange fees charged by credit card associations.

Check guarantee services include the process of electronically verifying the check being presented to the Company’s merchant customer through an extensive database. The Company generally guarantees the face value of the verified and guaranteed check to the merchant customer. If a verified and guaranteed check is dishonored, the Company reimburses the merchant for the check’s guaranteed value and pursues collection from the delinquent checkwriter. The Company has the right to collect the full amount of the check from the checkwriter but has historically recovered approximately 50% to 55% of the guaranteed, dishonored checks’ face value. The Company establishes a claims receivable from the delinquent checkwriter for the full amount of the guaranteed check and it establishes a valuation allowance for this activity based on historical and projected loss experience. See Reserve for operating losses below.

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Revenue for the check guarantee offering is primarily derived from a percentage of the face value of each guaranteed check. The Company recognizes revenue upon satisfaction of its guarantee obligation to the merchant customer. The check guarantee offering also earns revenue based on fees collected from delinquent checkwriters which is recognized when collected, as collectibility is not reasonably assured until that point.

Check verification services are similar to the services provided in the check guarantee offering, except the Company does not guarantee the verified checks. Revenue for this offering is primarily derived from fees collected from delinquent checkwriters and is recognized when collected, as collectibility is not reasonably assured until that point. This offering also earns revenue based on a fixed amount each merchant pays for each check that is verified. This revenue is recognized when the transaction is processed, since the Company has no further obligations associated with the transaction.

Terminal management products and services consist of electronic transaction processing terminal sales and rentals, terminal set-up, telephone training and technical support. Revenue associated with the terminal sale, set-up and telephone training is considered a single unit of accounting and is recognized when the set-up and telephone training is completed, and the merchant customer can begin processing transactions. Terminal rental revenues are recognized when the service is provided. Revenue associated with technical support is considered an independent earnings process and is recognized based on either a maintenance agreement, which is recognized on a straight-line basis over the maintenance contract term, or based on time and materials when the support is completed.

Money Transfer Offering.

Consumer-to-consumer money transfer revenue is earned on fees charged to customers based on the nature and amount of the transaction performed on the customers’ behalf and is recognized at the time of sale. The Company also earns consumer-to-consumer money transfer revenue on the difference between the retail exchange rate quoted at the time when the money transfer transaction is requested and the wholesale exchange rate at the time when the currency is purchased. This revenue is recognized when the money transfer transaction is processed through the settlement system and the funds are available to the beneficiary.

Settlement processing receivable, net—The settlement processing receivable results from timing differences in the Company’s settlement process for direct merchants. These timing differences are primarily due to the fluctuations in volume and timing of credit and debit card sales volume funded to merchants and the settlement received from the card associations and debit networks. This balance also reflects amounts payable to beneficiaries through the Company’s money transfer offering that have not been claimed at a settlement location as of the balance sheet date.

Reserve for operating losses—The Company processes credit card transactions for direct merchants. The Company’s direct merchant customers are liable for any charges properly reversed by a cardholder and for any sales credits issued to a cardholder. In the event, however, that the Company is not able to collect such amount from a merchant due to merchant fraud, insolvency, bankruptcy or any other reason, the Company may be liable for any such reversed charges. The Company requires cash deposits, guarantees, letters of credit and other types of collateral by certain direct merchants to minimize any such contingent liability. The Company also utilizes a number of systems and procedures to manage merchant risk.

The Company recognizes revenue for its direct merchants primarily based on a percentage of the gross amount charged but has a potential liability for the full amount of the charge. The Company establishes valuation allowances for operational losses based primarily on historical experience and specific identification of known exposures. Economic downturns or increases in merchant fraud may result in significant increases in credit related losses. As of February 29, 2004 and May 31, 2003, $7.4 million and $5.4 million, respectively, were reserved for losses associated with the Company’s direct merchant card processing operations. The expense associated with the valuation allowance is included in cost of service in the accompanying unaudited consolidated statements of income.

The Company also has a check guarantee offering. Similar to the credit card transaction processing service for direct merchants, the Company charges its merchants a percentage of the face amount of the check and guarantees payment of the check to the merchant in the event the check is not honored by the checkwriter’s bank. The Company has the right to collect the full amount of the check from the checkwriter but has not historically

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recovered 100% of the guaranteed checks. The Company establishes a valuation allowance for this activity based on historical and volume-based projected loss experiences. As of February 29, 2004 and May 31, 2003, the Company had a check guarantee reserve of $3.4 million and $3.2 million, respectively. The expense associated with the valuation allowance is included in cost of service in the accompanying unaudited consolidated statements of income. The estimated check returns and recovery amounts are subject to the risk that actual amounts returned and recovered in the future may differ significantly from our historical experience and our estimates used in calculating the valuation allowance.

Goodwill and Other Intangibles Assets—On July 20, 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”) and No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method. SFAS No. 142 eliminates the amortization of goodwill and certain other intangible assets and requires that goodwill be evaluated for impairment at least annually by applying a fair value-based test. In accordance with this standard, the Company discontinued the amortization of goodwill and certain intangible assets that were determined to have an indefinite life.

Global Payments completed the testing for impairment of goodwill as of June 1, 2002 using the present value of expected future cash flows and determined that the fair value of the reporting unit exceeded the carrying amount of the net assets, including goodwill of the reporting unit. The Company completed its annual goodwill impairment review as of June 1, 2003 and determined that no impairment charge to goodwill was required.

Other intangible assets primarily represent customer-related intangible assets, such as customer lists and merchant contracts, and trademarks associated with acquisitions. Customer-related intangible assets are amortized using the straight-line method over their estimated useful lives of 3 to 30 years. The useful lives for customer-related intangible assets are determined based primarily on information concerning start/stop dates and yearly attrition. The trademarks were determined to have an indefinite life and are not being amortized. The Company evaluated the remaining useful lives for other intangible assets as of June 1, 2003 and determined them to be appropriate.

Segment disclosure—The Company adopted Statement of Financial Accounting Standards No. 131, “Disclosure About Segments of an Enterprise and Related Information” (“SFAS No. 131”). The Company’s chief operating decision making group currently operates one reportable segment—electronic transaction processing—therefore the majority of the disclosures required by SFAS No. 131 do not apply to the Company. The Company’s measure of segment profit is operating income. The Company’s results of operations and its financial condition are not significantly reliant upon any single customer.

During the second quarter of fiscal 2004, the Company completed an acquisition of a consumer-to-consumer money transfer business, as described further in Note 3. Concurrent with this acquisition, the Company changed the name of its “funds transfer” service offering to “money transfer.” The Company’s service offering revenues from external customers are as follows:

Earnings per share—Basic earnings per share is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding during the period. Earnings available to common shareholders is the same as net income reported for all periods presented.

Diluted earnings per share is computed by dividing reported earnings available to common shareholders by weighted average shares outstanding during the period including the impact of securities that, if exercised, would have a dilutive effect on earnings per share. All options with an exercise price less than the average market share price for the period are generally assumed to have a dilutive effect on earning per share.

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The following tables set forth the computation of basic and diluted earnings per share for the three and nine months ended February 29, 2004 and February 28, 2003:

The dilutive share base for the three months ended February 28, 2003 excludes incremental shares of 0.7 million related to employee stock options. For the nine months ended February 29, 2004 and February 28, 2003, the dilutive share base excludes incremental shares related to employee stock options of 0.2 million and 0.7 million, respectively. These shares were excluded due to their anti-dilutive effect as a result of their option exercise prices being greater than the average market price of the common shares during the applicable periods. No additional securities were outstanding that could potentially dilute basic earnings per share that were not included in the computation of diluted earnings per share.

Effective March 1, 2003, Global Payments adopted Statements of Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS No. 148”). SFAS No. 148 addresses alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of Statements of Financial Accounting Standard No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.

At February 29, 2004, the Company has three stock-based compensation plans. These include the Global Payments Inc. Amended and Restated 2000 Long-Term Incentive Plan (“2000 Plan”), the 2000 Non-Employee Director Stock Option Plan and the 2000 Employee Stock Purchase Plan.

The Company accounts for options issued as stock-based compensation under the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. For options issued as stock-based compensation, no cost is reflected in net income, as all options granted under the plans have an exercise price equal to the market value of the underlying common stock on the date of grant. Performance shares granted as restricted stock under the 2000 Plan are recorded as deferred compensation, a reduction of shareholders’ equity, based on the quoted fair market value of the Company’s common stock at the award date. Compensation expense on restricted stock is recognized ratably during the vesting period of the award. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to all stock-based employee compensation.

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NOTE 2—COMPREHENSIVE INCOME

The components of comprehensive income for the three and nine months ended February 29, 2004 and February 28, 2003 are as follows:

NOTE 3—BUSINESS ACQUISITIONS

MUZO, a.s.

On February 18, 2004, the Company, through an indirect, wholly-owned subsidiary, acquired 52.6% of the outstanding voting shares of MUZO, a.s. (“MUZO”) from Komerční banka, a.s. (“KB”), for $34.7 million in cash. The Company believes that MUZO is the largest indirect payment processor in the Czech Republic holding a market share of approximately 50%.

Based in Prague, MUZO has served financial institutions since 1992 with a comprehensive package of payment services including credit and debit card transaction processing, sales, installation and servicing of ATM and POS terminals, as well as card issuing services (such as card database management and card personalization). MUZO has approximately 240 employees.

Pursuant to Czech law, Global Payments expects to announce a public tender offer by the end of April 2004 for the remaining shares of MUZO at approximately the same value per share that was paid to KB. The Company’s interest in MUZO was primarily based on a desire to establish a presence in the Czech Republic and the surrounding Central and Eastern European markets, which we believe will have superior growth potential. The key factors that contributed to the decision to acquire MUZO include historical and prospective financial statement analysis, terms of major customer contracts, market share, technological sophistication, quality of the management team and previous business development activity by other companies in the European market.

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Latin America Money Services, LLC

On November 12, 2003, Global Payments completed the acquisition of Latin America Money Services, LLC (“LAMS”), a Delaware limited liability company which owned a majority of the outstanding equity interests in DolEx Dollar Express, Inc. (“DolEx”), a Texas corporation, and all but one share of the outstanding equity interests in DolEx Envios, S.A. de C.V. (“DolEx Envios”), a Mexican subsidiary of DolEx. The transaction was structured as a merger of GP Ventures (Texas), Inc., a Delaware corporation and wholly-owned subsidiary of Global Payments, into LAMS, with LAMS remaining as the surviving entity in the merger. Global Payments also acquired the remaining equity interests in DolEx that were not already owned by LAMS.

As a result of the transaction, LAMS, a holding company, is a wholly-owned subsidiary of Global Payments. DolEx, the operating company, is a wholly-owned subsidiary of LAMS and DolEx Envios is a majority-owned subsidiary of DolEx because one share of DolEx Envios is owned by GP Finance, Inc., a wholly-owned subsidiary of Global Payments. The Company frequently refers to this transaction as the DolEx acquisition, since DolEx is the primary operating company within the LAMS group.

Under the terms of the merger and related agreements, the Company gave consideration of approximately $193 million for LAMS, DolEx and DolEx Envios through a combination of $62 million in cash, net of cash acquired of $9 million, the issuance of $114 million in promissory notes payable to the order of the sellers, and the issuance of common stock with an approximate fair value of $8 million. On December 1, 2003, the Company repaid the promissory notes in full using its U.S. credit facility.

During the fourth quarter of fiscal 2004, the Company may be required to make further contingent payments for the DolEx acquisition primarily based on DolEx attaining certain performance levels for calendar year 2003.

Global Payments’ interest in DolEx was primarily based on a desire to establish a presence in the United States to Latin America money transfer market. The key factors that contributed to the decision to acquire DolEx include historical and prospective financial statement analysis, market share and level of competition from other money transmitters operating in the same funds flow corridor, technological sophistication, quality of management team, breadth of company-owned branch network and previous business development activity in the U.S. to Latin America money transfer market.

Purchase Price Allocations

The LAMS and MUZO acquisitions have been recorded using the purchase method of accounting, and accordingly, the purchase price for each acquisition has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of each respective acquisition. The operating results from each acquisition are included in the Company’s Unaudited Consolidated Statements of Income from the date of such acquisition.

The following table summarizes the preliminary purchase price allocations of the assets acquired and liabilities assumed at the date of acquisition.

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The LAMS and MUZO customer-related intangible assets were determined to have useful lives of three and fifteen years, respectively. The goodwill is not subject to amortization and none of the amount assigned to goodwill is deductible for tax purposes.

Supplemental Pro Forma Information

The following unaudited pro forma summary presents information as if DolEx had been acquired at the beginning of the periods presented. The Company has not included interim pro forma information from MUZO financial statements due to the inter-period timing of the close of the acquisition less than two weeks before the end of the fiscal quarter and the lack of available information in this time frame. The Company does not believe that the impact of the MUZO acquisition will be material, and it will include the pro forma information for MUZO with the financial statements for the year ended May 31, 2004. The pro forma results are not necessarily indicative of what would have occurred if the DolEx acquisition had been in effect for the periods presented and they are not intended to be a projection of future results. The pro forma information includes the expense for amortization of intangible assets resulting from the DolEx acquisition and interest expense related to financing costs but does not reflect synergies or operating cost reductions that may be achieved from the combined operations.

NOTE 4—RESTRUCTURING

Fiscal 2003 Restructuring Activities

During the fourth quarter of fiscal 2003, the Company, consistent with its strategy to leverage infrastructure and consolidate operations, committed to a plan to close three locations and consolidate these and other functions into existing locations. The plan requires associated management and staff reductions, contract termination and other facility closure costs. The Company started executing the plan in April 2003 and expects to be completed by the fourth quarter of fiscal 2004. The Company incurred restructuring charges associated with these activities in the fourth quarter of fiscal 2003 and the first and second quarters of fiscal 2004 as follows:

The charges incurred for the nine months ended February 29, 2004 are reflected in the accompanying Unaudited Consolidated Statement of Income under the caption “Restructuring.”

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As of February 29, 2004, $3.4 million of the fiscal 2003 restructuring activities remained accrued as a current liability. The following is a reconciliation of the accrual associated with these activities.

Fiscal 2002 Restructuring Activities

During the fourth quarter of fiscal 2002 the Company completed plans for the closing of four locations including associated management and staff reductions. Total charges of approximately $11.0 million for the year ended May 31, 2002 were categorized as follows:

The charges related to facilities representing locations that were either already closed or had management approved plans to be closed within twelve months of incurring the charges. These charges included future minimum lease and operating payments, commencing on the planned exit timing, for all noncancelable leases under remaining terms of the locations identified, net of current and estimated future sublease income. The charges also included facility exit costs and an estimate of the net book value of leasehold improvements and furniture and fixtures that will not be realizable when the facilities are vacated. Normal lease payments, operating costs and depreciation continued to be charged to operating expenses prior to actually vacating the specific facilities.

The severance and related costs arose from the Company’s actions to reduce personnel in areas of redundant operations and activities. These operations related to the facility consolidation and integration of acquisitions. The charges reflect specifically identified employees whose employment will be terminated and were informed by the time the charges were incurred. The non-cash costs associated with the severance and related costs reflected compensation expense due to the acceleration of the vesting of certain stock options for those employees that were terminated and had options outstanding.

The other costs incurred in the year ended May 31, 2002 related to the book value of certain current assets that were deemed to be unrecoverable after the purchase of MasterCard’s remaining minority interest in Global Payment Systems, LLC.

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The cash items were accrued at the time the charges were incurred. The reversals during the nine months ended February 29, 2004 were due to changes in estimates described above. As of February 29, 2004, $0.6 million of the cash portion of the restructuring charges from fiscal 2002 remains accrued as a current liability in the accrued liabilities section of the balance sheets as follows:

NOTE 5—COMMITMENTS AND CONTINGENCIES

The Company currently processes card transactions for Air Canada, the single largest airline in Canada, which according to its Revised Renewal Annual Information Form, dated May 15, 2003, held approximately 60% of the Canadian domestic market share and approximately 43% of the Canadian transborder market share during the first quarter of 2003. The Company’s revenue from this relationship represents less than 1% of its consolidated revenue. On April 1, 2003, Air Canada filed for and obtained protection from the court under the Companies’ Creditors Arrangement Act, which generally allows a company to reorganize while it continues normal operations with the assistance of a court-appointed Monitor. The court order provides for a general stay that precludes its creditors and others from taking any action against Air Canada while the court-ordered stay remains in effect. The purpose of the stay is to provide Air Canada with relief designed to stabilize operations and business relationships with customers, vendors, employees and creditors. The court order also provides that Air Canada shall honor all airline tickets in the usual and ordinary course of business.

In the event that Air Canada’s restructuring is not successful and it is liquidated, there will likely be limited assets available from which to pay creditor claims. If the restructuring is not successful and any of Air Canada’s liability for deferred ticket sales is unfunded and such charges are properly reversed by VISA and MasterCard cardholders, the Company may be liable for such reversed charges under the chargeback rules of these card associations. The Company maintains a reserve for such reversed charges, as described under Reserve for operating losses in Note 1 in the Notes to Unaudited Consolidated Financial Statements, but has not made any specific adjustment to that allowance as a result of the Air Canada situation. According to the Twenty-Second Report of the Monitor dated March 24, 2004, deferred ticket revenues for Air Canada as of February 29, 2004, representing advance ticket sales collected, were approximately $504 million (Canadian), or $377 million (U.S.), based on then existing exchange rates.

In conjunction with the acquisition of the merchant acquiring business of CIBC in March 2001, CIBC agreed to reimburse Global Payments by the amount, if any, that Air Canada’s VISA chargebacks and credit losses for any 12-month period exceeds twice the level of VISA chargebacks and credit losses experienced during the one-year period ended October 31, 1999. On March 20, 2004, this reimbursement obligation expired. According to a March 2003 affidavit of an Air Canada officer, 80% of Air Canada customers elect to pay using credit cards and, of those credit card users, 29.3% use VISA cards and 8.4% use MasterCard cards. As a result of the expiration of CIBC’s reimbursement obligation, the Company estimates that its maximum potential chargeback liability exposure relative to Air Canada as of March 20, 2004 will be $152-$162 million (Canadian), or $114-$121 million (U.S.), based on exchange rates in existence on February 29, 2004. This estimate is based on the information contained in the Air Canada affidavit and the information contained in Twenty-Second Report of the Monitor.

Management of the Company is continuing to closely monitor Air Canada’s restructuring. Based on public information which is currently available to the Company, management believes a material loss is unlikely as long as Air Canada continues to honor all airline tickets in the ordinary course of business.

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NOTE 6—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures for the nine months ended February 29, 2004 and February 28, 2003 are as follows:

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

For an understanding of the significant factors that influenced our results, the following discussion should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this report. This management’s discussion and analysis should also be read in conjunction with the management’s discussion and analysis and consolidated financial statements included in our Form 10-K for the fiscal year ended May 31, 2003.

General

We are a leading electronic transaction processor providing a wide range of end-to-end solutions to merchants, corporations, financial institutions, consumers and government agencies located throughout the United States, Canada, Latin America and Europe. Our products and services are marketed through a variety of distinct sales channels that include a large, dedicated direct sales force, retail outlets, independent sales organizations, or ISOs, independent sales representatives, an internal telesales group, trade associations, branch outlets, alliance bank relationships and financial institutions. We operate in one business segment, electronic transaction processing, and provide products and services through our merchant services and money transfer offerings.

Executive Overview

For the three months ended February 29, 2004, our revenue grew 30% to $162.6 million, primarily due to the impact of our recent acquisitions and growth in our domestic direct merchant services offering. Excluding the impact from our DolEx and MUZO acquisitions, third quarter revenue grew 16% over the comparable period of fiscal 2003. We also achieved operating margin improvement of 120 basis points, to 18.7%, as a result of gaining greater economies of scale and continued cost containment programs. Our revenue growth and margin improvements resulted in a 36% net income improvement, to $16.5 million and 31% diluted earnings per share improvement to $0.42 per share for the three months ended February 29, 2004.

On February 18, 2004, we acquired 52.6% of the outstanding voting shares of MUZO, a.s. from Komerční banka, a.s., or KB, for $34.7 million in cash. Pursuant to Czech law, we expect to announce a public tender offer by the end of April 2004 for the remaining shares of MUZO at approximately the same value per share that was paid to KB. We believe that MUZO is the largest indirect payment processor in the Czech Republic holding a market share of approximately 50%. Based in Prague, MUZO employs approximately 240 employees and has served as an indirect processor for financial institutions since 1992. MUZO offers a comprehensive package of payment services including credit and debit card transaction processing services, sales, installation and management of ATMs and POS devices, and card personalization.

Finally, in the third quarter, we commenced the relocation of our corporate headquarters. The purpose of the relocation was to comply with an IRS requirement to terminate the facility lease with NDC Health, formerly known as National Data Corporation, which was our landlord and former parent company. We expect the relocation will help to solidify the tax-free nature of the spin-off from National Data Corporation which occurred on January 31, 2001.

Components of Income Statement

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

Cost of service consists primarily of the cost of operational related personnel, including those who monitor our transaction processing systems and settlement; transaction processing systems, including third-party services such as the costs of settlement channels in consumer-to-consumer money transfer services; network telecommunications capability, depreciation and occupancy costs associated with the facilities performing these functions, and provisions for operating losses.

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Sales, general and administrative expenses consist primarily of salaries, wages and related expenses paid to sales personnel, non-revenue producing customer support functions and administrative employees and management, commissions to independent contractors and ISOs, advertising costs, other selling expenses, and occupancy of leased space directly related to these functions.

Other income and expense primarily consists of minority interest in earnings, interest income and expense and other miscellaneous items of income and expense.

Results of Operations

In the three months ended February 29, 2004, revenue increased $38.0 million or 30% to $162.6 million from $124.6 million in the prior year’s comparable period. In the nine months ended February 29, 2004, revenue increased $65.7 million or 17% to $447.5 million from $381.8 million in the prior year’s comparable period. We attribute this revenue growth primarily to acquisitions closed in fiscal 2004 and increases in our domestic direct merchant services offering. We intend to continue to focus on growing our domestic and international presence, build our ISO sales channel, increase customer satisfaction, assess opportunities for profitable acquisition growth, pursue enhanced products and services for our customers, and leverage our existing business model. We expect fiscal 2004 revenue of $610 million to $620 million, reflecting growth of 18% to 20%, compared to $516 million in fiscal 2003.

The Company’s service offering revenues from external customers are as follows (dollars in millions):

Merchant services

Our merchant services offering increased 16% and 12% in the three and nine months ended February 29, 2004, respectively. This growth includes $1.0 million in revenue from the MUZO acquisition, which closed on February 18, 2004.

We have continued growth in our domestic direct merchant channel by continuing to sign mid-market merchants in various vertical markets to maintain our diversification. The increase in revenue reflects high-teen transaction growth in our domestic direct card merchant channel, primarily driven by increases in our ISO channel. Our domestic average dollar value of transaction, or average ticket, remained stable and we experienced an increase in our domestic average discount revenue per dollar value volume, or spread, both for the three and nine month periods ended February 29, 2004 compared to the same periods in the prior year.

Our Canadian transactions processed for the three and nine month periods ended February 29, 2004 grew in the low- to mid-single digits compared to the same periods in the prior year. This reflects the continued impact of the recent removal from our portfolio of certain lower margin, higher risk merchants, such as airlines. The average ticket in Canada declined in the three and nine month periods ended February 29, 2004 compared to the same periods in the prior year. The declines in average ticket are primarily due to the recent mix of merchant signings, such as the addition of petroleum and grocery retailers, and the strategic removal of the certain lower margin, higher risk merchants. The decline in Canadian revenue was offset by a stronger year-over-year Canadian currency exchange rate.

These revenue growth factors were partially offset by continued and expected low-teen declines in our domestic indirect channel. These declines are attributed to the industry consolidation of financial institutions and competitive pricing pressures.

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Money transfer

Our revenue growth in fiscal 2004 includes an additional $17.3 million and $21.1 million for the three and nine months ended February 29, 2004, respectively, relating to our DolEx acquisition completed on November 12, 2003. Excluding the impact of the DolEx acquisition, our money transfer offering revenue increased modestly due to non-recurring revenue associated with the delivery of a significant project to a customer.

The consumer-to-consumer money transfer service offering revenue is primarily driven by transaction levels and unit pricing. Consumer-to-consumer money transfer transactions for the quarter grew in excess of 20%, primarily due to continued industry growth, additional U.S. branch locations, and a more competitive unit pricing strategy compared to the prior year quarter. Our business strategy is to competitively price our money transfer services, which we believe will further expand our customer base and increase our market share. Further, our use of fixed-cost employees rather than variable-cost agents enhances this strategy, as higher transaction levels will provide significant future leverage.

Cost of service increased by $9.1 million or 15% from $62.7 million in the three months ended February 28, 2003 to $71.8 million in the three months ended February 29, 2004. As a percentage of revenue, cost of service decreased to 44% in the three months ended February 29, 2004 from 50% in the prior year’s comparable period.

Cost of service increased by $7.2 million or 4% from $194.0 million in the nine months ended February 28, 2003 to $201.2 million in the nine months ended February 29, 2004. As a percentage of revenue, cost of service decreased to 45% in the nine months ended February 29, 2004 from 51% in the prior year’s comparable period.

This decrease in cost of service as a percentage of revenue is primarily due to the integration of our acquisitions, other cost reduction initiatives, and the leveraging of our fixed costs with revenues growing at a faster rate than cost of service operating expenses. The increase in the cost of service expense is primarily attributable to the operating expenses and acquired intangible asset amortization through our recent acquisitions.

Sales, general and administrative expenses increased by $20.3 million or 50% to $60.4 million in the three months ended February 29, 2004 from $40.1 million in the prior year’s comparable period. As a percentage of revenue, these expenses increased to 37% for the three months ended February 29, 2004 compared to 32% for the three months ended February 28, 2003.

Sales, general and administrative expenses increased by $40.9 million or 35% to $157.8 million in the nine months ended February 29, 2004 from $116.9 million in the prior year’s comparable period. As a percentage of revenue, these expenses increased to 35% for the nine months ended February 29, 2004 compared to 31% for the nine months ended February 28, 2003.

The increase in sales, general and administrative expenses and the increase in such expenses as a percentage of revenue is primarily due to growth in commission payments to ISOs resulting from the increased revenue in this sales channel. In addition, these increases are attributed to ongoing investments made in our direct sales channels, business development costs, and additional sales, general and administrative expenses inherited in connection with our recent acquisitions.

During the fourth quarter of fiscal 2003, we announced the closure and consolidation of three operating facilities and their related functions into existing operating centers. We implemented the plan in April 2003 and expect to complete it by the fourth quarter of fiscal 2004. Our facility closure plan includes the following:

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We anticipate total costs and expenses associated with the plan to be approximately $8 million. One-time employee termination benefits will be approximately $4 million and the balance relates to contract termination and other related facility closure costs and expenses. For the nine month period ended February 29, 2004, we recognized net restructuring charges of $4.7 million. We expect additional restructuring charges to be recognized in our fourth quarter of fiscal 2004. See Note 4 in the “Notes to Unaudited Consolidated Financial Statements” for additional information.

Operating income increased $8.6 million or 40% to $30.4 million for the third quarter of fiscal 2004 compared to $21.8 million for the same period in fiscal 2003. This resulted in an operating margin of 18.7% for the three months ended February 29, 2004 compared to 17.5% for the three months ended February 28, 2003.

Operating income increased $12.9 million or 18% to $83.7 million for the nine months ended February 29, 2004 compared to $70.9 million in the prior year’s comparable period. This resulted in an operating margin of 18.7% for the nine months ended February 29, 2004 compared to 18.6% for the nine months ended February 28, 2003. This increase in operating income and related margin includes restructuring charges of $4.7 million or 1.1% of revenue in the nine months ended February 29, 2004.

The changes in operating income and operating margins are primarily due to the revenue growth factors and benefits from acquisition integration and other cost factors described further above. These improvements are partially offset by the impact of restructuring charges. Excluding the impact of restructuring charges, we anticipate an operating income margin of 19.0% to 19.5% for fiscal 2004.

Net income increased $4.4 million or 36% to $16.5 million in the three months ended February 29, 2004 from $12.1 million in the prior year’s comparable period, resulting in a $0.10 increase in diluted earnings per share to $0.42 in the three months ended February 29, 2004 from $0.32 in the prior year’s comparable period.

Net income increased $6.9 million or 17% to $47.2 million in the nine months ended February 29, 2004 from $40.3 million in the prior year’s comparable period, resulting in a $0.15 increase in diluted earnings per share to $1.22 in the nine months ended February 29, 2004 from $1.07 in the prior year’s comparable period. This increase in net income and diluted earnings per share includes restructuring charges of $2.9 million, net of tax, or $0.07 diluted earnings per share, for the nine months ended February 29, 2004. Excluding the impact of restructuring charges, we expect diluted earnings per share to be $1.71 to $1.74 for fiscal 2004.

Liquidity and Capital Resources

Cash flow generated from operations provides us with a significant source of liquidity to meet our needs. At February 29, 2004, we had cash and cash equivalents totaling $85.9 million. This cash and cash equivalents balance includes approximately $32 million available to fund the upcoming MUZO public tender offer, which is a prerequisite under Czech law in order for the tender process to commence.

Net cash provided by operating activities increased $15.9 million, or 30%, to $68.8 million for the nine months ended February 29, 2004 from $52.9 million for the comparable period in the prior year. The increase in cash flow from operations was due to the increase in net income and the timing of settlement processing and was partially offset by the change in prepaid expenses resulting from our prepayment to a major vendor in exchange for a discount.

Net cash used in investing activities increased $96.1 million to $110.0 million for the nine months ended February 29, 2004 from $13.9 million for the comparable period in the prior year due to the cash paid for the DolEx and MUZO acquisitions. On November 12, 2003, we completed our DolEx acquisition at a purchase price of approximately $193 million, through a combination of $62 million in cash, net of acquired cash of $9 million and the issuance of $114 million in promissory notes payable to the sellers and the issuance of approximately 232,000 shares of our common stock with an approximate fair value of $8 million. On December 1,

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2003, we repaid the notes in full using our U.S. credit facility. On February 18, 2004, we completed our acquisition of 52.6% of MUZO’s outstanding shares at a purchase price of approximately $33 million in cash, net of cash acquired of $1 million. This amount plus the amount necessary to acquire the minority shareholder interest through the public tender offer was financed using our U.S. credit facility.

Capital expenditures increased $2.3 million from $12.7 million for the nine months ended February 28, 2003 to $15.0 million for the comparable period in the current fiscal year. In fiscal 2004, we expect approximately $20 to $25 million in total capital spending, primarily related to the acquisition of Canadian merchant terminals, software, systems infrastructure, product development, headquarters relocation, and office consolidations.

Net cash provided by financing activities increased $117.9 million to $87.6 million for the nine months ended February 29, 2004 from $30.3 million net cash used in financing activities for the comparable period in the prior fiscal year. This increase was primarily due to our borrowings on our U.S. credit facility to fund our recent acquisitions, net of the payoff of the $114 million in notes payable to the sellers of DolEx. The increase in financing activities was also due to our net borrowings on our Canadian line of credit which is restricted for merchant funding. These borrowings increased primarily due to increased consumer credit card spending and the timing of the quarter-end on a weekend. This reflects the net borrowings required to provide Canadian VISA merchants with same-day value, which is standard industry practice in Canada. In fiscal 2003, we repaid our outstanding balance on our U.S. credit facility of $22 million.

We believe that our current level of cash and borrowing capacity under our committed lines of credit described below, together with future cash flows from operations, are sufficient to meet the needs of our existing operations and planned requirements for the foreseeable future. As of February 29, 2004, we do not have any material capital commitments, other than commitments under capital and operating leases or planned expansions. We may develop our own hardware and software facilities for the transaction processing, cash management, file transfer and related communications functions in an effort to improve productivity and reduce cost of service. If undertaken, this development would further increase our capital expenditures above historical levels. In December 2003, we entered into a lease commitment and a plan to relocate our headquarters location in Atlanta, Georgia. As of March 31, 2004, we substantially completed the relocation of all functions, except our data center. We expect to relocate our data center by September 2005. We do not believe this relocation will have a significant impact on the results of operations and financial condition.

We regularly evaluate cash requirements for current operations, commitments, development activities and acquisitions and we may elect to raise additional funds for these purposes in the future, either through the issuance of debt, equity or otherwise. Our cash flow strategy has remained unchanged and is to first pay off debt arising from the timing of working capital needs, second, to continue to make capital investments in our business and third, to pursue acquisitions that meet our growth strategies.

Credit Facilities

On November 25, 2003, we entered into a three-year, $350 million revolving credit facility agreement with a syndicate of U.S. banks, which we refer to as our U.S. credit facility. The credit agreement contains certain financial and non-financial covenants and events of default customary for financings of this nature. The facility expires in November 2006 and has a variable interest rate based on a market short-term floating rate plus a margin that varies according to our leverage position.

In addition, the facility allows us to expand the facility size to $500 million by requesting additional commitments from existing or new lenders. We plan to use the credit facility to fund future strategic acquisitions and to provide a source of working capital for general corporate purposes. This agreement replaces our prior credit facilities with U.S. banks, which had an aggregate capacity of $150 million. As of February 29, 2004, there was $161 million outstanding on our U.S. credit facility.

We also have a credit facility from CIBC that provides a line of credit up to $175 million (Canadian), or approximately $131 million (U.S.) based on exchange rates existing on February 29, 2004, with an additional overdraft facility available to cover larger advances during periods of peak usage of credit cards. This line has a variable interest rate based on market rates and it contains certain financial and non-financial covenants and events of default customary for financings of this nature. This credit facility is secured by a first priority security interest in our accounts receivable from VISA Canada/International and has been guaranteed by our subsidiaries. This guarantee is subordinate to our U.S. credit facility. This credit facility, as amended, had a term of 364 days expiring

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on December 9, 2003, and has been subsequently extended until April 30, 2004. We expect to receive future monthly extensions until we complete the syndication for a new Canadian facility.

The third amendment of the CIBC credit facility, executed in December 2002, provides for the incurrence of interest costs in connection with offering merchants “same day value” for their deposits. Same day value, which has been an accepted industry practice in Canada for more than ten years, is the practice of giving merchants same day value for their sales transactions, even though their deposits are made at a later date. Essentially, a merchants’ deposits are backdated to the date of the applicable sales transaction. In order to continue offering “same day value” to our merchants in Canada after the execution of the third amendment to the CIBC credit facility, we have been required to draw on our CIBC credit facility to pay merchants in advance of the date we receive the corresponding funds from VISA Canada/International resulting in a net merchant processing receivable. In contrast, under the terms of the CIBC credit facility prior to the execution of the third amendment, CIBC credited the merchants’ deposit accounts for their sales transactions on the day of the transaction and we reimbursed CIBC when we received the corresponding funds from VISA Canada/International without incurring a short term loan. At February 29, 2004 and May 31, 2003, there was $110.4 million and $46.3 million (Canadian), or approximately $82.7 million and $33.9 million (U.S.), respectively, outstanding on this credit facility, based on then existing exchange rates. The amount borrowed is restricted in use to pay merchants and is generally received from VISA Canada/International on the following day.

Special Cautionary Notice Regarding Forward-Looking Statements

We believe that it is important to communicate our plans and expectations about the future to our shareholders and to the public. Investors are cautioned that some of the statements we use in this report, and in some of the documents we incorporate by reference in this report, contain forward-looking statements and are made pursuant to the “safe-harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties, are predictive in nature, and depend upon or refer to future events or conditions. You can sometimes identify forward-looking statements by our use of the words “believes,” “anticipates,” “expects,” “intends,” “plans” and similar expressions. Actual events or results might differ materially from those expressed or forecasted in these forward-looking statements.

Although we believe that the plans and expectations reflected in or suggested by our forward-looking statements are reasonable, those statements are based on a number of assumptions, estimates, projections or plans that are inherently subject to significant risks, uncertainties, and contingencies that are subject to change. Accordingly, we cannot guarantee you that our plans and expectations will be achieved. Our actual revenues,

revenue growth and margins, other results of operation and shareholder values could differ materially from those anticipated in our forward-looking statements as a result of many known and unknown factors. These factors include, but are not limited to those set forth in Exhibit 99.1 to this report, those set forth elsewhere in this report, those set forth from time to time in our analyst calls and discussions and other filings made with the Securities and Exchange Commission. These cautionary statements qualify all of our forward-looking statements and you are cautioned not to place undue reliance on these forward-looking statements.

Our forward-looking statements speak only as of the date they are made and should not be relied upon as representing our plans and expectations as of any subsequent date. While we may elect to update or revise forward-looking statements at some time in the future, we specifically disclaim any obligation to publicly release the results of any revisions to our forward-looking statements. You are advised, however, to consult any further disclosures we make in our reports filed with the Securities and Exchange Commission and in our press releases.

Where to Find More Information

We file annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission. You may read and print materials that we have filed with the SEC from their website at www.sec.gov. In addition, certain of our SEC filings, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K can be viewed and printed from the investor information section of our website at www.globalpaymentsinc.com free of charge. Copies of our filings are also available by writing or calling us using the address or phone number on the cover of this Form 10-Q.

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Our SEC filings may also be viewed and copied at the following SEC public reference room, and at the offices of The New York Stock Exchange, Inc. where our common stock is quoted under the symbol “GPN.”

SEC Public Reference Room

450 Fifth Street, N.W., Room 1200

Washington, DC 20549

(You may call the SEC at 1-800-SEC-0330 for further information on the public reference room.)

New York Stock Exchange Offices

20 Broad Street

New York, NY 10005

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk related to changes in interest rates on our cash investments and debt. We invest our excess cash in highly liquid short-term investments. These investments are not held for trading or other speculative purposes. Interest rates on our lines of credit are based on market rates and fluctuate accordingly. We mitigate any interest rate risk through the movement of funds between our domestic and foreign banks. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes and believe the market risk arising from investment instruments and debt to be minimal.

Although the majority of our operations are transacted in U.S. dollars, some of our operations are transacted in currencies of Canada, Latin American countries, and to a lesser extent, the Czech Republic and the United Kingdom. Consequently, a portion of our revenues and expenses may be affected by fluctuations in foreign currency exchange rates. We are also affected by fluctuations in exchange rates on assets and liabilities related to our foreign operations. We have not hedged our translation risk on foreign currency exposure and based on our sensitivity analyses, we do not expect any material foreign exchange rate risk from changes in foreign currency exchange rates.

Item 4. Controls and Procedures

We concluded an evaluation of the effectiveness of our disclosure controls and procedures as of the quarterly period ended February 29, 2004. Our evaluation tested controls and other procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on our evaluation, as of the end of the quarterly period ended February 29, 2004, our management, including our principal executive officer and our principal financial officer, has concluded that the information required to be disclosed in our reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management in a manner that allows timely decisions regarding required disclosure.

There have been no significant changes in our internal procedures that could significantly affect these controls during the third quarter of fiscal 2004.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a party to a number of claims and lawsuits incidental to its business. In the opinion of management, the ultimate outcome of such matters, in the aggregate, will not have a material adverse impact on the Company’s financial position, liquidity or results of operations. For additional information, refer to Note 5 of the “Notes to Unaudited Consolidated Financial Statements—Commitments and Contingencies.”