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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2004

OR

For the transition period from              to             

Commission File No. 001-16427

Certegy Inc.

(Exact name of registrant as specified in its charter)

(678) 867-8000

(Registrant’s telephone number, including area code)

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  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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CERTEGY INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CERTEGY INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share amounts)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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CERTEGY INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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CERTEGY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

The accompanying notes are an integral part of these Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(Dollars in thousands, except per share amounts or unless otherwise noted)

1. Basis of Presentation

The Company provides credit and debit card processing and check risk management services to financial institutions and merchants in the U.S. and internationally through two segments, Card Services and Check Services (see Note 15 for segment information). Card Services provides card issuer services in the U.S., the U.K., Brazil, Chile, Australia, New Zealand, Ireland, Thailand, and the Dominican Republic. Additionally, Card Services provides merchant processing and e-banking services in the U.S. and card issuer software, support, and consulting services in numerous countries. Check Services provides check risk management services and related processing services in the U.S., the U.K., Canada, France, Ireland, Australia, and New Zealand.

The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries and should be read in conjunction with the Company’s consolidated financial statements and the notes to those statements for the year ended December 31, 2003 included in the Company’s annual report on Form 10-K. Significant accounting policies disclosed in the annual report have not changed. All significant intercompany transactions and balances have been eliminated.

The Company has prepared these consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. This information reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the consolidated financial position, results of operations, and cash flows for the interim periods presented. All adjustments made have been of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) have been condensed or omitted, although the Company believes that the disclosures are adequate to make the information presented not misleading. Certain prior period amounts have been reclassified to conform to the current period presentation. Results of operations reported for interim periods are not necessarily indicative of results for the entire year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

2. Significant Accounting Policies

Reserve for Card Merchant Processing Losses. In the Company’s direct card merchant processing business, if, due to the insolvency or bankruptcy of the merchant or other reasons, the Company is not able to collect amounts from its merchant customers that have been properly “charged back” by the cardholders, it must bear the credit risk for the full amount of the cardholder transaction. The Company requires cash deposits and other types of collateral from certain merchants to minimize any such risk. In addition, the Company utilizes a number of systems and procedures to manage merchant risk and believes that the diversification of its merchant portfolio among industries and geographic regions minimizes its risk of loss. The Company recognizes a reserve for estimated merchant credit losses based on historical experience and other relevant factors. This reserve amount is subject to risk that actual losses may be greater than the Company’s estimates. At March 31, 2004 and December 31, 2003, the Company had aggregate card merchant processing loss reserves of $1.1 million and $1.1 million, respectively, which are included in other current liabilities in the consolidated balance sheets.

Reserve for Check Guarantee Losses. In the Company’s check guarantee business, if a guaranteed check presented to a merchant customer is dishonored by the check writer’s bank, the Company reimburses its merchant customer for the check’s face value and pursues collection of the amount from the delinquent check writer. The Company’s merchant customers have approximately 60 days from the check date to present claims for dishonored checks to the Company. The Company has a maximum potential liability equal to the value of all checks presented to its merchant customers; however, through historical experience and analysis, the Company is able to reasonably estimate its liability for check returns. The Company recognizes a liability to its merchant customers for its estimated check returns (claims payable) and a receivable for amounts the Company estimates it will recover from the check writers (claims recoverable), based on historical experience and other relevant factors. The estimated check returns and recovery amounts are subject to risk that actual amounts returned and recovered may be different than the Company’s estimates. At March 31, 2004 and December 31, 2003, the Company had accrued claims payable and accrued claims recoverable balances of $19.8 million and $29.7 million and $38.3 million and $46.5 million, respectively.

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The Company settles its claim obligations with merchants, on average, within 14 days from the date of receipt. Recoverability of claims from the check writers extends beyond this timeframe, but generally occurs within one year.

Stock-Based Compensation. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”), establishes accounting and reporting standards for stock-based employee compensation plans. SFAS 148, which was issued in December 2002, requires disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and its effect on the reported results. As permitted by the standard, the Company has elected to apply APB Opinion No. 25 “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. Accordingly, the Company does not recognize compensation cost in connection with its stock option plans. If the Company had elected to recognize compensation cost for these plans based on the fair value at the replacement date (for stock options that existed at the date of the Company’s spin-off from Equifax Inc.) and grant dates as prescribed by SFAS 123, net income and earnings per share would have been reduced to the following pro forma amounts for the three months ended March 31, 2004 and 2003:

3. Acquisitions

On March 1, 2004, the Company completed the purchases of Game Financial Corporation (“Game Financial”), a provider of debit and credit card cash advances, ATM access and check cashing services in gaming institutions, and Crittson Financial Services LLC (“Crittson”), a full service provider of card and merchant processing services. The acquisition of Crittson further strengthens the Company’s U.S. market share as the leading third party credit card processor for community banks and credit unions. The acquisition of Game Financial positions the Company as a leading provider of comprehensive cash access services in the fast-growing gaming industry, and broadens its check risk management product line and customer base. These acquisitions had an aggregate cash purchase price of $39.2 million, net of $24.6 million of cash acquired. The preliminary purchase price allocation resulted in identifiable intangible assets of $16.4 million, which are being amortized over five to seven years, and goodwill of $36.7 million. The Company expects that 100 percent of the goodwill resulting from these acquisitions will be tax deductible. These acquisitions were accounted for as purchases and their results of operations have been included in the consolidated statements of income from the dates of acquisition. If these acquisitions had occurred as of the beginning of 2003, the unaudited pro forma revenues, net income, and diluted EPS of the Company would have been $277.4 million, $21.1 million, and $0.33, respectively, for the three months ended March 31, 2004 and $263.2 million, $13.1 million, $0.20 for the three months ended March 31, 2003, respectively. This pro forma information is based on historical results of the separate companies and may not necessarily be indicative of the results that would have been achieved or of results that may occur in the future.

Both acquisition purchases include additional consideration that may be payable to the Company or to the sellers. These include base revenue measurements, customer-based adjustments, and working capital adjustments, which vary in timing from ninety days to one year from the acquisition date. When and if paid, these adjustments will result in changes to the purchase price allocation.

4. Other Charges

It is the Company’s policy to present other charges, such as severance, impairment, or restructuring charges, if significant for a given reporting period, on a separate line item within operating expenses in the consolidated statements of income. In the normal course of business, it is not unusual for the Company to have ongoing severance charges that are not significant and therefore, not presented separately in the consolidated statements of income.

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During the first quarter of 2003, the Company recorded other charges of $12.6 million ($7.9 million after-tax, or $0.12 per diluted share). These charges include $9.6 million of early termination costs associated with a U.S. data processing contract, $2.7 million of charges related to the downsizing of the Company’s Brazilian card operation, and $0.3 million of market value losses on the Company’s collateral assignment in life insurance policies and severance charges. These charges were recorded in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” See Note 15 for details of these charges by segment.

The following table summarizes the severance charges and contract termination costs incurred to date as described above, the movement in the accruals as of and for the three months ended March 31, 2004, and the ending balances in the accruals:

5. Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding during the period. A reconciliation of the average outstanding shares used in the basic and diluted EPS calculations is as follows (in thousands):

6. Other Current Assets

The Company’s other current assets at March 31, 2004 and December 31, 2003 consist of the following:

7. Property and Equipment

The cost of property and equipment is depreciated on a straight-line basis over estimated useful lives as follows: building—40 years; leasehold improvements—not to exceed lease terms; data processing equipment—3 to 5 years; and furniture and fixtures—3 to 8 years. Maintenance and repairs are charged to expense as incurred.

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Property and equipment at March 31, 2004 and December 31, 2003 consist of the following:

Equipment under capital lease, which is included in data processing equipment and furniture above, was $2.9 million at March 31, 2004 and $0.6 million at December 31, 2003. Accumulated deprecation related to these assets totaled approximately $132 thousand at March 31, 2004 and $44 thousand at December 31, 2003.

8. Goodwill and Other Intangible Assets

Information related to the Company’s goodwill by segment is as follows:

Information related to the Company’s acquired intangible assets subject to amortization is as follows:

The Company’s other intangible assets primarily consist of acquired customer contracts, data files, and customer lists, which are generally amortized on a straight-line basis over their estimated useful lives, which range from 5 to 15 years. Amortization expense associated with the Company’s acquired intangible assets totaled $1.4 million and $1.1 million for the three months ended March 31, 2004 and 2003, respectively. Estimated amortization expense for the Company’s acquired intangible assets for each of the five succeeding fiscal years is as follows: 2005—$7.2 million; 2006—$7.2 million; 2007—$7.2 million; 2008—$5.6 million; and 2009—$5.6 million.

The change in the carrying amount of goodwill and other intangible assets from December 31, 2003 to March 31, 2004 was the result of the acquisitions of Game Financial and Crittson (Note 3) and currency translation adjustments, primarily in Brazil.

The Company has no intangible assets with indefinite useful lives.

9. Other Assets

Other assets principally consist of prepaid pension cost, life insurance policies, purchased software, and deferred income taxes. The costs of purchased software used to provide services to customers or for internal administrative services are capitalized and amortized on a straight-line basis over five to eight years, as determined by their estimated useful lives.

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Other assets, net consist of the following:

10. Other Current Liabilities

The Company’s other current liabilities at March 31, 2004 and December 31, 2003 consist of the following:

11. Long-Term Debt

Long-term debt at March 31, 2004 and December 31, 2003 consists of the following:

12. Shareholders’ Equity

Comprehensive Income. The components of comprehensive income for the three months ended March 31, 2004 and 2003 are as follows:

Accumulated other comprehensive loss at March 31, 2004 and December 31, 2003 consists of the following components:

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Treasury Stock. During the first quarter of 2004, the Company repurchased approximately 0.7 million shares of its common stock at an aggregate cost of $22.5 million under the Company’s August 2003 Board authority. Combined with approximately 6.1 million shares the Company repurchased prior to 2004 under this and a prior Board authority, the Company has repurchased a total of approximately 6.8 million shares, leaving approximately $17.5 million authorized for future share repurchases as of March 31, 2004. During the first quarter of 2004, the Company reissued approximately 0.2 million treasury shares in connection with employee stock option exercises and restricted stock awards.

Dividends. In February 2004, the Company’s Board of Directors approved a quarterly common stock dividend of $0.05 per share, or $3.2 million, which was paid on April 15, 2004 to shareholders of record as of the close of business on April 1, 2004.

Deferred Compensation. During the first quarter of 2004, the Company granted approximately 0.1 million shares of restricted stock to key employees under the Employee Stock Plan. The shares become fully vested in three or four years if certain performance criteria are met, otherwise, they vest at the end of five years. Compensation expense associated with these awards can fluctuate each year based on the likelihood that the performance criteria will be met. Compensation expense associated with all restricted stock awards issued to date was $1.3 million and $0.8 million for the three months ended March 31, 2004 and 2003, respectively.

13. Employee Benefits

Net periodic benefit cost for the Company’s retirement, supplemental retirement (“SERP”), and postretirement benefit plans includes the following components for the three months ended March 31, 2004 and 2003:

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“the Act”) was enacted. In accordance with the FASB Staff Position No. FAS 106-1, any measures of the accumulated postretirement benefit obligation or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the Company to change previously reported information.

14. Commitments and Contingencies

Synthetic Leases. The Company is the tenant of certain real property located in St. Petersburg, Florida. The aggregate value of the building and land at that site when the Company entered into this arrangement was $23.2 million. Subject to the satisfaction of certain conditions, the Company has the option to acquire this leased property at its original cost, or to direct the sale of this facility to a third party. The Company has provided a guarantee to the lessor that the proceeds from a sale of the facility to a third party will equal or exceed a certain percentage of the original fair market value of the leased property. The Company’s maximum exposure under this guarantee is approximately $18.1 million.

Effective December 31, 2003, the Company began consolidating this lease arrangement into its consolidated financial statements in accordance with certain provisions of FIN 46.

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The Company is a party to a synthetic lease arrangement with respect to its facilities in Madison, Wisconsin, which expires in 2009. The aggregate value of the building and land at that site when the Company entered into this arrangement was $10.4 million. Subject to the satisfaction of certain conditions, the Company has the option to acquire this leased property at its original cost, or to direct the sale of this facility to a third party. The Company has provided a guarantee to the lessor that the proceeds from a sale of the facility to a third party will equal or exceed a certain percentage of the original fair market value of the leased property. The Company’s maximum exposure under this guarantee is approximately $8.3 million.

Based on current market conditions, the Company does not expect to be required to make payments under these residual value guarantees.

The Company has entered into an interest rate swap arrangement to fix the variable interest rate on the Madison, Wisconsin lease obligation.

15. Segment Information

Segment information for the three months ended March 31, 2004 and 2003 is as follows (intersegment sales and transfers, which are not material, have been eliminated):

The above operating income for the three months ended March 31, 2003 includes other charges (Note 3) as follows:

Total assets by segment at March 31, 2004 and December 31, 2003 are as follows:

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16. Balance Sheet Reclassifications

Certain December 31, 2003 balance sheet amounts have been reclassified to conform to the current period presentation as follows:

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

The following discussion should be read in conjunction with the consolidated financial statements for the three months ended March 31, 2004 and 2003, including the notes to those statements, included elsewhere in this report. We also recommend that this management’s discussion and analysis be read in conjunction with the management’s discussion and analysis and consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2003.

Overview

We provide credit and debit card processing and check risk management services to financial institutions and merchants in the U.S. and internationally through two segments, Card Services and Check Services. Card Services provides card issuing services in the U.S, the U.K., Brazil, Chile, Australia, New Zealand, Ireland, Thailand, and the Dominican Republic. Additionally, Card Services provides merchant processing and e-banking services in the U.S. and card issuing software, support, and consulting services in numerous countries. Check Services provides check risk management services and related processing services in the U.S., the U.K., Canada, France, Ireland, Australia, and New Zealand.

Card Services. Card Services provides a full range of card issuer services that enable banks, credit unions, retailers, and others to issue VISA and MasterCard credit and debit cards, private label cards, and other electronic payment cards for use by both consumer and business accounts. Additionally, we began processing American Express cards for a Dominican Republic bank in January 2003, which is serviced from our St. Petersburg, Florida processing center. Our debit card services support both off-line debit cards, which are processed similarly to credit cards, and on-line debit cards, through which cardholders obtain immediate access to funds in their bank accounts through ATMs or merchant point-of-sale terminals. In the U.S., our card processing business is concentrated in the independent community bank and credit union segments of the market, while internationally, we service both large and small financial institutions. We provide our card issuer services internationally through our operations in the U.S., Brazil, Chile, the U.K., and Australia. Our

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merchant processing services enable retailers and other businesses to accept credit, debit, and other electronic payment cards from purchasers of their goods and services, while our e-banking services enable financial institutions to offer Internet banking and related products to consumers and businesses. Card issuing software, support, and consulting services allow customers to manage their credit card programs.

Card transactions continue to increase as a percentage of total point-of-sale payments, which fuels continuing demand for card-related products. We continue to launch new products aimed at serving this demand. In recent years, we have introduced a variety of stored-value card types, Internet banking, and electronic bill presentment/payment products, as well as a number of card enhancement and loyalty/reward programs. The common theme among these offerings continues to be convenience and security for the consumer coupled with value to the financial institution. Over the past six years, we pursued growth in international markets through acquisitions in Brazil and Chile and the start-up of our card processing operations in the U.K. and Australia. In 2000, we entered into a five-year agreement with a multi-national Australian-based financial institution to process cards issued in Australia, New Zealand, the U.K., and Ireland, with operations commencing in the second quarter of 2001. This financial institution is serviced from our card processing operation in Australia, as well as from our card processing operation in the U.K. In 2003, we entered into an eight-year agreement with a Thailand financial institution, whereby it will outsource the processing of its VISA and MasterCard credit cards and unsecured personal loans. This financial institution is also serviced from our card processing operation in Australia. Card Services plans to pursue further card processing opportunities in the Asia Pacific Region, utilizing our Australian operation as the processing center.

We believe that the increased use of credit, debit, and other electronic payment cards around the globe will continue to present the card processing industry with significant growth opportunities. We intend to continue to expand our card processing business in the independent community bank and credit union segments of the market. Moreover, our future growth and profitability will significantly depend upon our ability to penetrate additional international markets, including emerging markets for electronic transaction processing. Our certification as an American Express processor also provides further growth opportunities for us in the global card market.

Check Services. Check Services provides check risk management and related processing products and services to businesses accepting or cashing checks at the point-of-sale. These services utilize our proprietary check authorization systems and risk assessment decision platforms. A significant portion of our revenues from check risk management services is generated from several large national and regional merchants, including national retail chains. Other customers of our Check Services segment include hotels, automotive dealers, telecommunications companies, supermarkets, casinos, mail order houses, and other businesses. Our services allow our clients to run their customers’ personal and business checks through an automated decision-making process that assesses the likelihood that a check will clear. We provide our check risk management products and services internationally in Canada, the U.K., Ireland, France, Australia, and New Zealand. Our principal product in all those countries is check guarantee services, although mass retailers are beginning to utilize our check verification, collection services, and deferred debit processing services.

In recent years, we have introduced several new products for existing and new markets, such as third-party check collections; electronic check risk management solutions for point-of-sale, call center, and electronic commerce applications; and PayCheck Accept^™, which enables supermarkets and gaming establishments to reduce the risk of check losses and fraud in connection with their payroll check cashing services. Additionally, the acquisition of Game Financial Corporation (“Game Financial”) on March 1, 2004, positions us as a leading provider of comprehensive cash access services in the fast-growing gaming industry, and broadens our check risk management product line and customer base.

We believe check writing has begun to decline as a total percentage of point-of-sale payments due, in part, to the growing use of debit and credit cards. At the same time, however, demand for our services is strong due to factors that include increasing sophistication of check fraud and higher concentration of bad checks written at the point-of-sale due to a trend of higher credit quality consumers paying more with credit and debit cards and writing fewer checks. These factors are contributing to a growing reliance of retailers and other businesses on outside vendors, such as us, to provide check risk management services.

Business Developments

$200 Million Note Offering. In September 2003, we completed our offering of $200 million aggregate principal amount of 4.75 percent senior unsecured notes, which mature in September 2008. The proceeds from this offering were used to pay off the outstanding indebtedness under our $300 million revolving credit facility and for general corporate purposes. In conjunction with the issuance of these notes, our first quarter 2004 results include additional interest expense on the notes as compared to the prior year quarter.

Adoption of FIN 46. On December 31, 2003, we adopted certain provisions of Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”) as required for the synthetic lease on our St. Petersburg, Florida facility. In conjunction with the adoption of FIN 46, our first quarter 2004 results include additional interest expense on the notes underlying this synthetic lease as compared to the prior year quarter.

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Other Charges in the First Quarter of 2003. During the first quarter of 2003, we recorded other charges of $12.6 million ($7.9 million after-tax, or $0.12 per diluted share). These charges include $9.6 million of early termination costs associated with a U.S. data processing contract, $2.7 million of charges related to the downsizing of our Brazilian card operation, and $0.3 million of market value losses on our collateral assignment in life insurance policies and severance charges.

Acquisitions. On March 1, 2004, we completed the purchases of Game Financial, a provider of debit and credit card cash advances, ATM access and check cashing services in gaming institutions, and Crittson Financial Services LLC (“Crittson”), a full service provider of card and merchant processing services. The acquisition of Crittson further strengthens our U.S. market share as the leading third party credit card processor for community banks and credit unions. The acquisition of Game Financial positions us as a leading provider of comprehensive cash access services in the fast-growing gaming industry, and broadens our check risk management product line and customer base. These acquisitions had an aggregate cash purchase price of $39.2 million, net of $24.6 million of cash acquired. The preliminary purchase price allocation resulted in identifiable intangible assets of $16.4 million, which are being amortized over five to seven years, and goodwill of $36.7 million.

These acquisitions were accounted for as purchases and their results of operations have been included in the consolidated statements of income from the dates of acquisition. We expect these acquisitions to add approximately $60 million of revenue in 2004.

Both acquisition purchases include additional consideration that may be payable to us or to the sellers. This includes base revenue measurements, customer-based adjustments, and working capital adjustments, which vary in timing from ninety days to one year from the acquisition date. When and if paid, these adjustments will result in changes to the purchase price allocation.

Components of Income Statement

Card Services generates revenues from charges based on transaction volumes (U.S.), accounts or cards processed (globally), and fees for various services and products (globally), while Check Services generates revenues from charges based on transaction volumes, face value of checks guaranteed, and fees for various check services and products. Revenues depend upon a number of factors, such as demand for and price of our services, the technological competitiveness of our product line, our reputation for providing timely and reliable service, competition within our industry, and general economic conditions. Costs of services consist primarily of the costs of transaction processing systems; personnel costs to develop and maintain applications, operate computer networks, and provide customer support; losses from check guarantee services; interchange (processing fees paid to credit card associations) and other fees related to merchant processing; depreciation and occupancy costs associated with the facilities where these functions are performed; and reimbursed out-of-pocket expenses. Selling, general, and administrative expenses consist primarily of salaries, wages, and related expenses paid to ales, non-revenue customer support functions, and administrative employees and management.

As part of our card merchant processing business, we contract directly with merchants, as well as with merchants’ financial institutions. When we have a direct relationship with a merchant, revenues collected for our services are based primarily on a discount rate, which considers the cost of interchange fees. When our relationship is with a merchant’s financial institution, we collect the interchange fees in addition to our transaction fees. In both instances, we are responsible for collecting the interchange fees after settling with the credit card associations. Interchange fees are recorded as a component of revenues and costs of services.

Summary of the 2004 First Quarter Consolidated Financial Results

Highlights of the 2004 first quarter consolidated financial results as compared to the 2003 first quarter, including other charges, are as follows:

In the first quarter of 2004, we repurchased approximately 664 thousand shares of our common stock at a cost of $22.5 million, while capital expenditures totaled $7.1 million.

Throughout this management’s discussion and analysis, we refer to certain financial amounts both on a before- and after-tax basis. Management believes it is helpful to include the after-tax effect of certain financial charges to allow investors and management to evaluate their impact on net income and diluted earnings per share.

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Consolidated Results of Operations

The following table summarizes our consolidated results for the three months ended March 31, 2004 and 2003:

Consolidated Revenues

Consolidated revenue in the first quarter of 2004 of $263.4 million increased $23.2 million, or 9.7 percent, over the first quarter of 2003. Card Services revenues grew $5.5 million, or 3.5 percent, while Check Services experienced revenue growth of $17.7 million, or 21.3 percent.

Overall, strong revenue growth of 10.8 percent in North America card issuing and 21.3 percent revenue growth in global Check Services more than offset declines in international card issuing and software revenue. The first quarter was the final quarter of difficult comparisons caused by the loss of a large customer in our Brazilian card operation in March 2003. Our acquisitions of Game Financial and Crittson on March 1, 2004, added approximately $7 million of revenue for the quarter. The strengthening of certain foreign currencies against the U.S. dollar increased total U.S. dollar revenues by $5.5 million in the first quarter of 2004. With the recent acquisitions and the annualization of the loss of the large Brazilian customer complete, we expect overall growth rates to improve over the remainder of the year.

Consolidated Operating Expenses

Consolidated operating expenses in the first quarter of 2004 of $227.9 million increased $8.7 million, or 3.9 percent, over the first quarter of 2003. Operating expenses for Card Services decreased $6.9 million, or 5.0 percent, while Check Services increased $14.9 million, or 19.3 percent. Corporate expenses of $5.6 million increased $0.6 million, or 12.6 percent, above the first quarter of 2003. The 2003 consolidated operating expenses include $12.6 million of other charges.

Costs of services in the first quarter of 2004 of $198.3 million increased $20.4 million, or 11.5 percent, over the first quarter of 2003. Card Services experienced a $5.0 million, or 4.4 percent, increase in costs of services primarily driven by a $1.9 million increase in card merchant processing interchange fees (costs of services included $33.6 million and $31.7 million of interchange fees in 2004 and 2003, respectively) and a $2.7 million increase in reimbursable expenses in our North American card issuing business. Costs of services in Check Services increased $15.4 million, or 24.2 percent, driven by volume growth in our global core check businesses, as well as the acquisition of Game Financial on March 1, 2004.

Selling, general, and administrative (“SG&A”) expenses in the first quarter of 2004 of $29.6 million increased $0.9 million, or 3.1 percent, over the first quarter of 2003. Card Services experienced a $0.4 million, or 3.2 percent, decrease in SG&A costs driven by the downsizing of our Brazil card operating in March 2003 and lower software support and consulting fees. SG&A costs in Check Services increased $0.5 million, or 4.1 percent, primarily driven by currency and the growth in new client acquisitions during the year. Corporate SG&A expense increased $0.7 million, or 15.5 percent, primarily due to higher employee benefit and insurance costs.

During the first quarter of 2003, we recorded other charges of $12.6 million ($7.9 million after-tax). These charges include $9.6 million of early termination costs associated with a U.S. data processing contract, $2.7 million of charges related to the downsizing of our Brazilian card operation, and $0.3 million of market value losses on our collateral assignment in life insurance policies and severance charges. Page 18 provides a detail of these charges by segment.

Consolidated Operating Income

Consolidated operating income in the first quarter of 2004 increased $14.6 million, or 69.6 percent, over the first quarter of 2003. Card Services operating income increased $12.4 million, or 62.3 percent, while Check Services operating income increased

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$2.8 million, or 46.8 percent. General corporate expense increased $0.6 million, or 12.6 percent over the first quarter of 2003. Combined operating margins were 13.5 percent in 2004 and 8.7 percent in 2003. The 2003 consolidated operating income includes $12.6 million of other charges.

The operating income growth experienced in the first quarter of 2004 was primarily driven by strong revenue growth in North American card issuing and global Check Services. The strengthening of certain foreign currencies against the U.S. dollar increased total U.S. dollar operating income by approximately $69 thousand in the first quarter of 2004.

Consolidated Other Income, Net

Consolidated other income, net, which principally consists of interest income, totaled $220 thousand and $155 thousand during 2004 and 2003, respectively.

Consolidated Interest Expense

Interest expense in the first quarter of 2004 of $3.0 million increased $1.3 million compared to the first quarter of 2003. The growth in interest expense is driven by the issuance of our $200 million of five-year notes at 4.75 percent in September 2003. We also incurred additional interest expense in the first quarter of 2004 on our revolving credit facility related to borrowings for our acquisitions and the new lease accounting (FIN 46) on our St. Petersburg facility.

Effective Tax Rate

Our effective tax rates were 37.0 percent and 37.25 percent in 2004 and 2003, respectively. Our lower effective rate in 2004 was driven by the implementation of certain international and state tax planning strategies, which we were able to apply during the third quarter of 2003 for the entire 2003 year.

Consolidated Net Income and Earnings per Share

Consolidated net income in the first quarter of 2004 of $20.7 million increased $8.5 million, or 69.4 percent, compared to the first quarter of 2003, while diluted earnings per share in the first quarter of 2004 of $0.32 increased $0.14, or 77.8 percent. The first quarter of 2003 consolidated net income includes $12.6 million of other charges ($7.9 million after-tax, or $0.12 per diluted share).

The repurchase of 2.7 million shares of common stock subsequent to the first quarter of 2003 had a favorable impact on earnings per share compared to the prior year by reducing our weighted average shares outstanding by approximately 1.1 million shares.

Segment Results

The following table summarizes our segment results for the first quarters of 2004 and 2003: