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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

OR

Commission file number 001-16111

GLOBAL PAYMENTS INC.

(Exact name of registrant as specified in charter)

Registrant’s telephone number, including area code: 404-728-2719

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 October 2, 2003 was 37,354,460.

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GLOBAL PAYMENTS INC.

FORM 10-Q

For the quarterly period ended August 31, 2003

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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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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

AUGUST 31, 2003

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, and government agencies. These services are marketed to customers within the merchant services and the funds transfer businesses through various sales channels.

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.

We have prepared the financial statements included herein, without audit 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. In the opinion of management, the information furnished reflects adjustments of a normal and recurring nature and include those 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—Card information and transaction processing services revenue are primarily based on a percentage of transaction value or on a specified amount per transaction, and 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, which are not controlled by the Company.

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. The Company establishes a claims receivable from the delinquent checkwriter for the full amount of the guaranteed check and a valuation allowance for this activity based on historical and projected loss experience. See Reserve for Operating Losses below.

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.

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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 earnings process 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.

Merchant processing receivable/payable—The merchant processing receivable/payable results from timing differences in the Company’s settlement process and changes in a line of credit that is available only to pay 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.

Reserve for operating losses—The Company processes credit card transactions for direct merchants. The Company’s merchant customers have the liability for any charges properly reversed by the cardholder and for any sales credits issued to cardholders In the event, however, that the Company is not able to collect such amount from the merchants, 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 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 based on a percentage of the gross amount charged and 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 other relevant factors. Economic downturns or increases in merchant fraud may result in significant increases in credit related losses. As of August 31, 2003 and May 31, 2003, $6.0 million and $5.4 million, respectively, was reserved for losses associated with the Company’s 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 business. Similar to the credit card business, the Company charges its merchants a percentage of the gross 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 recovered 100% of the guaranteed checks. The Company establishes a valuation allowance for this activity based on historical and projected loss experiences. As of August 31, 2003 and May 31, 2003, the Company had a check guarantee reserve of $4.0 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 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. Global Payments adopted SFAS No. 142 in the first quarter of fiscal 2002. In accordance with this new standard, the Company discontinued the amortization of goodwill and certain intangible assets that were determined to have an indefinite life.

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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 lists and merchant contracts associated with acquisitions. Customer lists and merchant contracts are amortized using the straight-line method over their estimated useful lives of 10 to 30 years. The useful lives for customer lists/merchant contracts are determined based primarily on information concerning start/stop dates and yearly attrition. 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. Revenues from external customers from the Company’s service offerings 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 reported net income 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 and 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 generally are assumed to have a dilutive effect on earning per share. The dilutive effect of stock options was 1.2 million shares and 0.9 million shares for the three months ended August 31, 2003 and 2002, respectively. The diluted share base for the three months ended August 31, 2003 excludes incremental shares of 0.6 million related to employee stock options. These shares were excluded due to their anti-dilutive effect as a result of their option exercise prices being greater than the market price of the common shares. 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.

The following tables set forth the computation of basic and diluted earnings per share for the three months ended August 31, 2003 and 2002:

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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 August 31, 2003, the Company has three stock-based compensation plans. These include the Global Payments Inc. 2000 Long-Term Incentive Plan, as amended and restated (“The 2000 Plan”), the Non-Employee Director Stock Option Plan and the 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 employee 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.

NOTE 2—COMPREHENSIVE INCOME

The components of comprehensive income for the three months ended August 31, 2003 and 2002 are as follows:

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NOTE 3—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 quarter of fiscal 2004 as follows:

The charge incurred for the quarter ended August 31, 2003 is reflected in the accompanying Unaudited Consolidated Statement of Income under the caption “Restructuring”.

As of August 31, 2003, $2.3 million of the fiscal 2003 restructuring activities remains 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 for the year ended May 31, 2002 were categorized as follows:

The charges related to facilities represented 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

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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 are those that related to the facility consolidation, acquisitions and integration of acquisition functions. 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.

The cash items were accrued at the time the charges were incurred. As of August 31, 2003, $1.3 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 4—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. 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 revenues 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, but has not made any specific adjustment to that allowance as a result of the Air Canada situation, as described under Reserve for operating losses in Note 1 in the Notes to Unaudited Consolidated Financial Statements. According to the Tenth Report of the Monitor dated September 24, 2003, deferred ticket revenues for Air Canada as of August 31, 2003, representing advance ticket sales collected, were approximately $547 million (Canadian), or $395 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 ending October 31, 1999. This reimbursement obligation is scheduled to expire on March 20, 2004. Based on the 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. Therefore, based on the information contained in that affidavit, the information contained in Tenth Report of the Monitor, and taking into consideration CIBC’s

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reimbursement obligations for Air Canada’s chargebacks and credit losses, the Company estimates that its maximum potential chargeback liability exposure relative to Air Canada as of August 31, 2003 is $37-$46 million (Canadian), or $27-$33 million (U.S.), based on then existing exchange rates.

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

NOTE 5—SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental cash flow disclosures for the three months ended August 31, 2003 and 2002 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 mid-market merchant acquirer in the United States, and the largest, publicly traded independent VISA and MasterCard acquirer in Canada. We provide a wide range of end-to-end electronic transaction processing solutions to merchants, corporations, financial institutions and government agencies. Our products and services are marketed through a variety of distinct sales channels that include a large, dedicated direct sales force, independent sales organizations, or ISOs, independent sales representatives, an internal telesales group, trade associations, 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 funds transfer offerings. Approximately 98% of our current revenue base is from merchant services offerings. The remaining 2% of our total revenue is from our funds transfer service offerings.

Merchant services include credit and debit card transaction processing, business-to-business purchase card transaction processing, check guarantee, check verification and recovery, and terminal management services. We have two basic business models. In one model, which we refer to as “direct” merchant services, we have a salaried and commissioned sales force and ISOs that sell our end-to-end services directly to merchants. In the other model, which we refer to as “indirect” merchant services, we provide unbundled products and services primarily to financial institutions that in turn resell to their merchants.

Business Development

On August 11, 2003, we entered into a definitive agreement to acquire Latin America Money Services, LLC, or LAMS, a holding company which directly owns a majority of the outstanding equity interest in DolEx Dollar Express, Inc., or DolEx, and indirectly owns a majority of the outstanding equity interest in DolEx Envios S.A. de C.V., a Mexican subsidiary of DolEx. The transaction, which is structured as a merger between a newly created subsidiary of Global Payments and LAMS, is subject to regulatory approvals. We are also acquiring the remaining minority interest in DolEx, so that following the transaction, DolEx will be a wholly-owned, indirect subsidiary of Global Payments Inc. The purchase price is $190 million, plus a contingent payment of up to $10 million based on the calendar year 2003 financial results of DolEx. We expect to finance approximately half of the purchase price through cash on hand and the remaining amount through our existing line of credit and notes payable. We intend to operate the business in a manner consistent with DolEx’s historical operations and plan to include this business in our funds transfer offering, with a consumer-to-consumer focus. Once the transaction closes, we will re-name the funds transfer offering to money transfer.

We have made progress toward completing this transaction by recently completing our Hart-Scott-Rodino Act filing, and in each of the states where DolEx is a licensed money transmitter, we have applied for required license transfers or given notice of the transaction, depending on each state’s statutory requirements. Several states have already either approved the transaction or confirmed that they have no objections, and we are working with the remaining states to obtain approval. We do not anticipate any delay in these respective filings and expect a closing of this acquisition before the end of calendar year 2003.

Founded in 1996, DolEx is a leading provider of consumer-to-consumer electronic money transfer services to the Latino community living in the U.S. and their Latin American families abroad. DolEx provides services that allow customers to send money from its network of retail branches in the U.S. to beneficiaries in Latin America. The company has its headquarters in Arlington, Texas, operates hundreds of branches across the U.S. in areas with large Latino populations, and has settlement arrangements with thousands of retail, bank and exchange house

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locations in Latin America. For the year ended December 31, 2002, DolEx and DolEx Envios reported total revenues of $69.9 million.

Components of Income Statement

We derive our revenues from three primary sources including charges based on volumes and fees for merchant 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 network telecommunications capability, transaction processing systems, depreciation and occupancy costs associated with the facilities performing these functions, and provisions for operating losses.

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, employee training costs, 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 ending August 31, 2003, revenue increased $8.8 million or 7% to $136.5 million from $127.7 million in the prior year’s comparable period. The increase in revenue reflects high-teen transaction growth in our domestic direct merchant channel and continued momentum in the ISO sales channels. Revenue growth is also partially attributed to our price changes as a result of the impact of certain new interchange rates arising from the MasterCard and VISA lawsuit settlement. This growth was offset by declines in our indirect channel, which declined at a higher rate than in prior periods, primarily due to the loss of certain merchant portfolios’ select authorization services and continued merchant attrition from existing bank customers.

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. Our domestic average ticket and spread remained stable for the quarter, which we believe is a result of our diversified, mid-market segmentation. Direct revenue includes revenue growth in our check guarantee and gaming product offerings offset by declines in check recovery revenue. Our check guarantee and gaming revenue growth is due to infrastructure investments and new products.

Our Canadian transactions for the quarter grew in the mid-single digits. However, this is down from prior quarters’ growth rates primarily due to the impact of reduced consumer spending in Canadian markets attributed to the SARS threat, specifically in the travel and entertainment sector. We expect Canadian volumes to rebound by the second half of the year. However, the impact is partially offset by the improvement in the foreign exchange rate compared to the same period in the prior year. Average ticket and spread in Canada also declined primarily due to the recent mix of merchant signings, such as the addition of petroleum and grocery retailers.

Cost of service decreased by $4.7 million or 7% from $66.9 million in the three months ending August 31, 2002 to $62.2 million in the three months ending August 31, 2003. As a percentage of revenue, cost of service decreased to 46% in the three months ending August 31, 2003 from 52% in the prior year’s comparable period. This decrease in cost of service in expenses and as a percentage of revenue is primarily due to the integration of our acquisitions and other cost reduction initiatives.

Sales, general and administrative expenses increased $10.0 million or 28% to $45.5 million in the three months ending August 31, 2003 from $35.5 million in the prior year’s comparable period. As a percentage of revenue, these expenses increased to 33% for the three months ending August 31, 2003 compared to 28% for the

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three months ending August 31, 2002. The increase in sales, general and administrative expenses and as a percentage of revenue is due to growth in commission payments to ISOs as well as ongoing investments made in our direct sales channels.

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:

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. The first quarter of fiscal 2004 and the fourth quarter of fiscal 2003 included restructuring charges of $1.6 million and $1.7 million, respectively, related to this consolidation plan. Accordingly, we expect approximately $5 million in charges to be incurred during the remainder of fiscal 2004.

Operating income increased $1.9 million or 7% to $27.2 million at August 31, 2003 from $25.3 million at August 31, 2002. This resulted in an increase in operating margin from 19.8% for the three months ending August 31, 2002 to 19.9% for the three months ending August 31, 2003. This operating income and related margins reflect restructuring charges of $1.6 million in the three months ending August 31, 2003. The changes in operating income and operating margins are due to the revenue and cost factors described above.

Net income increased $1.2 million or 8% from $14.6 million at August 31, 2002 to $15.8 million at August 31, 2003. Diluted earnings per share increased $0.02 or 5% from $0.39 at August 31, 2002 to $0.41 at August 31, 2003. This net income and diluted earnings per share reflects restructuring charges of $1.0 million, net of tax, or $0.03 diluted earnings per share, in the three months ending August 31, 2003.

Liquidity and Capital Resources

Cash flow generated from operations provides us with a significant source of liquidity to meet our needs. At August 31, 2003, we had cash and cash equivalents totaling $96.1 million. Net cash provided by operating activities increased $20.2 million, or 103%, to $39.8 million for the three months ending August 31, 2003 from $19.6 million for the comparable period in the prior year. This increase was primarily due to the impact of a change in net merchant processing from cash used by operating activities of $2.4 million in the three months ending August 31, 2002 to cash provided by operating activities of $5.6 million in the three months ending August 31, 2003. This change is attributed to the transfer of $36 million from our settlement process in Canada to our U.S. cash account in anticipation of the DolEx transaction closing. This cross-border cash transfer reduced the amount of our cash which we utilized in the Canadian merchant processing cycle. This cash previously minimized our borrowings on the CIBC credit facility. The increase in cash from operating activities was also due to changes in the timing of accounts payable and improved collections in net accounts receivable.

Net cash used in investing activities decreased $2.3 million to $3.1 million for the three months ending August 31, 2003 from $5.4 million for the comparable period in the prior year due to a decrease in capital spending. In fiscal 2004, we expect approximately $15 million to $20 million in total capital spending, primarily related to continued office consolidations, systems infrastructure, acquisition of Canadian merchant terminals and product development.

Net cash provided by financing activities increased $37.6 million to $21.5 million for the three months ending August 31, 2003 from $16.1 million net cash used in financing activities for the comparable period in the prior year. This increase was primarily due to our net borrowings on our line of credit restricted for merchant funding on the CIBC credit facility. This reflects the net borrowings required to provide Canadian VISA merchants with same-day

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value, which is standard industry practice in Canada. This borrowing is included in our net merchant processing receivable line item. Also in fiscal 2002, we partially repaid our operating line of credit. We have not had additional borrowings on our operating line of credit in fiscal 2003 or through the first quarter of fiscal 2004.

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. We currently 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 services. If undertaken, this development would further increase our capital expenditures above historical levels.

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 accretive acquisitions.

Credit Facilities

We have a commitment for a $125 million revolving line of credit. It was initially used to fund the cash due to National Data Corporation, now known as NDCHealth Corporation or NDC, to reflect our share of debt incurred by NDC prior to our spin-off to establish our initial capitalization. This line of credit is also available to meet working capital needs and to finance acquisitions. This line has a variable interest rate based on market rates. The credit agreement contains certain financial and non-financial covenants and events of default customary for financings of this nature. The facility has a three-year term, expiring in January 2004. The full amount outstanding is due upon demand and, therefore, we classify any amount outstanding as a current liability. As of August 31, 2003 and May 31, 2003, there were no amounts outstanding on this credit facility.

On October 1, 2001, we obtained a commitment for a $25 million revolving credit facility to finance working capital needs and other general corporate purposes. This line has a variable interest rate based on market rates. The credit agreement contains certain financial and non-financial covenants and events of default customary for financings of this nature. The credit facility originally had a sixteen-month term, expiring in January 2003. Prior to its expiration, we executed an amendment with the lender to extend the term of this facility for an additional twelve month period through January 2004. As of August 31, 2003 and May 31, 2003, there were no amounts outstanding on this credit facility.

We also have a credit facility from CIBC that provides a line of credit up to $175 million (Canadian), approximately $126 million (U.S.), 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 line of credit 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 primary credit facility. On December 10, 2002, we executed a third amendment to this credit facility which extended the term of the facility for an additional 364 days through December 9, 2003 and provided 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, the merchant’s deposits are backdated to the date of the applicable sales transaction. Under the terms of the credit agreement prior to the execution of the third amendment, CIBC credited the merchants’ deposit account for their sales transactions on the day of the transaction and we reimbursed CIBC when we received the corresponding funding from the card association. At August 31, 2003 and May 31, 2003, there was $79.1 million and $46.3 million (Canadian), or approximately $57.1 million and $33.9 million (U.S.), respectively, outstanding on this credit facility. These amounts are included as a component of the net merchant processing receivable on the balance sheet. The amount borrowed is restricted in use to pay merchants and will be received from the card associations on the following day.

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We are currently under separate negotiations with our lenders to extend the terms of our credit facilities and expect to complete this process prior to the facility expiration dates noted above.

Forward-Looking Results of Operations

During fiscal 2004, we intend to continue to focus on growing our domestic and Canadian 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. Consistent with this strategy, our expectation for our full fiscal 2004 year revenue is $542 million to $562 million, or 5% to 9% growth, compared to $516 million in fiscal 2003. We expect net interest and other expense to approximate fiscal 2003 levels in fiscal 2004 and minority interest will grow in fiscal 2004 at rates consistent with our overall earnings growth. Our expectation for fiscal 2004 diluted earnings per share is $1.57 to $1.64 or 10% to 15% growth, compared to diluted earnings per share of $1.43 in fiscal 2003, excluding the impact of restructuring charges in both periods. The earnings per share target reflects our expectation of achieving operating margin of 19% to 19.5% in fiscal 2004, excluding the impact of restructuring charges. The forward-looking statements in this Management Discussion and Analysis does not reflect the impact of restructuring charges, potential acquisitions and the impact of the previously announced LAMS acquisition. We intend to provide revised guidance after the closing of the LAMS acquisition.

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, the following:

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For additional information regarding these and other risk factors, please refer to Exhibit 99.1 to our Annual Report on Form 10-K for the year ended May 31, 2003, as well as those set forth in our press releases, reports and other filings made with the Securities and Exchange Commission, and those set forth from time to time in our analyst calls and discussions. 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 or SEC. 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.

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, 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

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20 Broad Street

New York, NY 10005

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes related to our exposure to changes in interest rates and/or foreign currency rates from the information reported in our Form 10-K for the fiscal year ended May 31, 2003.

Item 4. Controls and Procedures

We concluded an evaluation of the effectiveness of our disclosure controls and procedures as of the quarterly period ended August 31, 2003. 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 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 quarterly period ended August 31, 2003, information required to be disclosed in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer as appropriate, in a manner that allows timely decisions regarding required disclosure.

There were no significant changes in our internal controls that could significantly affect these controls during the first 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 4 of the “Notes to Unaudited Consolidated Financial Statements—Commitments and Contingencies.”

Item 6. Exhibits and Reports on Form 8-K

On July 17, 2003, the Company filed a Current Report on Form 8-K to disclose, pursuant to Item 7 and Item 12 on Form 8-K, the Company’s results for the fourth quarter and fiscal year ended May 31, 2003.

On August 12, 2003, the Company filed a Current Report on Form 8-K to disclose, pursuant to Item 5 and Item 7 on Form 8-K, an Agreement and Plan of Merger with Latin America Money Services, LLC.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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