##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

Commission file number 0-30791.

eFUNDS CORPORATION

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 39-1506286
(I.R.S. Employer
Identification No.)

|                                                                                                                 |  |                 
|---------------------------------------------------------------------------------------------------------------- |  | ----------------
|Gainey Center II
8501 N. Scottsdale Road, Suite 300
Scottsdale, Arizona
(Address of principal executive offices) |  | 85253
(Zip Code)

Registrants telephone number, including area code: (480) 629-7700

|                                                            |  |                                                                                              
|----------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | None                                                                                         
|                                                            |  |                                                                                              
|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, par value $.01 per share, with Preferred Stock
Purchase Rights (Title of Class)

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. [X] Yes [  ] No

The aggregate market value of the voting stock held by non-affiliates of the
registrant is $336,725,479 based on the last sales price of the registrants
common stock on the National Association of Securities Dealers Automated
Quotation System on March 26, 2003. The number of outstanding shares of the
registrants common stock as of March 26, 2003 was 46,702,563 and the last
sales price of the registrants common stock on that date was $7.21.

Documents Incorporated by Reference: Portions of the registrants proxy
statement for its 2003 Annual Meeting of Stockholders, which will be filed with
the Securities Exchange Commission on or before April 30, 2003, is incorporated
by reference in Part III.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [  ]

Documents Incorporated by Reference

A portion of the Proxy Statement for the Annual Meeting of Stockholders of
eFunds Corporation to be held May 23, 2003 is incorporated by reference into
Part III of this report.





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|                                                                                                                   |                                                                                                                                                                                                                                                          |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART 1                                                                                                            
|                                                                                                                   | ITEM 1. BUSINESS                                                                                                                                                                                                                                        
|                                                                                                                   | ITEM 2. PROPERTIES                                                                                                                                                                                                                                      
|                                                                                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                                                                                                                                                                               
|                                                                                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                                                                                                                             
|PART II                                                                                                           
|                                                                                                                   | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                                                                                                                                           
|                                                                                                                   | ITEM 6. SELECTED FINANCIAL DATA                                                                                                                                                                                                                         
|                                                                                                                   | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                                                                                                           
|                                                                                                                   | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                                                                                                                                     
|                                                                                                                   | ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                                                                                                                                        
|                                                                                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                                                                                                                                                               
|PART III                                                                                                          
|                                                                                                                   | ITEMS 10, 11, 12, AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|                                                                                                                   | ITEM 14. CONTROLS AND PROCEDURES                                                                                                                                                                                                                        
|PART IV                                                                                                           
|                                                                                                                   | ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                                                                                                                                                                               
|CERTIFICATION                                                                                                     
|INDEPENDENT AUDITORS CONSENT AND REPORT                                                                          
|eFUNDS CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
|EXHIBIT INDEX                                                                                                     
|EX-10.19                                                                                                          
|EX-10.22                                                                                                          
|EX-10.34                                                                                                          
|EX-10.35                                                                                                          
|EX-10.38                                                                                                          
|EX-21.1                                                                                                           
|EX-23.2                                                                                                           
|Ex-23.3                                                                                                           
|EX-24                                                                                                             
|EX-99.1                                                                                                           
|EX-99.2                                                                                                           
|EX-99.3                                                                                                           
|EX-99.4                                                                                                           
|EX-99.5                                                                                                           



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PART I

ITEM 1. BUSINESS

INFORMATION ABOUT US

Our Company was incorporated in Delaware in December 1984. Prior to our initial
public offering (the IPO) in June 2000, we were a wholly owned subsidiary of
Deluxe Corporation, a Minnesota corporation (Deluxe). Deluxe is the largest
check printer in the world. The shares of Deluxe are publicly traded on the New
York Stock Exchange under the symbol DLX.

In April 1999, we began the process of combining our Company with four of
Deluxes other former operating units into an integrated electronic payments
and risk management business. The operations combined were DebitBureau, Chex
Systems, Inc., Deposit Payment Protection Services, Inc. and an electronic
check conversion company that Deluxe acquired in February 1999. In September
1999, we changed the name of our Company to eFunds Corporation. In January
2000, we combined Deluxes professional services business, eFunds IT Solutions
Group, Inc. and eFunds International India Private Limited, with our electronic
payments and risk management businesses. In June 2000, we sold 5,500,000 shares
of our common stock to the public at a price of $13.00 per share. After the
IPO, Deluxe continued to own about 87.9% of the outstanding shares of our
common stock. In December 2000, Deluxe distributed all of the shares of our
common stock owned by it to its shareholders through a tax-free spin-off (the
Spin-Off) in which each of its shareholders received approximately .5514 of a
share of our common stock for each Deluxe share owned by them. Following the
Spin-Off, Deluxe ceased to own any shares of our common stock.

In March 2000, we paid cash of $20.0 million for an approximate 24% interest in
Access Cash International L.L.C., a Delaware limited liability company (ACI).
ACI was the second largest independent provider of Automated Teller Machine
(ATM) services in the United States. Effective October 1, 2001, we acquired the
remaining approximately 76% equity interest in ACI. The purchase price of the
remaining 76% of ACI was $44.6 million, of which approximately $40.3 million
was paid in cash on or prior to the closing date of the acquisition. Payment of
the balance of approximately $4.3 million remains subject to the satisfaction
of certain post-closing conditions.

During 2002, we acquired four additional independent ATM networks through stock
or asset purchases. The companies purchased were: Hanco Systems, Inc. (Hanco)
which managed a network of approximately 2,500 ATMs in 30 states; Samsar ATM
Company, Inc. (Samsar), a Seattle-based provider of ATM services which managed
an ATM network of more than 1,000 ATMs in the northwest United States;
Evergreen Teller Services, Inc. (Evergreen), a California-based provider of ATM
services for more than 1,600 ATMs located throughout California and the
northwest United States; and Cash Resources, Inc. (CRI), a Colorado-based
provider of ATM services for more than 2,800 ATMs located mostly in the western
half of the United States. The total purchase price of these acquisitions was
approximately $39.7 million of which approximately $35.2 million was paid in
cash. Payment of approximately $2.7 million of the purchase price is subject to
satisfaction of certain post-closing conditions. We currently manage a network
of approximately 16,800 ATM machines.

Our principal executive offices are located at Gainey Center II, 8501 N.
Scottsdale Road, Suite 300, Scottsdale, Arizona 85253 and our telephone number
is 480-629-7700. Our Internet address is www.efunds.com. The information
contained on our web site is not a part of this document.

OUR BUSINESS

We provide electronic transaction processing, ATM management, risk management
and professional services to financial institutions, retailers, electronic
funds transfer networks, government agencies and others. We have four principal
business lines:



| | - |  | Electronic Payments                 
| | - |  | ------------------------------------
|
| | - |  | ATM Management Services             
|
| | - |  | Decision Support and Risk Management
|
| | - |  | Professional Services               

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Electronic Payments

Our Electronic Payments segment provides electronic funds transfer (EFT),
automated clearinghouse (ACH), point of sale (POS) and other payment processing
services for financial services companies and electronic benefit transfer (EBT)
services for government agencies. This segment had net revenues of $185.8
million in 2002, which represented approximately 34% of our total net revenues
in that year.

We process transactions for regional automated teller machine, or ATM, networks
in the United States. We also provide transaction processing for retail
point-of-sale terminals that accept payments from debit cards and paper checks
that have been converted into electronic transactions. Transaction processing
involves electronically transferring money from a persons checking or savings
account according to his or her instructions. For example, when a cardholder
inserts his or her debit card into an ATM machine and enters his or her PIN and
the type and amount of the transaction, the device contacts our systems and
transmits the request. We identify the institution that issued the card and
work through the necessary validation and authorization routines, such as
ensuring that the cardholder has entered the correct PIN, that the transaction
is within the cardholders limits on withdrawals and that there are sufficient
funds in the cardholders account. If all the routines are executed
successfully, we signal the ATM or point of sale device to complete the
transaction.

To carry out the tasks required, each ATM or point-of-sale device is typically
connected to several computer networks. These networks include private networks
that connect the devices of a single owner, shared networks that serve several
device owners in a region and national shared networks that provide access to
devices across regions. Each shared network has numerous financial institution
members. For example, we provide processing services for approximately 800 of
the nearly 1,200 CO-OP Network member credit unions. As part of our transaction
processing services, we, and other gateway service providers like us, provide
cardholders with access across these multiple networks.

We drive or operate more than 10,000 bank-owned ATMs in addition to those
included in our own ATM network and more than 53,000 point-of-sale terminals.
These terminals include approximately 32,000 EBT terminals and approximately
21,000 retail terminals. We process virtually all types of debit-based
transactions for our financial institution customers, including cash
withdrawals, cash deposits, balance inquiries, purchases, purchases with cash
back and purchase returns. In addition, we authorize cash advances and
purchases initiated with credit cards at ATM or point-of-sale locations. We
also provide 24 hour a day, 7 day a week monitoring of ATMs for system
irregularities. Our systems are designed to operate continuously and in 2002
our systems were available 99.99% of the time.

In 2001, Concord EFS acquired the STAR debit network, formerly our largest
transaction processing customer, and notified us that it intended to terminate
STARs processing agreement with us and perform the processing for this network
at its own data centers. As part of the transition of this activity, STAR
licensed our EFT software and contracted for the long-term maintenance thereof
and for professional services to assist in the migration effort. This license
represented our largest software licensing transaction to date. The transition
of the processing for the STAR network was completed in September 2002.
Including software license and maintenance fees and fees for processing
transactions for the STAR network, transactions between our Company and the
STAR network accounted for approximately $21.7 million of net revenue during
the year ended December 31, 2002, or approximately 4% of our total net revenues
(before reimbursed expenses) in that year. We do not expect to realize material
revenues from our relationship with the STAR network in the future. However,
we continue to recognize revenues in our relationship with Primary Payment
Systems, a subsidiary of Concord EFS. The loss of the STAR network as a
processing customer has materially diminished the number of POS debit
transactions we process because these network transactions are no longer routed
through our switch. As a result, our primary involvement in the processing of
POS debit transactions involves the authorization and settlement of
transactions initiated by holders of debit cards issued by financial
institutions for which we provide processing services. This shift has also
resulted in the revenues we derive from processing transactions that originate
from ATM machines constituting a larger share of the total revenues of our
Electronic Payments segment.

Our government services EBT business was started in response to federal
mandates that require state and local governmental agencies to convert to
electronic payment methods for the distribution of benefits under entitlement
programs, primarily food stamps and Transitional Aid to Needy Families
(formerly Aid to Families with Dependant Children). Our electronic benefits
transfer processing system manages, supports and controls the electronic
payment and distribution of cash benefits to program participants through ATMs
and point-of-sale networks. Our services reduce operating costs and fraud for
the government agency administering the benefits program, eliminate the food
stamp stigma for recipients through the use of a plastic ATM-like card and make
benefits more readily available to recipients at retail point-of-sale terminals
and ATMs.

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In 1993, we rolled out our first statewide system to electronically deliver
these benefits using our electronic funds transfer capabilities. We were
providing services for 28 state and local governments at the end of 2002. All
of our government services contracts relate to government entitlement programs.
Our government contracts are for scheduled service periods of five to seven
years, although all of these contracts are terminable by the contracting
governmental entity at any time. The contracts are based on a fixed price per
recipient, variable volume model. For three contracts with coalitions of
states, we serve as a subcontractor for Citibank.

Previously, we provided a Medicaid eligibility verification processing service
that provided authorization services, drug utilization review and electronic
claims capture and transmission for pharmacies and managed care firms for the
State of New Yorks Medicaid program. This contract with New York provided us
with $12.2 million in revenue in 2002 and expired at the end of that year.

We have historically incurred losses related to our government services EBT
business and we have established reserves to provide for expected future losses
on some of our existing long-term EBT service contracts. Prior to 2001, our
government services segment recorded losses that resulted in special charges
for loss contracts, asset impairments and legal proceedings totaling
approximately $90 million. Deluxe has agreed to indemnify us against future
losses on government services contracts that were in a loss position at the
time of our IPO to the extent the projected future losses on these contracts
exceed the loss contract reserve we had established as of April 30, 2000.
Deluxe has also agreed to indemnify us against future losses related to any
litigation related to this business based on any facts or circumstances arising
prior to the completion of our IPO. The indemnification obligations of Deluxe
do not apply to losses contemplated by our pre-IPO loss contract reserves and
are subject to a $14.6 million limit. If Deluxe were to make any
indemnification payments for any litigation, Deluxes loss contract
indemnification obligations would be correspondingly reduced. In addition,
Deluxes indemnification does not apply to any contract that was not in a loss
position on April 30, 2000 and so no indemnification would be available if any
of our contracts that were then projected to be profitable were to become
unprofitable or if we enter into a new contract that became unprofitable. We
had an additional loss contract accrual of $1.3 million in 2001 relating to a
revised estimate for a contract that was previously expected to be profitable.
This accrual was not subject to Deluxes indemnification obligations. During
2002 and 2001, we reduced our previous estimates for expected future losses on
our government services contracts by $2.0 million and $3.8 million,
respectively.

ATM Management Services

Our ATM Management Services segment provides ATM deployment, management and
branding services. Last year our net revenues in this segment were $115.6
million, which represented approximately 21% of our total net revenues in 2002.

As an independent provider of ATMs, we place ATMs with convenience, grocery,
general merchandise and drug stores, as well as gas stations, located
throughout the United States and Canada. We are the largest independent
provider of ATM services in North America and we currently manage an active
network of approximately 16,800 ATMs. We are migrating the processing of the
ATM transactions generated at these machines to our networks as existing
processing agreements with third party processors expire. Currently, we provide
the processing for approximately 10,300 of the ATM machines in our network and
we expect to migrate approximately 5,100 remaining U.S. ATMs to our networks as
existing contractual commitments expire or as the economics associated with
accelerated contract cancellations make it logical to do so, with approximately
3,000 such conversions expected to occur during 2003. Due to existing
contractual commitments, processing for the approximately 1,400 ATMs we have in
Canada will not likely be transitioned to our networks for a substantial period
of time. We own or lease approximately 12% of the ATMs placed at the merchant
locations and the remaining ATMs are owned or leased by the merchants operating
in these locations.

We collect both ATM surcharge fees from consumers using ATMs deployed by us and
interchange fees from their banks. During 2002, the operating margins generated
by our ATM business approximated 2.4%. Our efforts during 2003 will be directed
towards improving the performance of this business by further integrating the
ATM businesses we acquired during 2001 and 2002, redeploying under-performing
or idle ATMs and seeking to obtain additional sources of revenue from the
installed ATM base. The possible additional sources of revenue we plan to
explore involve such things as branding ATMs to enable customers of the
sponsoring institution to use the branded ATMs without paying a surcharge fee,
payroll cards, prepaid phone card top-ups and other types of value-added
services. Although our focus in 2003 will be on margin improvement, we may seek
to acquire additional independent ATM service organizations if appropriate
acquisition opportunities become available.

Decision Support and Risk Management

Our Decision Support and Risk Management segment provides risk management based
data and other products to financial institutions, retailers and other
businesses that assist in detecting fraud and assessing the risk of opening a
new account or accepting a check. This segment had net revenues of $139.8
million in 2002, which represented approximately 26% of our total revenue last
year This segment offers products and services that help:



| | - |  | determine the likelihood of account fraud and identity manipulation; and                    
| | - |  | --------------------------------------------------------------------------------------------
|
| | - |  | assess the overall risks involved in opening new accounts or accepting payment transactions.

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These products and services are based on or enhanced by our DebitBureau®
database. DebitBureau contains over three billion records and includes data
from our ChexSystems(SM) and SCAN(SM) databases and other sources. We use the
data in DebitBureau to screen for potentially incorrect, inconsistent or
fraudulent social security numbers, home addresses, telephone numbers, driver
license information and other indicators of possible identity manipulation.
Using our data, we can perform various tests to validate a consumers identity
and assess and rank the risk of fraud associated with opening an account for or
accepting a payment from that consumer.

Our SCAN, or Shared Check Authorization Network, product helps retailers reduce
the risk of write-offs for dishonored checks due to insufficient funds and
other forms of account fraud. When a check is presented as payment at the
point-of-sale, SCAN members run the check through a scanner. The information on
the check is then compared to the SCAN database to determine whether there have
been previous payment problems with the check writer or his or her account.
SCAN then reports any issues to the retailer and the merchant decides whether
or not to accept the check. SCAN serves 14 of the 20 largest retailers in the
United States based on recent market data. More than 77,000 retail locations
report returned check activity to the SCAN network. Our larger retail customers
host our SCAN database on their own computers. Others access the database
through our SCAN Online product. Merchants pay a monthly service fee for SCAN
based on their net monthly sales, if they host the SCAN file themselves, or by
the number of inquiries submitted, if they use SCAN Online. Additional fees
apply for inquiries by the retailers or consumers to our call centers.

To help retailers manage their check acceptance programs, we offer collection
services to some SCAN members. We tailor our collection strategies to specific
retailer needs. The services generally involve sending letters and follow-up
telephone calls to consumers whose checks have been returned.

Our ChexSystems business is a provider of new account applicant verification
services for financial institutions. ChexSystems provides access to more than
17 million closed-for-cause account histories and has recorded 124 million new
account inquiries. An account is considered closed-for-cause when, for
example, a consumer refuses to pay the account fee and the bank closes the
account. ChexSystems helps financial institutions immediately assess the risks
involved in opening an account for a new customer by supporting real-time
inquiries to our database of consumer debit account performance. The
ChexSystems service is used by more than 95,000 financial institution
locations. Financial institutions may access the service through a variety of
online options, or by telephone. Service fees for our new account verification
services are based on the number of inquiries a financial institution makes
each month.

ChexSystems also offers DebitReport, a service pursuant to which our
DebitBureau data is made available to credit grantors, directly and through
credit bureaus or other data providers, to supplement their credit decisioning
processes and for use in making pre-approved offers of credit.

Professional Services

Our Professional Services segment provides business process management and IT
outsourcing services, EFT software sales and software applications development,
maintenance and installation services. Net revenues in this segment were
$101.9 million in 2002, which represented 19% of our total net revenues for
2002.

Our business process management and outsourcing services focus on both
back-office and customer support business processes, such as accounting
operations, help desk services, account management, and call center operations.
Our business process outsourcing services are provided primarily at our shared
services facility in Gurgaon, India and at our call center sites in Mumbai,
India. Our offshore business processing capabilities allow our clients to focus
on their core processes, reduce their direct personnel costs, avoid non-core
capital investments and improve the quality of their outsourced operations.

We license our electronic funds transfer software, the same software that
drives our electronic funds transfer processing business, to in-house
processors and regional networks in 23 foreign countries and in the United
States. Our electronic funds transfer software runs on IBM and Tandem computing
platforms. We also provide software maintenance and support services.

Our information technology services are offered on a stand-alone basis and as a
complement to our electronic payment and risk management products in connection
with the integration or customization of these products within our customers
existing information technology infrastructure. We charge separate fees for
these services based in hourly rates. We also provide on-site user training on
the use of our products and solutions. We build long-term continuing
relationships with our clients by providing on-going maintenance and support of
our software products. Maintenance fees are recognized as revenue ratably over
the service period.

Our former parent company, Deluxe, is the principal customer for our
professional services offerings. In 2002, sales to Deluxe were $46.8 million.
Sales to Deluxe for the year ended December 31, 2002 were for services provided
pursuant to a five-year software development and business process outsourcing
agreement that we signed with Deluxe in 2000. If Deluxe fails to spend a
minimum of

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$43 million for software development services under this agreement in any year,
it will be obligated to make payments to us based on a schedule in the contract
that is reflective of our estimates of our lost profits. For the year ended
December 31, 2002, Deluxes spending attributable to the software development
component of this agreement was $42.6 million and so a minimal level of
shortfall fees were accrued. This agreement also calls for us to provide
business process management services, including accounts receivable, accounts
payable and other general accounting and data entry services to Deluxe.
Deluxes annual spending target for business process management services
declines from $8.1 million in 2000 to $4.2 million in 2004, although we do not
receive shortfall fees if Deluxe does not purchase these services at the
targeted level in any given year. Revenue from Deluxe for business process
outsourcing services was $4.2 million for the year ended December 31, 2002. The
provision of services by us under the software development and business process
outsourcing agreement is non-exclusive, and Deluxe may contract with any third
party for the provision of professional services.

Sales and Marketing

We organize our direct sales force along our four business segments. We market
our products and services through a direct sales force and indirect sales
channels, such as distributors, resellers and targeted alliances. We work
consultively with our new or existing customers to fully understand their
business requirements and provide standard or customized solutions that match
their individual needs.

Most of our direct sales personnel are deployed across the country and
generally operate out of their homes or on our customers premises. We also
have some direct sales personnel who work out of our offices in Glendale,
Wisconsin; Woodbury, Minnesota; and Scottsdale, Arizona. Our international
sales offices are located in Sydney and Melbourne, Australia; Mumbai, India;
and Runcorn, England. We build awareness of our products and services and the
eFunds corporate name through targeted advertising, public relations,
participating in trade shows and conferences and providing product information
through our web site.

Customer Support, Technology and Infrastructure

Customer Support. We provide customer support services through our customer
contact centers located in Woodbury, Minnesota; Dallas, Texas; Gurgaon and
Mumbai, India; Glendale, Wisconsin; and Phoenix, Arizona. Most of our contact
centers are open 24 hours a day, 7 days a week and provide access to website,
e-mail and telephone support. We also provide technical and operational support
for our customers in our data centers. In addition to user questions and
technical issues, in accordance with the Fair Credit Reporting Act, we respond
to inquiries from consumers whose checks have been declined or who have been
rejected for a new banking account. We also provide on-site customer support
services in connection with our other products and services, and charge a
separate fee for these services based on an hourly rate.

Technology. Our products are configured to run on operating systems common in
the electronic debit payment industry. These include the Tandem, IBM, UNIX and
Windows operating environments. Our software is developed using C, C++, Cobol,
HTML, TAL, Java and other programming languages. Our software products are
interoperable with a wide range of terminal types and computer networks and
support a variety of communications protocols, such as TCP/IP as well as other
protocols.

Data Centers. We operate two highly secure, fault-tolerant data centers in New
Berlin, Wisconsin and Phoenix, Arizona. Our data centers have been engineered
to ensure minimal exposure to system failures and unauthorized access. Each of
our data centers contains multiple separate computer rooms to provide
containment and isolation. Physical security is maintained through restricted
card key access and closed circuit T.V. cameras. We use redundant
uninterruptible power supplies with battery backup and redundant generators to
ensure continuous flow of power to each data center in the event of any
component failure or power outage. The facilities have dual-entrance, fiber
optic SONET service for telecom redundancy.

Competition

We face competition from a number of companies. We expect that competition will
intensify as consolidation efforts within the electronic payments industry
continue. Many of our competitors have significantly greater financial,
technical and marketing resources, greater name recognition and a larger
installed customer base than we do.

In the electronic payments market, our principal competitors include:



| | - |  | third-party debit network processors, including First Data, VISA
Debit Processing Services, Concord EFS, Midwest Payment Systems and Fiserv.                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | financial institutions that have developed in-house processing
capabilities or services similar to ours, including Bank of America, M&I
Bank and Fifth Third National Bank;

In the ATM management services market, our competitors include Concord EFS,
Genpass and numerous independent service
organizations (ISOs).

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In the decision support and risk management market, our principal competitors
include:



| | - |  | providers of fraud management data and software including Equifax,
Experian and TransUnion and other credit bureaus ;                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | retail check verification and electronic check processing providers,
including Certegy and Telecheck, a subsidiary of
First Data     Corporation.

In the professional services market, our competitors include:



| | - |  | electronic funds transfer software providers, including Transaction
System Architects, S2, Oasis, Mosaic and PaySys;
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| | - |  | outsourcing solutions companies, including Spectramind/Wipro Ltd, Daksh and
Infosys Technologies.                   

The principal factors on which we compete in the electronic payments and ATM
industries are price and service levels. Competition for our decision support
and risk management products is based primarily on the quantity and quality of
the data available to us for this purpose and, to a somewhat lesser degree,
price. Our business process outsourcing and professional services offerings
compete primarily on the basis of the quality of service levels and products
and, to some degree, price.

We believe that we have competed effectively to date. Our continued ability to
do so will require us to effectively manage our costs, respond promptly and
effectively to changes in the marketplace and innovations by our competitors
and to efficiently introduce new products and services and combinations of our
new and existing products and services that are reflective of the current needs
of our customers.

Government Regulation

Various aspects of our businesses are subject to federal and state regulation.
Our failure to comply with any applicable laws and regulations could result in
restrictions on our ability to provide our products and services, as well as
the imposition of civil fines and criminal penalties.

As a provider of electronic data processing services to financial institutions,
we are subject to regulatory oversight and examination by the Federal Financial
Institutions Examination Council, an interagency body comprised of the various
federal bank and thrift regulators and the National Credit Union Association.
In addition, we may be subject to possible review by state agencies that
regulate banks in each state where we conduct our electronic processing
activities.

Because we collect and disclose debit data and other personal information about
consumers, we are subject to the federal Fair Credit Reporting Act and any
state laws providing greater consumer protections. The Fair Credit Reporting
Act provides that consumers have the right to know the contents of the records
pertaining to them which are maintained at our consumer reporting agencies, to
challenge the accuracy of that information and to have their information
verified, updated or removed if it is incorrect. To comply with these
requirements, we maintain consumer relations call centers for each of our
consumer reporting businesses. We are also required to maintain a high level of
security for the computer systems in which consumer data files reside.

Our consumer reporting agencies and collection agencies are also subject to
regulation by the Federal Trade Commission. In addition, our debt collection
services are subject to the Fair Debt Collection Practices Act and state
collections statutes and licensing requirements.

Financial institutions are subject to the requirements of the federal financial
modernization law known as the Gramm-Leach-Bliley Act. The Act imposes
significant requirements on any entity engaged in the business of providing
financial services, including entities that provide services to financial
institutions. The privacy provisions of the Act impose on each entity subject
to the new requirements an affirmative obligation to develop and implement
policies to protect the security and confidentiality of consumers nonpublic
personal information and to disclose those policies to consumers before a
customer relationship is established and annually thereafter. The banking
regulators and the Federal Trade Commission have issued regulations which
implement the privacy portions of this Act. We believe that these regulations
permit banks to provide debit data and other nonpublic personal information to
us.

Intellectual Property Rights

We rely on a combination of trademark, copyright, trade secrets and
confidentiality or license agreements to protect our trademarks, software and
know-how. We also have applied for patent protection on some of the features of
our newer products. With regard to our information technology services, our
business consists of software applications development. Ownership of this
software is generally assigned to the client. We also develop software
components that can be reused in software application development and software
toolsets, most of which remains our property.

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Employees

We had approximately 4,500 full and part-time employees as of March 1, 2003. We
have a number of employee benefit plans, including a 401(k) plan, stock option
and stock purchase plans, profit sharing plans and medical and hospitalization
plans. We have never experienced a work stoppage or strike and consider our
employee relations to be good.

Financial Information About Industry Segment; Financial Information About
Domestic Operations and Export Sales

Information about these matters appears in Note 14. Business Segment
Information to the financial statements included in Part II of this Annual
Report on Form 10-K.

Executive Officers

The executive officers of the Company are elected by the Board of Directors
each year. The term of office of each executive officer will expire at the
annual meeting of the Board of Directors that will be held after the regular
shareholders meeting on May 23, 2003. The principal occupation of each
executive officer is with the Company, and their positions are as follows:

|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|----------------------- |  | ------------------------------------------------------------------- |  | --- | -- | ----- |  | ----------------- | ---- | 
|                        |  |                                                                     |  |     |    |       |  | EXECUTIVE OFFICER
|NAME                    |  | POSITION                                                            |  | AGE |    | SINCE
|                        |  |                                                                     |  |     |    |      
|Paul F. Walsh           |  | Chairman of the Board
and Chief Executive Officer                   |  |     | 53 |       |  |                   | 2002 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Thomas S. Liston        |  | Chief Financial Officer                                             |  |     | 64 |       |  |                   | 2002 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Colleen McKeown Adstedt |  | Senior Vice President, Human
Resources and Administration           |  |     | 40 |       |  |                   | 2001 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Tommy L. Andrews        |  | Senior Vice President,
Corporate Development                        |  |     | 52 |       |  |                   | 2003 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Steven F. Coleman       |  | Senior Vice President, General
Counsel and Secretary                |  |     | 44 |       |  |                   | 2000 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Mike A. Feliciano       |  | Senior Vice President, Division
Executive-EFT Solutions             |  |     | 45 |       |  |                   | 2003 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Kathleen Flanagan       |  | Senior Vice President, Division
Executive-Outsourcing Solutions     |  |     | 43 |       |  |                   | 2002 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Rahul Gupta             |  | Senior Vice President, Division
Executive-Risk Management
Solutions |  |     | 43 |       |  |                   | 2003 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Kevin L. Reager         |  | Senior Vice President, Division
Executive-ATM Management
Solutions  |  |     | 45 |       |  |                   | 2003 | 
|                        |  |                                                                     |  |     |    |       |  |                   |      | 
|Clyde L. Thomas         |  | Chief Information Officer,
Senior Vice President,
Technology        |  |     | 50 |       |  |                   | 2002 | 

Paul F. Walsh has served as Chairman of our Board of Directors and our Chief
Executive Officer since September 16, 2002. Between March 2000 and September
2002, Mr. Walsh was chairman and chief executive officer of Clareon Corporation
(Clareon), an electronic payments provider. Mr. Walsh served as chairman and
chief executive officer of MaineStay Holdings L.L.C., a private equity investment
firm, from September 1998 until January 1999, when MaineStay formed iDeal
Partners (iDeal Partners), an equity investment partnership between MaineStay,
Berkshire Partners and BancBoston Capital. Mr. Walsh served as chairman and
chief executive officer of iDeal Partners until he joined Clareon. From
February 1995 to September 1998, Mr. Walsh was president and chief executive
officer of Wright Express Corporation (Wright Express), an information and
financial services company. From January 1990 until January 1995, Mr. Walsh
was chairman of BancOne Investor Services Corporation, a financial services
company.

Thomas S. Liston has served as our Chief Financial Officer since July 2002.
Between February and June 2001 and from December 2001 until he joined our
Company, Mr. Liston served as interim chief financial officer of PETsMART,
Inc., a retail chain of pet supply stores. From 1997 to 1998, Mr. Liston served
as vice president and chief financial officer of Little Switzerland, a
specialty

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jewelry and gift retail company. Prior to this position, Mr. Liston held a
variety of executive finance positions, primarily in the retail industry.

Colleen McKeown Adstedt has served as our Senior Vice President, Human
Resources and Administration since March 1, 2000. Previously, she served as
Chief Administrative Officer for our professional services companies from May
1999 to February 2000. From March 1998 until April 1999, Ms. McKeown Adstedt
served as a Director of Human Resources for Deluxe and from May 1996 to March
1998 as Director of Labor Relations, Chief Negotiator, Ground Operations for
Northwest Airlines. Ms. McKeown Adstedts prior work experience included a
variety of senior level positions in sales, human resources, and labor
relations with Northwest Airlines, Pepsico and Ford Motor Company.

Tommy L. Andrews has been our Senior Vice President, Corporate Development
since January 2003. From February 2001, until he joined our Company, Mr.
Andrews served as senior vice president of operations for FleetCor
Technologies, Inc., a marketer of commercial fleet cards. From September 1999
to January 2001, Mr. Andrews was chief executive officer of B2Bexplorer, Inc.,
a provider of e-commerce solutions to small businesses. From 1996 to 1999, Mr.
Andrews was a senior vice president for Wright Express, serving most recently
as the head of its corporate development efforts.

Steven F. Coleman has served as Senior Vice President, General Counsel and
Secretary since March 2000. From 1996 until joining our Company, Coleman worked
as a Senior Attorney for Deluxe. Prior to joining Deluxe, Mr. Coleman was
associated with Dorsey & Whitney, a law firm located in Minneapolis, Minnesota,
and Fried, Frank, Harris, Shriver & Jacobson, a law firm located in New York,
New York.

Mike A. Feliciano has served as Senior Vice President, Division Executive-EFT
Solutions since January 2003. Mr. Feliciano was vice president and general
manager of the EFT processing business unit at NYCE Corporation, an electronic
funds transfer network, from 1995 until he joined our Company. Prior to joining
NYCE, Mr. Feliciano served in the electronic commerce division of Electronic
Data Systems for three years.

Kathleen Flanagan has served as Senior Vice President, Division
Executive-Outsourcing Solutions since December 2002. From March 2000 until
December 2002, Ms. Flanagan served as the chief operations officer for Clareon,
and she was employed as senior vice president of client operations for Wright
Express from February 1996 until November 1999. Ms Flanagan has also held
senior positions at Portland Glass and Melville Corporation.

Rahul Gupta has served as Senior Vice President, Division Executive-Risk
Management Solutions since January 2003. From October to November 2000 and
from January to August 2002, Mr. Gupta served as vice president, network/ASP
services of i2 Technologies, Inc. (i2), a provider of supply chain management
software. From December 2000 to December 2001, Mr. Gupta served as chief
executive officer of Financial Settlement Matrix, a joint venture between i2
and several financial institutions that provided business to business payment
services. Prior to this position, Mr. Gupta served as the president and chief
operating officer for Summitt Marketing Group, a database, promotions and
targeted marketing service company from January 1998 until September 2000. Mr.
Guptas previous experience includes senior management positions at Fidelity
Investments and PriceWaterhouse Consulting.

Kevin L. Reager has been our Senior Vice President, Division Executive-ATM
Management Solutions since February 2003. Mr. Reager has spent the last 15
years focused on ATM program development and management for Bank of America,
serving as its senior vice president of ATM business development and account
management since 1999.

Clyde L. Thomas has served as our Chief Information Officer and Senior Vice
President, Technology since November 2002. From March 2000 through October
2002, Mr. Thomas served as chief information officer for Clareon. From
February 1999 until February 2000, Mr. Thomas served as a partner of iDeal
Partners. Mr. Thomas served on the management team of Wright Express, from
July 1987 to January 1999, serving most recently as its Senior Vice President
and Chief Information Officer. Prior to his service with Wright Express, Mr.
Thomas was employed by American Airlines and Gulf Oil Corporation.

Clareon filed a voluntary petition under chapter 11 of the Federal bankruptcy
laws in connection with its sale to Fleet National Bank in November, 2002. Messrs. Walsh and Thomas
and Ms. Flanagan all served as executive officers of Clareon within two years
of this filing.

Transactions with Deluxe

Purchase and sale transactions between us and Deluxe have been executed at
either current market pricing or agreed-upon transfer prices. Deluxe allocated
$16.4 million of expenses to us for the year ended December 31, 2000, for the
cost of corporate services provided. Prior to 2000, these allocations, which
were calculated based on the relationship between our revenue and Deluxes
total revenues, the number of employees in our respective organizations and
transaction processing costs, included expenses for various

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support functions such as human resources, information services and finance.
These common costs to us and Deluxe were allocated because specific
identification of the actual costs incurred was not practicable. We and Deluxe
believed that this allocation method was reasonable. During 2000, certain of
the costs for these support functions were incurred directly by us. The
remaining corporate services provided by Deluxe were allocated to us based on
estimates of the costs that would have been incurred by us if we were a
stand-alone, independent company. The allocation of costs to us by Deluxe
ceased at the Spin-Off.

Prior to March 31, 2000, Deluxe also charged us for interest expense or
credited us for interest income based on the cash we had borrowed from or
provided to Deluxe. We were charged net interest expense of $0.9 million from
Deluxe for the year ended December 31, 2000. The average interest rate used to
calculate this amount was 6.7%. The interest rate for net receivables from
Deluxe was based on the average 30-day commercial paper composite rate. The
interest rate for net payables was based on the average 30-day commercial paper
composite rate plus 2%. At March 31, 2000, Deluxe forgave the net outstanding
debt that we owed it and we paid a dividend to Deluxe of $13.8 million.
Subsequent to March 31, 2000, we and Deluxe have repaid any net amounts owed to
each other in cash. The interest rates applied subsequent to March 31, 2000
were based on the one-month LIBOR rate plus 0.25%.

Agreements with Deluxe

In connection with the IPO and the Spin-Off, we and Deluxe entered into various
agreements that addressed the allocation of assets and liabilities between us
and that defined our relationship after the separation. The agreements related
to matters such as consummation of the IPO and the distribution of our stock by
Deluxe, registration rights for Deluxe, intercompany loans, information
technology consulting, business process management services, indemnification,
data sharing, real estate matters, tax sharing and transition services. For
transition services, we and Deluxe compensated each other for providing
services. The transition period varied depending on the agreement, but most
transition services terminated following the Spin-Off.

The following is a summary description of the remaining relevant agreements
between our Company and Deluxe. This description, which summarizes the material
terms of the agreements, is not complete. Interested parties should read the
full text of the agreements, which have been filed with the Securities and
Exchange Commission.

Tax-Sharing Agreement

In general, we were included in Deluxes consolidated group for federal income
tax purposes for the year 2000 and prior periods. Each member of a consolidated
group is jointly and severally liable for the federal income tax liability of
each other member of the group. We entered into a tax-sharing agreement with
Deluxe which allocates tax liabilities between us and Deluxe during the periods
in which we were included in Deluxes consolidated group. We could, however, be
liable in the event that any federal tax liability is incurred, but not
discharged, by other members of Deluxes consolidated group.

We and Deluxe make payments to each other such that the amount of taxes to be
paid by us will generally be determined as though we had filed separate
federal, state and local income tax returns. We are responsible for our share
of any taxes with respect to tax returns that include us and our subsidiaries.
In determining the amount of our tax-sharing payments, Deluxe prepares for us
pro forma returns with respect to federal and applicable state and local income
taxes. We reconcile whether we owe Deluxe or Deluxe owes us money in respect of
tax liabilities on a rolling basis under this agreement as returns are filed
and audits completed.

Prior to the Spin-Off, Deluxe continued to have all the rights as our parent
for purposes of federal, state and local tax law. Deluxe will be the sole and
exclusive agent for us in any and all matters relating to our income, franchise
and similar tax liabilities during these periods and Deluxe will have sole and
exclusive responsibility for the preparation and filing of any related
consolidated federal and consolidated or combined or unitary state income tax
returns or amended returns. For periods prior to the Spin-Off, Deluxe will have
the power, in its sole discretion, to contest, compromise or settle any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim for a refund on our behalf.

The tax-sharing agreement also provides that we will indemnify Deluxe for any
taxes due from Deluxe if the Spin-Off or some of the related transactions fail
to qualify as tax-free as a result of our actions or inactions. We are required
under the tax sharing agreement to comply with the representations made to the
Internal Revenue Service in connection with the private letter ruling request
regarding the tax-free nature of the Spin-Off. In addition, we have agreed to
indemnify Deluxe for a portion of any taxes due from Deluxe if the Spin-Off or
some of the related transactions fail to qualify as tax-free as a result of a
retroactive change of law or other reason unrelated to the action or inaction
of either us or Deluxe. No amounts have been paid to date under these
indemnification provisions.

Real Estate Agreements

In 2000, we purchased real property and a data center located in Phoenix,
Arizona and personal property from a subsidiary of Deluxe at its then net book
value of approximately $10 million. We and Deluxe also entered into several
agreements under which Deluxe or its subsidiaries agreed to:

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| | - |  | lease a portion of a data center in Phoenix, Arizona from us at
approximately $96,000 per month; and
| | - |  | ----------------------------------------------------------------------------------------------------
|
| | - |  | assign their rights as tenant under various leases to us.                                           

Professional Services Agreement

We have entered into a master agreement with Deluxe under which we will
provide Deluxe with:



| | - |  | software development and maintenance services for information
technology applications;                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------
|
| | - |  | financial shared services including accounts receivable, accounts
payable and general accounting transaction processing; and
|
| | - |  | data entry services.                                                                                                        

We recorded total revenue of $46.8 million under this agreement in 2002. This
agreement will expire on March 31, 2005, and will automatically renew each year
thereafter for an additional one year term unless terminated by either party.
In addition, this agreement may be terminated by Deluxe at its option if we are
acquired, whether by merger or the sale of all or substantially all of our
assets, by a third party. During the term of the agreement, Deluxe will be
obligated to spend $43 million per year for software development and
maintenance services for information technology applications. The actual
amounts to be paid to us by Deluxe will be based on the actual number of hours
of information technology services that we provide to Deluxe. If Deluxe fails
to reach the $43 million spending target per year, it will be obligated to make
compensatory payments for a portion of our fees based on our estimates of lost
margins. If Deluxe exceeds the $43 million spending target per year, Deluxe
will be entitled to receive reduced rates. We also will provide Deluxe with
business process management services, including accounts receivable, accounts
payable and other general accounting services and data entry services. The
agreement provides for credits to Deluxe for unsatisfactory performance by us
and bonuses for superior performance, as is typical for information technology
professional services. The provision of services by us under the agreement is
non-exclusive, and Deluxe may contract with any third party for the provision
of information technology and business process management services.

Third Party Indemnification Agreements

Under a third party indemnification agreement, we agreed to indemnify Deluxe in
connection with any liabilities incurred by Deluxe after the Spin-Off as a
result of:



| | - |  | Deluxes purchase or lease of property or services for our benefit under
any master agreement; or
| | - |  | -------------------------------------------------------------------------------------------------
|
| | - |  | any guaranties under which Deluxe guaranteed our performance of
agreements with third parties.   

We are obligated to indemnify Deluxe for any liability to the extent such
liability primarily relates to the past, present or future operation of our
business or operations. No amounts have been paid to Deluxe under this
agreement.

We also entered into an indemnification agreement with Deluxe pursuant to which
Deluxe agreed to indemnify us against any liabilities incurred by us related to
the sale by Deluxe of certain businesses that were formerly conducted by Deluxe
in the United Kingdom through one of our UK subsidiaries. No payments have been
made to us pursuant to this agreement.

We and Deluxe also entered into a Cross-Indemnification Agreement pursuant to
which we each agreed to indemnify each other against any liabilities arising
out of the underwriting agreement related to our IPO, except insofar as any
such liability arises out of a breach of such agreement by the party seeking
indemnification. No payments have been made pursuant to this agreement.

Network Access Agreement

Historically, some ChexSystems customers have elected to use the online
ordering connectivity provided by Deluxes check printing operations to receive
services provided by ChexSystems. Deluxe provided us a license to use these
connections to its check printing customers in order to allow us to continue to
provide our ChexSystems products to financial institutions who wish to receive
these products through the Deluxe network. Deluxe maintains ownership of all
rights in its network, except that we own the interface between the network
security layer and our back-end systems. In exchange for access to this product
delivery channel, we paid Deluxe its cost of providing these services during
2000 and cost plus 10% in 2001.

The original network access agreement was scheduled to expire at the end of
2001, but it was extended through 2005 through an agreement we signed with
Deluxe in November 2001. Under the extended agreement, we pay Deluxe a
per-transaction fee for each electronic submission sent through its network by
ChexSystems. The per-transaction fee varies depending on the number of
transactions submitted during any given month, subject to a minimum monthly fee
of $183,333 per month during 2002, $175,000 per month during 2003, $158,333 per
month during 2004 and $150,000 per month during 2005. We also pay Deluxe an
hourly rate for development and electronic delivery support and a fee of $4,000
per month for standard data contribution transmissions.

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Processing Agreements

Under a processing agreement, we, with the consent of the applicable financial
institution, provide Deluxe with bank routing numbers and Deluxe provides us
with the related check order history files. Deluxe may only use the bank
routing numbers for the purpose of performing the processing requested by us.
We estimate the cost of these processing services to be approximately $100,000
per year. Either party may terminate this agreement upon 30 days prior written
notice.

Government Services Indemnification Agreement

Deluxe has agreed to indemnify us for any losses on identified government
services loss contracts in excess of our $29.2 million loss contract reserve as
of April 30, 2000. We are required to calculate any charges for loss contracts
in a manner consistent with Deluxes prior loss accrual practices. Deluxe will
also indemnify us against any liabilities, losses or expenses arising from
litigation and claims asserted against us in connection with the operation of
our government services business prior to the completion of our IPO. Deluxes
indemnification obligations do not apply to losses contemplated by existing
reserves and are limited to a maximum amount equal to $14.6 million. In
addition, Deluxes indemnification does not apply to any contract that was not
in a loss position as of April 30, 2000 and so if any of our contracts that
were profitable at that point were to become unprofitable, no indemnification
would be available. We have agreed to indemnify Deluxe for all other claims
related to the operation of our government services business that occur after
the completion of the IPO. No amounts have been paid or accrued under this
agreement.

Conversion Options

Prior to the Spin-Off, all of Deluxes outstanding stock options were converted
into new options to purchase Deluxes common stock and options to purchase our
common stock pursuant to our Stock Incentive Plan for Deluxe Conversion Awards.
The purpose of this plan was to allow employees of Deluxe and the Company to
maintain the same relative equity interest in the two separate companies as
they held in the combined enterprise. The stock options issued by us under this
plan generally have the same terms and conditions as the Deluxe options to
which they relate. Options to purchase 2,918,435 shares of our common stock
were issued on December 11, 2000 under this program.




ITEM 2. PROPERTIES

The following table sets forth a description of our principal facilities:

|                         |  |             |               |                 |  |                           |  |                                                               
|------------------------ |  | ----------- | ------------- | --------------- |  | ------------------------- |  | --------------------------------------------------------------
|                         |  | Approximate |               | Owned or Lease  |  |                          
|Location                 |  | Square Feet |               | Expiration Date |  | Function                 
|                         |  |             |               |                 |  |                          
|Scottsdale, Arizona      |  |             | 47,550        |                 |  | February 2012             |  | Corporate Headquarters                                        
|Phoenix, Arizona*        |  |             | 96,100        |                 |  | Owned                     |  | Data center                                                   
|Glendale, Wisconsin      |  |             | 171,250       |                 |  | Owned                     |  | Held for sale                                                 
|New Berlin, Wisconsin    |  |             | 82,600        |                 |  | Owned                     |  | Data center                                                   
|Chennai, India           |  |             | 18,600        |                 |  | January/June 2008         |  | Software development center                                   
|Chennai, India           |  |             | 46,500        |                 |  | June 2003/October
2005    |  | Software development center                                   
|Mumbai, India            |  |             | 52,450
28,000 |                 |  | October 2004
October 2009 |  | Customer call center
Customer call center                     
|Gurgaon, India           |  |             | 62,200        |                 |  | January 2005/January
2006 |  | Shared services center                                        
|Little Canada, Minnesota |  |             | 32,000        |                 |  | September 2005            |  | ATM management services                                       
|Woodbury, Minnesota      |  |             | 79,400        |                 |  | September 2012            |  | Customer contact center, DebitBureau
and professional services
|Bothell, Washington      |  |             | 32,300        |                 |  | August 2004               |  | Vacant                                                        
|Bothell, Washington      |  |             | 24,700        |                 |  | August 2006               |  | Vacant                                                        
|Dallas, Texas            |  |             | 31,650        |                 |  | January 2004              |  | Customer contact center                                       
|Runcorn, United Kingdom  |  |             | 11,000        |                 |  | Owned                     |  | Held for sale                                                 



|* |  | Approximately 45,750 square feet of this facility is leased to Deluxe.
|- |  | ----------------------------------------------------------------------

We believe that our current facilities are adequate to meet our anticipated
space requirements, although we expect to lease an additional facility in the
Milwaukee, Wisconsin area following the planned sale of our building in
Glendale, Wisconsin and we will likely lease additional space in Scottsdale,
Arizona during 2003. We believe that additional space will be available at a
reasonable cost to meet our expected needs.

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ITEM 3. LEGAL PROCEEDINGS

The Company is currently the subject of an investigation by the Securities and
Exchange Commission (the SEC). In the course of its investigation, the SEC
staff has sought from the Company various documents and information concerning
the financial results and transactions that were the subject of restatement by
the Company in March and December 2002. In January 2003, the SEC staff
received a formal order of investigation, which empowers it to issue subpoenas
to the Company and third parties. The Company has been cooperating fully with
the SEC staff and intends to continue to do so. The Company may, however, be
the subject of additional inquiries or become subject to a fine or other
remedies. The Company also has incurred, and may continue to incur,
significant legal expenses in connection with the investigation.

The Company and its current and former chief executive and chief financial
officers are defendants in three federal securities actions filed in November
and December 2002 in the U.S. District Court for the Eastern District of
Wisconsin (the Federal Securities Actions). The complaints in these actions are
substantially identical and allege, among other things, that during the period
from February 2, 2001 to October 24, 2002 the defendants made false and
misleading statements and omissions of material facts and that the plaintiffs
and other members of a putative class of shareholders suffered damages as a
result. The defendants in the Federal Securities Actions have moved to have
the actions transferred to the District of Arizona and also have moved to
dismiss the actions on various grounds. These motions are pending before the
Court. Also pending before the Court is a motion by one of the plaintiffs to
consolidate the three actions, for his appointment as class representative and
for his selection of lead counsel.

The Company is also a nominal defendant in two substantially identical
shareholder derivative actions filed in the Superior Court of Arizona, Maricopa
County in January 2003 (the Shareholders Derivative Actions). The complaints
allege, among other things, that certain of its current and former directors
named in the complaints as defendants, breached their fiduciary duties to the
Company in connection with certain alleged issues involving the Companys
accounting practices and internal controls. The Complaint also names as a
defendant the Companys external auditor. The parties in the Shareholder
Derivative Actions have jointly moved to stay the proceedings, pending the
resolution of the motions to dismiss the Federal Securities Actions. The Court
has yet to rule on that request.

The Company believes the Federal Securities and Shareholder Derivative Actions
are without merit and intends to vigorously defend itself. However, the
Company cannot predict with certainty the outcome of these actions.




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

No matters were submitted to a vote of our security holders during the fourth
quarter of our fiscal year ended December 31, 2002.

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PART II




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

Market Information

The shares of our Company are listed on the Nasdaq National Market under the
symbol EFDS. The following table sets forth the high and low prices of our
common stock, as reported by the Nasdaq National Market, for the calendar
quarters indicated and the last sales price of our shares at the close of each
such quarter.

|               |  |      |       |     |  |       |       |  |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | ----- | ----- |  |  | - | ----- | 
|2002           |  | High |       | Low |  | Close
|               |  |      |       |     |  |      
|First Quarter  |  | $    | 19.10 |     |  | $     | 13.58 |  |  | $ | 16.05 | 
|Second Quarter |  | $    | 18.35 |     |  | $     | 7.95  |  |  | $ | 9.48  | 
|Third Quarter  |  | $    | 11.98 |     |  | $     | 7.26  |  |  | $ | 9.38  | 
|Fourth Quarter |  | $    | 10.05 |     |  | $     | 7.25  |  |  | $ | 9.11  | 

|               |  |      |       |     |  |       |       |  |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | ----- | ----- |  |  | - | ----- | 
|2001           |  | High |       | Low |  | Close
|               |  |      |       |     |  |      
|First Quarter  |  | $    | 19.25 |     |  | $     | 7.75  |  |  | $ | 19.25 | 
|Second Quarter |  | $    | 26.20 |     |  | $     | 17.00 |  |  | $ | 18.60 | 
|Third Quarter  |  | $    | 23.74 |     |  | $     | 12.33 |  |  | $ | 16.65 | 
|Fourth Quarter |  | $    | 20.59 |     |  | $     | 12.69 |  |  | $ | 13.75 | 

The closing price of our shares on
March 26, 2003 was $7.21. As of March 26,
2003, we had approximately 10,096 record holders of our common stock.

Dividend Policy

We have never paid a dividend on our common stock and do not anticipate doing
so in the foreseeable future.

Annual Meeting

The annual meeting of our stockholders will be held at 2:00 p.m. Scottsdale,
Arizona time on May 23, 2003, at the Millenium Resort at 7401 North Scottsdale
Road, Scottsdale, Arizona, 85253.




ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read together with the
consolidated financial statements and related notes and Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
selected statement of operations data shown below for each of the years in the
five-year period ended December 31, 2002 and the selected balance sheet data
for each of the five years ended December 31, 2002, are derived from our
audited consolidated financial statements.

|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |        |  
|------------------------------------- | ------------------------------------- | -------- | ----------------------- | -------- |  | -------- | ------- | -------- |  | -------- | ------- | ------ |  | - | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                       |          | Year Ended December 31,
|                                      |                                       |          |                        
|(in thousands, except per share data) |                                       | 2002 (1) |                         | 2001 (1) |  | 2000 (1) |         | 1999 (1) |  | 1998 (2)
|                                      |                                       |          |                         |          |  |          |         |          |  |         
|Statement of Operations Data:         |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|Net revenue                           |                                       | $        | 543,107                 |          |  | $        | 537,159 |          |  | $        | 439,299 |        |  | $ | 322,367 |        |   | $ | 267,520 |       
|Operating expenses                    |                                       |          | 507,688                 |          |  |          | 486,338 |          |  |          | 430,923 |        |  |   | 323,455 |        |   |   | 294,131 |       
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|Income (loss) from operations         |                                       |          | 35,419                  |          |  |          | 50,821  |          |  |          | 8,376   |        |  |   | (1,088  | )      |   |   | (26,611 | )     
|Other income (expense)                |                                       |          | 734                     |          |  |          | 171     |          |  |          | (1,594  | )      |  |   | (1,552  | )      |   |   | 3,451   |       
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|Income (loss) before income taxes     |                                       |          | 36,153                  |          |  |          | 50,992  |          |  |          | 6,782   |        |  |   | (2,640  | )      |   |   | (23,160 | )     
|Benefit (provision) for income taxes  |                                       |          | (11,599                 | )        |  |          | (17,653 | )        |  |          | (3,299  | )      |  |   | (5,586  | )      |   |   | 8,569   |       
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|Net income (loss)                     |                                       | $        | 24,554                  |          |  | $        | 33,339  |          |  | $        | 3,483   |        |  | $ | (8,226  | )      |   | $ | (14,591 | )     
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|                                      | Net income (loss)
per share  basic   |          | $                       | 0.53     |  |          | $       | 0.72     |  |          | $       | 0.08   |  |   | $       | (0.21  | ) |   | $       | (0.36  | )
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|                                      | Net income (loss)
per share  diluted |          | $                       | 0.53     |  |          | $       | 0.70     |  |          | $       | 0.08   |  |   | $       | (0.21  | ) |   | $       | (0.36  | )
|                                      |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|Shares used in computing:             |                                       |          |                         |          |  |          |         |          |  |          |         |        |  |   |         |        |   |   |         |       
|                                      | Net income (loss) per share  basic   |          |                         | 46,588   |  |          |         | 45,985   |  |          |         | 42,788 |  |   |         | 40,000 |   |   |         | 40,000 |  
|                                      | Net income (loss) per share  diluted |          |                         | 46,738   |  |          |         | 47,445   |  |          |         | 42,867 |  |   |         | 40,000 |   |   |         | 40,000 |  



---

|(1) |  | Includes effects of the adoption of EITF Issue No. 01-14 as outlined
in Note 2 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Net revenue and Operating expenses for the year ended December 31,
1998 are not comparable to subsequent years presented as 1998 does not
include the effects of the adoption of EITF Issue No. 01-14 outlined in
Note 2 to the consolidated financial statements. The Companys
historical financial information for 1998 has been carved out from
Deluxes consolidated financial statements and it is not practicable for
the Company to extract the financial data necessary to comparably
present the effect of the adoption of EITF Issue No. 01-14 on years
prior to 1999. The effect of the adoption of EITF Issue No. 01-14 was an
equal increase to Net revenue and Operating expenses of $30.4 million,
$27.7 million, $22.7 million, and $20.0 million for the years ended
December 31, 2002, 2001, 2000 and 1999 respectively.

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|                                          |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                          |  | December 31,
|                                          |  |             
|(in thousands)                            |  | 2002         |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                          |  |              |         |      |  |      |         |      |  |     
|Balance Sheet Data:                       |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                 |  | $            | 119,487 |      |  | $    | 101,871 |      |  | $    | 78,731  |  |  | $ | 35,849  |  |  | $ | 16,055  | 
|Working capital                           |  |              | 149,795 |      |  |      | 118,641 |      |  |      | 70,899  |  |  |   | 25,607  |  |  |   | 1,869   | 
|Total assets                              |  |              | 459,418 |      |  |      | 442,916 |      |  |      | 389,132 |  |  |   | 289,929 |  |  |   | 186,335 | 
|Long-term debt, excluding current portion |  |              | 1,338   |      |  |      | 2,529   |      |  |      | 2,244   |  |  |   | 3,597   |  |  |   | 4,029   | 
|Total stockholders equity                |  |              | 363,520 |      |  |      | 334,315 |      |  |      | 286,165 |  |  |   | 199,105 |  |  |   | 89,803  | 

For a discussion of the factors affecting the comparability of the data shown
above, see Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations.




ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with Selected Financial
Data and our consolidated financial statements and the notes to those
financial statements included in this annual report. In addition to historical
and pro forma information, this discussion contains forward-looking information
that involves risks and uncertainties. Our actual future results could differ
materially from those presently anticipated due to a variety of factors,
including those discussed in Exhibit 99.1 to this Annual Report on Form 10-K.

OVERVIEW

Our Company was incorporated in Delaware in December 1984. Prior to our initial
public offering (the IPO) in June 2000, we were a wholly owned subsidiary of
Deluxe Corporation, a Minnesota corporation (Deluxe). Deluxe is the largest
check printer in the world. The shares of Deluxe are publicly traded on the New
York Stock Exchange under the symbol DLX.

In April 1999, we began the process of combining our Company with four of
Deluxes other former operating units into an integrated electronic payments
and risk management business. The operations combined were DebitBureau, Chex
Systems, Inc., Deposit Payment Protection Services, Inc. and an electronic
check conversion company that Deluxe acquired in February 1999. In September
1999, we changed the name of our Company to eFunds Corporation. In January
2000, we combined Deluxes professional services business, eFunds IT Solutions
Group, Inc. and eFunds International India Private Limited, with our electronic
payments and risk management businesses. In June 2000, we sold 5,500,000 shares
of our common stock to the public at a price of $13.00 per share. After the
IPO, Deluxe continued to own about 87.9% of the outstanding shares of our
common stock. In December 2000, Deluxe distributed all of the shares of our
common stock owned by it to its shareholders through a tax-free spin-off (the
Spin-Off) in which each of its shareholders received approximately .5514 of a
share of our common stock for each Deluxe share owned by them. Following the
Spin-Off, Deluxe ceased to own any shares of our common stock.

In March 2000, we paid cash of $20.0 million for an approximate 24% interest in
Access Cash International L.L.C., a Delaware limited liability company (ACI).
ACI was the second largest independent provider of Automated Teller Machine
(ATM) services in the United States. In September 2000, we entered into an ATM
deployment and management agreement with ACI under which we received fees paid
by customers utilizing ATMs deployed by us and interchange fees from their
banks. ACI managed this network of ATMs in exchange for a management fee
determined by reference to the number of ATMs under management. Effective
October 1, 2001, we acquired the remaining approximately 76% equity interest in
ACI. The purchase price of the remaining 76% of ACI was $44.6 million, of which
approximately $40.3 million was paid in cash on or prior to the closing date of
the acquisition. Payment of the balance of approximately $4.3 million remains
subject to the satisfaction of certain post-closing conditions.

During 2002, we acquired four additional independent ATM networks through stock
or asset purchases. The companies purchased were: Hanco Systems, Inc. (Hanco)
which managed a network of approximately 2,500 ATMs in 30 states; Samsar ATM
Company, Inc. (Samsar), a Seattle-based provider of ATM services which managed
an ATM network of more than 1,000 ATMs in the northwest United States;
Evergreen Teller Services, Inc. (Evergreen), a California-based provider of ATM
services for more than 1,600 ATMs located throughout California and the
northwest United States; and Cash Resources, Inc. (CRI), a Colorado-based
provider of ATM services for more than 2,800 ATMs located mostly in the western
half of the United States. The total purchase price of these acquisitions was
approximately $39.7 million of which approximately $35.2 million was paid in
cash. Payment of approximately $2.7 million of the purchase price is subject to
satisfaction of certain post-closing conditions. We currently manage a network
of approximately 16,800 ATM machines.

Prior to their acquisition by us, these independent ATM networks had been
operating at breakeven or a loss. We expect improvement in our ATM business to
come from four major sources: (i) reduced operating costs through the
integration of sales, marketing,

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operations and facilities, (ii) the elimination of third party processing fees
by migrating the processing of ATM transactions to our data centers, (iii) the
redeployment of under-performing or idle ATMs and (iv) additional revenues from
branding and other value-added services.

Our consolidated financial statements for periods prior to and including the
date of the Spin-Off have been prepared using the historical results of
operations and historical bases of the assets and liabilities of the Deluxe
businesses that comprise our Company. The consolidated financial statements for
such periods also include allocations to us of certain liabilities and
expenses, including: profit sharing and other employee benefits; information
technology services; facility costs; and other Deluxe administrative services
costs. The expense allocations have been determined on bases that both Deluxe
and we considered to be a reasonable reflection of the utilization of the
services provided to us or the benefit received by us. The expense allocation
methods are based on number of employees, transaction processing costs, square
footage and relative sales.

The financial information presented in this report may not necessarily reflect
what our financial position, results of operations or cash flows would have
been had we been a separate, stand-alone entity for all the periods presented,
nor is it indicative of our future financial position, results of operations or
cash flows.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles that are generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates and judgments, including those related to revenue recognition,
intangible assets, reserves and allowances, income taxes and stock-based
compensation. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances. The
results of these estimates form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue recognition

Our net revenues consist of fees for transaction processing and related
services, decision support, software and data licensing, maintenance and
support, government services, and information technology consulting and
business process management services. Our revenue recognition policies for
these various fees are as follows:



| |  | Transaction processing and service fees are recognized in the period
that the service is performed. These services consist of processing our
customers electronic debit transactions and settling the funds with the
financial institutions involved in the transactions. Additionally, these
services include monitoring ATMs to alert our customers when potential
problems occur. These fees are charged on a per transaction basis,
depending on the contractual arrangement with the customer. Government
services fees are recognized in the period services are provided based on
monthly fees per benefits recipient.                                                                                                                                                                                                                                                           
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |  | In connection with the provision of services in the ATM management services
segment, we earn surcharge and interchange fees. Surcharge fees are those
fees the user of an ATM pays at the time of the transaction while interchange
fees are paid by that users financial institution. Generally, our
arrangements call for us to pay a fee to the occupants of the property at
which the ATM is physically located. The amount of this fee typically has
some relationship to the surcharge and interchange fees that are collected by
us on individual transactions. Based upon the underlying contractual
provisions to our arrangements, we record the surcharge and interchange fees
that we collect at their gross amounts as revenue and the amounts owed to the
occupant of the property at which the ATM is physically located as a
processing, communication and service cost.
| 
| |  | Decision support fees are recognized as revenue in the period the services
are provided. Decision support services consist of new account applicant and
check verification screenings to manage the risk associated with account
openings and check acceptance. Decision support fees are based on the number of
inquiries against the databases used for screening purposes or monthly fees
based on the net monthly sales of the retailer using our check verification
products or other similar measures, depending on the product and service.                                                                                                                                                                                                                                                                                                                                       

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| |  | We provide professional services consisting of information technology consulting and business process management
services. Revenue from providing such services is generally recognized under one of two methods, depending on the relevant
contractual terms. Under the time and materials method, which is applied to nearly all of our Professional Services
contracts, revenue is based on a fee per hour basis and is recognized as hours are completed. Under the fixed contract
method, a pre-set fee is agreed upon for a project, and revenue is recognized proportionately to the percentage of
completion of the project. If the information technology consulting services involve the significant customization of
software that has been licensed from us, the license fee is also recognized proportionately to the percentage of completion
of the project.                                                                                                                                                                                              
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Software and data license fees for standard products are recognized when a license agreement has been signed, the license
fee is fixed and determinable, collectibility of the license fee is probable, delivery has occurred and there are no
uncertainties surrounding product acceptance. If a license contains customer acceptance criteria for which significant
uncertainties exist, the revenue is recognized upon the earlier of customer acceptance or the expiration of the acceptance
period. Certain software products include multiple modules and the license fee charged to the customer is based on the
modules licensed. If a customer contract requires that we deliver multiple elements, then upfront fees are recognized as
revenue if vendor specific objective evidence of fair value exists for each of the undelivered elements. If vendor specific
objective evidence of fair value does not exist, then the total fees of the arrangement are recognized over the term of the
related agreement based upon delivery of all essential elements.
| 
| |  | Software maintenance and support revenue is recognized ratably over the term of the contract or as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The process involved in evaluating the appropriateness of revenue recognition
involves judgments about vendor-specific objective evidence of the fair value
of each of the various elements to be delivered in a sale that has multiple
components, collectibility of fees, and projections of costs to complete
projects for our customers.

Intangible Assets

Our intangible assets consist primarily of goodwill, capitalized software costs
and acquired contracts. We capitalize the cost of software developed or
obtained for internal use once the preliminary project stage has been
completed, management commits to funding the project and it is probable that
the project will be completed and that the software will be used to perform the
function intended. Capitalized costs include only (1) external direct costs of
materials and services consumed in developing or obtaining internal-use
software, (2) payroll and payroll-related costs for employees who are directly
associated with and who devote time to the internal-use software project, and
(3) interest costs incurred, when material, while developing internal-use
software. Capitalization of costs ceases when the project is substantially
complete and the software is ready for its intended use. Software developed or
obtained for internal use is tested for impairment whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable.

We capitalize the cost of software developed for licensing and resale once
technological feasibility has been established. Costs incurred prior to
establishing technological feasibility are expensed as incurred. Technological
feasibility is established when we have completed all planning, designing,
coding and testing activities that are necessary to determine that a product
can be produced to meet its design specifications, including functions,
features and technical performance requirements. Capitalization of costs ceases
when the product is available for general release to customers. Such costs are
amortized on a product-by-product basis normally over three years and no longer
than five years. Software developed for resale is carried at the lesser of
amortized cost or net realizable value.

When we acquire other companies, generally accepted accounting principles
require that we make estimates regarding the fair values of the acquired
companys tangible assets and liabilities and identifiable intangible assets.
Based upon these estimates, we then allocate the purchase price to the assets
and liabilities of the acquired company for the purpose of recording these
items in our financial records. Any unallocated purchase price is considered to
be, and recorded as, goodwill. The distinction between the amount of the
purchase price allocated either to tangible assets and liabilities or
identifiable intangible assets and goodwill is significant as goodwill is not
amortized to the statement of operations but is instead subject to an annual
impairment test. Estimates inherent in the process of this purchase price
allocation include assumptions regarding the timing and amounts of future cash
inflows and outflows, the saleability of inventories, selection of discount
rates, contract renewal rates and general market conditions. Where appropriate,
we use third-party valuation professionals to assist us in making these
estimates.

The process of evaluating goodwill and other intangible assets, including
capitalized software costs and acquired contracts, for impairment involves
judgments about market conditions and economic indicators, estimates of future
cash flows and assumptions about our strategic plans with regard to our
operations. To the extent additional information arises or our strategies
change, it is possible that our conclusions regarding the carrying value of our
intangible assets could change and materially affect our financial

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position or results of operations. We recorded a write-down of approximately
$2.1 million in 2002 for capitalized software associated with ancillary product
lines that are being exited.

Reserves and Allowances

We maintain a reserve for expected future losses on certain government EBT
contracts. Our estimates of such losses are based on a variety of assumptions
including assumptions about future welfare case levels, number of transactions
per case and costs related to processing transactions and support services.
These assumptions are subject to significant uncertainties and may differ
substantially from actual results. In the event such differences arise, a
revision to the loss contract reserve would be required. Any such revision
could have a material effect on our financial position or results of
operations.

We maintain an allowance for doubtful accounts for estimated losses resulting
from our customers failing to make required payments. We develop our estimate
of the allowance based on our experience with specific customers, our
understanding of their current economic circumstances and our own judgment as
to the likelihood of their ultimate payment. We also consider our collection
experience with the balance of our receivables portfolio and make estimates
regarding collectibility based on trends in aging. The estimates utilized to
calculate our allowance for doubtful accounts were revised during the second
quarter of 2002 to be more reflective of our recent collection history
following the establishment of our collections and credit committee and the
implementation of enhanced collection processes and systems. As a result of
this change in estimate, we reduced our estimated uncollectible accounts by
$2.5 million during 2002. If the financial condition of our customers were to
deteriorate, thereby impairing their ability to make payments, an increase in
this allowance could be required in a future period.

Income Taxes

Accounting for income taxes requires significant judgments in the development
of estimates used in income tax calculations. Such judgments would include, but
would not be limited to, the likelihood the Company would realize the benefits
of net operating loss carry-forwards, the adequacy of valuation allowances, the
rates used to measure transactions with foreign subsidiaries and the
development of valuation models used for measuring the value of certain
transactions. Further, our operations are governed by and subject to government
regulations in the United States and in foreign countries in which we operate,
including laws and regulations relating to taxation and the judgments and
estimates used are subject to challenge by domestic and foreign taxing
authorities. The Company recognizes tax liabilities at such time as they are
judged to be probable of being incurred and they can be reasonably estimated.
It is possible that either foreign or domestic taxing authorities could
challenge those judgments and estimates and draw conclusions that would cause
the Company to incur tax liabilities in excess of those currently recorded.

We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized. Although we have considered future
taxable income and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event we were to
determine that we will be able to realize our deferred tax assets in the future
in excess of the net recorded amount, an adjustment to the deferred tax asset
would increase income in the period any such determination was made. Likewise,
should we determine that we would not be able to realize all or part of our net
deferred tax asset in the future, an adjustment to the deferred tax asset would
be charged to income in the period any such determination was made.

We consider the undistributed earnings of our foreign subsidiaries to be
permanently invested and, accordingly, we have not provided for U.S. Federal,
state income or applicable foreign withholding taxes on those amounts.
Undistributed earnings of our foreign subsidiaries amounted to approximately
$24.1 million at December 31, 2002. Upon any distribution of those earnings in
the form of dividends or otherwise, we would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and
applicablewithholding taxes payable to the foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with such a hypothetical
calculation.

Stock-based compensation

We issue stock options to our employees under the terms of the eFunds
Corporation 2000 Stock Option Plan. Generally accepted accounting principles
provide two alternative methods of accounting for stock options issued under
the terms and conditions that we typically issue such options. One alternative
is to estimate the fair value of the stock option at the date of grant and
amortize that value as an expense to operations over the contractual vesting
period. The other option available currently to companies reporting under
generally accepted accounting principles is to estimate the fair value of the
option at the grant date but only reflect the impact of the amortization in a
footnote to the financial statements and to forgo adjusting the statement of
operations. The method a company chooses to apply is a matter of policy.
Consistent with our past practices, we utilize the second of these options and
we reflect the impact of the option amortization in the footnotes to our
financial statements. As illustrated in Note 2 to the financial statements,
were we to change our accounting policy on this matter to reflect the expense
in our statement of operations, or should generally accepted accounting
principles change to require us to reflect this expense in our statements of
operations, our results of operations would be materially and adversely
affected.

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RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the relative
composition of net revenues and selected statements of operations data as a
percentage of net revenues:

|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |      |      | 
|---------------------------- | ----------------------------------------------------- | ------------------------ | ----- | ----------------------- | ---- | ---- | ----- | ---- | ---- |  | ----- | ---- | ---- | 
|                             |                                                       |                          |       | Year Ended December 31,
|                             |                                                       |                          |       |                        
|                             |                                                       |                          |       | 2002                    |      | 2001 |       | 2000
|                             |                                                       |                          |       |                         |      |      |       |     
|Net revenue                  |                                                       |                          | 100.0 | %                       |      |      | 100.0 | %    |      |  | 100.0 | %   
|Operating expenses           |                                                       |                          |       |                         |      |      |       |      |      |  |       |     
|                             | Processing, communication and service costs           |                          |       | 41.7                    |      |      |       | 37.0 |      |  |       | 30.9 |     
|                             | Employee costs                                        |                          |       | 34.2                    |      |      |       | 38.3 |      |  |       | 44.3 |     
|                             | Depreciation and amortization                         |                          |       | 6.8                     |      |      |       | 7.4  |      |  |       | 7.1  |     
|                             | Other operating costs                                 |                          |       | 8.2                     |      |      |       | 7.7  |      |  |       | 12.2 |     
|                             | Restructuring and asset impairment charges            |                          |       | 3.0                     |      |      |       | 0.6  |      |  |       | 1.4  |     
|                             | Provision (reversal of provision) for contract losses |                          |       | (0.4                    | )    |      |       | (0.5 | )    |  |       | 2.2  |     
|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |     
|                             |                                                       | Total operating expenses |       |                         | 93.5 |      |       |      | 90.5 |  |       |      | 98.1 | 
|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |     
|Income from operations       |                                                       |                          | 6.5   |                         |      |      | 9.5   |      |      |  | 1.9   |     
|Other income (expense)  net |                                                       |                          | 0.1   |                         |      |      |      |      |      |  | (0.4  | )   
|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |     
|Income before income taxes   |                                                       |                          | 6.6   |                         |      |      | 9.5   |      |      |  | 1.5   |     
|Provision for income taxes   |                                                       |                          | (2.1  | )                       |      |      | (3.3  | )    |      |  | (0.7  | )   
|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |     
|Net income                   |                                                       |                          | 4.5   | %                       |      |      | 6.2   | %    |      |  | 0.8   | %   
|                             |                                                       |                          |       |                         |      |      |       |      |      |  |       |     

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

Net revenue Net revenue increased $5.9 million, or 1.1%, to $543.1 million in
2002 from $537.2 million in 2001.

Electronic Paymentsnet revenue was flat at $185.8 million in 2002 as compared
to $185.6 million in 2001. Reimbursed expenses and revenue from government
services contracts both increased in 2002 compared to 2001, while other
electronic processing revenues decreased primarily due to the previously
expected revenue declines associated with processing services performed for the
STAR network during 2002. In 2001, Concord EFS acquired the STAR debit network,
formerly our largest transaction processing customer, and notified us that it
intended to terminate STARs processing agreement with us and perform the
processing for this network at its own data centers. As part of the transition
of this activity, the STAR network licensed our EFT software and contracted for
professional services to assist in the migration effort. The transition of the
processing for the STAR network was completed in September 2002. Processing
revenues derived from this relationship declined from approximately $27 million
during 2001 to approximately $17 million in 2002. We do not expect to realize
material revenues from this relationship in the future.

The increase in government services contract revenue was driven by higher EBT
case counts and the renewal of certain government contracts at improved rates.
Revenues in the government services business are expected to decline in 2003
due to the expiration in December 2002 of our electronic Medicaid eligibility
verification system (EMEVS) contract with the state of New York and an
additional EBT contract. The combined revenue recognized in 2002 from these
contracts was approximately $16 million. Additional EBT contracts will begin or
renew in 2003, providing incremental revenues of approximately $7 million for
that year. We continue to pursue EBT contracts where we can obtain them on a
profitable basis.

ATM Management Servicesnet revenue increased $41.7 million, or 56.4%, to
$115.6 million in 2002 from $73.9 million in 2001. These increases are
primarily due to the acquisition of ATM networks from Hanco, Samsar, Evergreen
and Cash Resources which contributed an aggregate of approximately $38 million
in new revenue during 2002. ATM equipment sales also represented a source of
increased revenue for this segment during 2002, as revenues from this activity
were minimal in 2001.

We currently manage a network of approximately 16,800 ATMs. This amount
reflects some attrition we experienced in 2002 during the process of verifying
the inventory of ATM machines obtained through acquisitions and during the
process of converting these machines from existing processing agreements with
third party processors. We expect to see revenue growth in this segment in
2003 due to additional incremental revenues associated with the acquisitions we
completed during 2002 and from our ongoing sales and marketing efforts. We
believe this business will exhibit improving levels of profitability as we seek
to eliminate costs and improve efficiencies. We may seek to acquire additional
independent ATM service organizations in the future if appropriate acquisition
opportunities become available.

Decision Support and Risk Managementrevenue increased $1.9 million, or 1.4%,
to $139.8 million in 2002 from $137.9 million in 2001. Revenues from our
ChexSystemsSM suite of products increased during 2002 as compared to the prior
year, attributable primarily to inquiry volume growth driven by our marketing
campaign to encourage better customer screening by financial institutions in
light of the USA Patriot Act. We also saw increased demand in 2002 for our
fraud detection services from financial institutions.

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The increase in revenues from ChexSystems was partially offset by declines in
sales of our SCANSM and collection products over the prior year. The decrease
in revenues from SCAN products was attributable to the loss of customers and
pricing concessions. The reduction in our revenues related to collections
services is the result of our decision to exit certain ancillary product lines.
We expect that revenues from ChexSystems and our fraud protection products will
continue to increase in future periods and that revenues from SCAN and
collections products will continue to decline somewhat.

Professional Servicesrevenues decreased $37.8 million, or 27.1%, to $101.9
million in 2002 from $139.7 million in the prior year.

Revenues from software sales declined substantially in 2002 as compared to the
prior year. During 2001, software revenue included revenues recognized from
the licensing of our EFT software to the STAR network and Visa USA. We did not
experience software sales of this magnitude during 2002 and do not believe the
results from 2001 will be replicated in the foreseeable future. The following
table illustrates our revenue generated from software sales:

|                       |  |                         |        |      |  |   |        | 
|---------------------- |  | ----------------------- | ------ | ---- |  | - | ------ | 
|                       |  | Year Ended December 31,
|                       |  |                        
|(in thousands)         |  | 2002                    |        | 2001
|                       |  |                         |        |     
|License fees           |  | $                       | 12,835 |      |  | $ | 42,447 | 
|Maintenance            |  |                         | 13,362 |      |  |   | 13,457 | 
|Software modifications |  |                         | 6,793  |      |  |   | 9,373  | 
|                       |  |                         |        |      |  |   |        | 
|                       |  | $                       | 32,990 |      |  | $ | 65,277 | 
|                       |  |                         |        |      |  |   |        | 

Revenues from information technology services provided under our contract with
Deluxe were $42.6 million in 2002 as compared to $41.1 million in 2001. In
accordance with our agreement with Deluxe, a minimal short-fall fee, based upon
a formula in the contract reflective of our estimated lost profits, was billed
to Deluxe as it failed to reach the minimum target level of $43 million for
software development services for the year. Revenues from other information
technology clients declined by $6.9 million in 2002 as compared to the prior
year as a result of our decision in 2001 to cease offering stand-alone
information technology development services. We are reevaluating this decision in 2003.

Business process management (BPM) revenues, which include outsourcing and
customer contact center services, remained relatively flat in 2002 as compared
to the prior year at approximately $23 million. Our agreement with Deluxe calls
for us to provide Deluxe with accounts receivable, accounts payable and other
general accounting and data entry services. Revenues from these services were
$4.2 million in 2002 as compared to $6.2 million in 2001. Future growth in our
BPM business will depend on the acquisition of new clients and the expansion of
the services offered to existing clients.

Processing, communication and service costs This category includes cost of
processing, telecommunications, computer equipment and promotional services.
This category also includes the payments we make to the occupants of the
property where the ATMs that we own or manage are located. Total category costs increased $27.2
million, or 13.7%, to $226.2 million in 2002 from $199.0 million in the prior
year. Processing, communication and service costs were 41.7% of net revenues in
2002, compared to 37.0% in 2001. Telecommunications and third party processing
charges have increased along with the increase in ATM processing revenues
associated with acquisitions in the ATM management services segment. We provide
the processing for approximately 10,300 of the 15,400 U.S. ATM machines in our
network and we expect the processing for the approximately 5,100 remaining U.S.
ATMs will be transitioned to our networks as existing contractual commitments
expire or as the economics associated with accelerated contract cancellations
make it logical to do so, with approximately 3,000 such conversions expected to
occur during 2003. Due to existing contractual commitments, processing for the
approximately 1,400 ATMs we have in Canada will not likely be transitioned to
our networks for a substantial period of time. Reimbursed costs increased
approximately $2.8 million during 2002, primarily for customer network charges
in the electronic payments business segment.

Employee costs Expenditures in this category represent employee compensation
and related employee expenses, benefits and travel. These costs decreased $19.9
million, or 9.7%, to $185.7 million in 2002 from $205.6 million in 2001. As a
percentage of net revenue, employee costs were 34.2% in 2002 compared to 38.3%
for 2001. We began to experience costs savings late in 2002 from our
restructuring efforts and the curtailment of travel expenditures. The primary
reason for the decrease in employee costs was, however, the elimination of
performance-based employee compensation for 2002 due to reduced revenue and
earnings expectations. Performance-based compensation expense decreased
approximately $13 million for 2002 from the prior year. We expect that
performance-based employee costs will be reinstituted in 2003.

We had approximately 120 more full-time equivalent employees at the end of 2002
than we did at the end of 2001. We realized cost savings by re-deploying
certain development responsibilities to our India based operations and as a
result of cost reduction initiatives begun in 2001, such as the consolidation
of our data center operations.

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Depreciation and amortization These costs represent depreciation of
facilities and equipment, amortization of intangible assets, such as
capitalized software costs and acquired contracts and, prior to implementation
of SFAS 142 in 2002, amortization of goodwill. Depreciation and amortization
decreased $3.0 million, or 7.5%, to $37.0 million in 2002 from $40.0 million
for 2001. These costs were 6.8% of revenue in 2002 and 7.4% of revenue for the
prior year. Goodwill amortization of $3.9 million was recorded in 2001, whereas
no such amortization was recorded in 2002. The decrease in amortization expense
was offset by more amortization of contracts recorded in connection with our
acquisitions.

Other operating costs Expenditures in this category include facility costs,
professional, consulting and temporary services, bad debt, and certain
administrative costs. Other operating expenses increased $3.2 million, or 7.8%,
to $44.3 million in 2002 from $41.1 million in 2001. These expenses were 8.2%
of net revenues in 2002 and 7.7% in 2001. During 2002, we experienced increased
costs for professional services associated with responding to the SEC inquiry
and the investigation of certain significant transactions we completed in the
fourth quarter of 2002, although these increases were partially offset by a
reduction in bad debt expense. We expect to continue to make significant
expenditures for legal expenses associated with the SEC inquiry in 2003
and expect an increase in costs for external consultants related to multiple
business performance initiatives we commenced in early 2003.

Restructuring and asset impairment charges During 2002, management initiated
cost reduction efforts associated with specific product lines and
corporate-wide initiatives, including the relocation of certain administrative
functions to Scottsdale, Arizona. These measures resulted in restructuring and
asset impairment charges of $16.5 million. The charges were comprised of
expected severance benefits totaling $4.5 million for the elimination of over
300 positions primarily in the United States, impairment of fixed assets
totaling $5.1 million (including a $3 million charge to write-down a building
in Glendale, Wisconsin that is held for sale), lease related costs of $4.8
million related to the consolidation of facilities, and a charge of $2.1
million for software impairment related to products that were discontinued.

We expect to pay a significant portion of the remaining severance charges by
the end of the second quarter in 2003. We expect the various personnel
reductions and the movement of positions to our Indian subsidiary to positively
impact our cash flow in the second half of 2003. The charge for lease costs
will not change our 2003 cash flows as our rental obligations will continue
until the expiration of the lease or until we can sub-let the related property.

Results for 2001 included a restructuring charge of $3.2 million related to the
closure of our Bothell, Washington facility.

Reversal of provision for contract losses In the third quarter of 2002, we
recorded a $2.0 million benefit related to a reduction in our estimate of
future losses on certain government EBT contracts. A similar net benefit of
$2.5 million was taken in the third quarter of 2001.

Income from operations Income from operations decreased $15.4 million, or
30.3%, to $35.4 million in 2002 compared to $50.8 million in 2001. Income from
operations was 6.5% of net revenue for 2002 compared to 9.5% for the prior
year. The decrease in operating income for 2002 is due primarily to the higher
concentration of software sales in 2001. This change in revenue mix to more
recurring, but lower margin, product lines was offset primarily by the
elimination of performance-based employee compensation in 2002. Our results for
2002 also include a net benefit from the reversal of provisions for contract
losses of $2.0 million as compared to a $2.5 million benefit recorded in 2001,
and a $16.5 million restructuring and asset impairment charge as compared to
$3.2 million of similar charges in 2001. In addition, we stopped amortizing
our goodwill in 2002 in accordance with SFAS 142. Goodwill amortization was
approximately $3.9 million in 2001.

Other income (expense)  net Other income  net was $0.7 million for 2002
compared to $0.2 million for the prior year. Interest earned on cash and cash
equivalents decreased $1.1 million to $1.7 million in 2002 as compared to $2.8
million for the prior year. These decreases were due to reduced interest rates.
Other expense declined $1.6 million during 2002 primarily due to the
elimination of equity method amortization following the purchase of ACI.

Provision for income taxesThe provision for income taxes was $11.6 million
in 2002 compared to $17.7 million for the prior year, resulting in annualized
effective tax rates of 32.1% for 2002 and 34.6% for 2001. The decrease in our
effective tax rate is a result of the cessation of goodwill amortization in
2002 as this expense was non-deductible for tax purposes, partially offset by a
change in the proportion of total taxable income which was earned by our Indian
subsidiary. Our Indian software development and business process management
operations qualify for tax incentives associated with businesses that operate
within designated geographic locations within India. Such incentives generally
provide us with exemptions from Indian income tax on certain business income
generated from these operations. As a result of a recent change in Indian tax
law, effective from April 1, 2002 through March 31, 2003, 10% of this
previously tax-exempt income will be subject to Indian income tax at the rate
of 36.75%. The remaining tax incentives phase out

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through March 2009. The effect of these tax incentives was to reduce our
income tax expense by approximately $2.7 million in 2002 and $5.8 million in
2001.

Business Segment InformationThe following table presents, for the periods
indicated, operating income by segment as a percentage of segment revenue, and
the unallocated corporate expenses and income from operations as a percentage
of total revenue:

|                                                             |                                      |  |                         |       |      |  |  |       |  
|------------------------------------------------------------ | ------------------------------------ |  | ----------------------- | ----- | ---- |  |  | ----- | -
|                                                             |                                      |  | Year Ended December 31,
|                                                             |                                      |  |                        
|                                                             |                                      |  | 2002                    |       | 2001
|                                                             |                                      |  |                         |       |     
|Income from operations:
(as a percentage of segment revenue) |                                      |  |                         |       |      |  |  |      
|                                                             | Electronic payments                  |  |                         | 29.7  | %    |  |  | 25.1  | %
|                                                             | ATM management services              |  |                         | 2.4   |      |  |  | 0.7   |  
|                                                             | Decision support and risk management |  |                         | 18.3  |      |  |  | 7.8   |  
|                                                             | Professional
services                |  |                         | 23.3  |      |  |  | 33.3  |  
|(as a percentage of total revenue);                          |                                      |  |                         |       |      |  |  |      
|                                                             | Corporate                            |  |                         | (13.2 | )    |  |  | (10.0 | )
|                                                             | Income from operations               |  |                         | 6.5   | %    |  |  | 9.5   | %

Income from operations in the Electronic Payments business segment increased to
$55.2 million in 2002 from $46.6 million in the prior year. As a percent of net
segment revenues, operating margins were 29.7% for 2002, an increase over the
25.1% for the prior year. We recorded similar benefits for the reversal of
provisions for contract losses of $2.0 million and $2.5 million in 2001 and
2002, respectively. In 2002, $3.2 million in restructuring and asset
impairment charges were largely offset by an approximately $3 million reduction
in performance-based compensation expense. The cost reduction measures
implemented in 2001 and 2002 delivered margin improvements in the first three
quarters of 2002, although the loss of STAR network revenues resulted in margin
contraction during the last quarter of 2002. Cost reduction measures
implemented included the relocation of our contact center work to our Indian
operations.

Income from operations in the ATM Management Services business segment
increased to $2.8 million in 2002 from $0.5 million in the prior year. As a
percent of net segment revenues, operating margins were 2.4% for 2002, an
increase from the margin of 0.7% for 2001. Revenues in this segment increased
due primarily to acquisitions of independent ATM service organizations in 2002.
We expect to see margin improvement in this business in future periods as our
integration efforts proceed and efficiency gains are achieved through the
consolidation of the operations of acquired businesses, including the
transitioning of acquired ATMs to our internal processing systems.

Income from operations in the Decision Support and Risk Management business
segment increased to $25.6 million in 2002 from $10.8 million in the prior
year. Operating margins were 18.3% of net segment revenues for 2002, an
increase from the 7.8% for the prior year. The margin improvement is primarily
due to cost savings measures initiated 2001. These measures included the
closure of our facility in Bothell, Washington, workforce reductions,
transition of contact center work to our Indian operations, renegotiation of
vendor contracts and in-sourcing of certain development activities. We recorded
$5.5 million of restructuring and asset impairment charges in the segment
related to severance, lease expense and asset impairments in 2002, as compared
to $3.2 million recorded in 2001 for the closure of the Bothell, Washington
facility. The increase in restructuring costs was offset by a $2.4 million
reduction in expense recorded for performance-based compensation from the
amounts recorded during 2001.

Income from operations in the Professional Services business segment decreased
to $23.7 million in 2002 from $46.6 million in the prior year. Operating
margins were 23.3% of net segment revenues for 2002, a decrease from the 33.3%
seen in the prior year. The reduction in operating margin is due primarily to
the approximately $32 million decrease in software sales as compared to the
prior year. The margin impact of the reduced software sales was somewhat
offset by a reduction of approximately $5 million for performance-based
compensation expense as compared to the prior year.

Corporate expenses include, but are not limited to, legal, accounting, human
resources, risk management, and executive expenses. These expenses increased to
$71.9 million in 2002 from $53.6 million in the prior year. The increase is
primarily due to increased professional service fees related to the SEC inquiry
and the investigation of certain significant transactions we completed in the
fourth quarter of 2002 and the $6.8 million of restructuring and asset
impairment charges we recorded in 2002. Expenses for facility rental costs
related to the expansion of our facilities in Scottsdale, Arizona and for
corporate insurance and employee health benefits also increased. These
increases were partially offset by an approximately $2 million reduction for
performance-based compensation, and the elimination of goodwill amortization
expense. We recorded $3.9 million of goodwill amortization expense in 2001.

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YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net revenue Net revenue increased $97.9 million, or 22.3%, to $537.2 million
in 2001 from $439.3 million in 2000.

Revenue from government services contracts increased approximately $0.5 million
in 2001 as compared to 2000. The increase was primarily due to increased
revenues from Medicaid eligibility verification services coupled with an
increase in the number of cases processed. This increase was partially offset
by the expiration of an electronic benefit-switching contract with Citibank in
the third quarter of 2000.

Total revenue from ACI, including pre-acquisition revenue from the ATM
deployment and management agreement, vault cash agreement and processing
agreement in effect prior to our acquisition of ACI and from the ownership of
ACI after our acquisition, increased by approximately $50 million in 2001 over
2000. This increase resulted from a full year of our relationship with ACI in
2001 compared with only four months of such relationship in 2000.

Revenue derived from software licensing was $42.4 million in 2001, an increase
of approximately $31 million from 2000. This increase resulted primarily from
the licensing of our electronic funds transfer (EFT) software to the Star
network and Visa USA. We do not expect that software transactions of this
magnitude are likely to be repeated in the foreseeable future.

Our call center in Mumbai, India completed its first full year of operations in
2001 and generated revenue of approximately $16.5 million. This call center
commenced operations in mid-December 2000 and generated less than $0.5 million
of revenue in 2000. Also contributing to the increase in revenue in 2001 was
the increased usage of our debit account opening products.

These increases were offset to some extent by a decrease in revenue from our
check authorization business of $3.1 million resulting from customer losses,
bankruptcies and pricing concessions associated with the execution of longer
term contracts, lower revenue of $3.2 million from our collections business and
a decrease in revenue earned from Deluxe. Deluxe has been, and is expected to
continue to be, one of our more significant customers.

Total sales to Deluxe were $47.6 million and $59.3 million for 2001 and 2000,
respectively. Although no longer related parties, we continue to maintain a
business relationship with Deluxe. Sales to Deluxe for the year ended December
31, 2001 include fees related to services provided pursuant to a five-year
software development and business process outsourcing agreement executed during
2000. If Deluxe fails to spend a minimum of $43 million for software
development services under this agreement in any year, it will be obligated to
make payments to us based on a schedule in the contract that is reflective of
an estimate of our lost profits. For the year ended December 31, 2001, Deluxes
spending attributable to this component of this agreement was $41.1 million,
which did not meet the minimum-spending target and, accordingly, additional
fees of $0.3 million were accrued. This agreement also calls for us to provide
business process management services, including accounts receivable, accounts
payable and other general accounting and data entry services to Deluxe.
Deluxes annual minimum spending target for business process management
services ranges from $8.1 million in 2000 to $4.2 million in 2004. Revenue from
Deluxe for business process outsourcing services was $6.2 million for the year
ended December 31, 2001.

Processing, communication and service costs This category includes cost of
processing, telecommunications, computer equipment and promotional services.
These costs increased $63.2 million, or 46.5%, to $199.0 million in 2001 from
$135.8 million in the prior year. As a percentage of net revenue, processing,
communication and service costs were 37.0% in 2001, compared to 30.9% in 2000.
Costs related to ACI derived from the ATM deployment and management agreement,
vault cash agreement and processing agreement, in effect prior to our October
acquisition of ACI, and from our ownership of ACI after this acquisition,
increased by approximately $45.2 million to $66.4 million in 2001 from
approximately $21.2 million in 2000. This increase resulted from a full year of
our relationship with ACI in 2001 compared with only 4 months of such
relationship in 2000. We experienced increased hosting costs associated with
our DebitBureau database, and telecommunication costs also increased due to the
cost of improved data links with our Indian operations and our need to expand
our infrastructure in certain areas as a result of our separation from Deluxe.
Costs associated with the new call center in Mumbai, India also contributed to
the increase in costs over last year.

These increases were offset slightly by a reduction in costs resulting from the
expiration of an electronic benefit switching contract with Citibank in the
third quarter of 2000.

Employee costs Expenditures in this category represent employee compensation
and related employee expenses, benefits and travel. These costs increased $11.1
million, or 5.7%, to $205.6 million in 2001 from $194.5 million in 2000. As a
percentage of net revenue, employee costs were 38.3% in 2001 compared to 44.3%
for 2000. Employee compensation increased upon our separation from

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Deluxe. We also experienced a reduction in the amount of compensation costs
capitalized to development projects, which resulted in
the recognition of more compensation expense.

Depreciation and amortization These costs represent depreciation of
facilities and equipment, amortization of intangible assets, such as
capitalized software costs, acquired contracts and goodwill. Depreciation and
amortization increased $8.9 million, or 28.6%, to $40.0 million in 2001 from
$31.1 million for 2000. These costs were 7.4% of revenue in 2001, and 7.1% of
revenue for the prior year. The increase depreciation and amortization expense
is a result of the high level of capital spending in 2000 and to a lesser
degree, 2001.

Other operating costs Expenditures in this category include facility costs,
professional, consulting and temporary services, bad debt, and certain
administrative costs. Other operating expenses decreased $12.7 million, or
23.6%, to $41.1 million in 2001 from $53.8 million in 2000. As a percentage of
revenue, these expenses were 7.7% in 2001 and 12.2% in 2000. In addition to the
absence of allocated costs from Deluxe, general consulting fees also decreased
in 2001. These savings were offset slightly by higher professional and
administrative costs associated with becoming a public company.

Restructuring and asset impairment charges Results for 2001 included a
restructuring charge for severance benefits and lease impairments of $3.2
million related to the closure of our Bothell, Washington facility.

Results for 2000 included restructuring charges of $6.1 million primarily
related to the Spin-Off from Deluxe.

Provision (reversal of provision) for contract losses In 2001 we recorded a
$2.5 million benefit related to a reduction in our estimate of future losses on
certain government EBT contracts.

During 2000, we recorded a similar reversal of $2.5 million of previously
recorded government EBT contract loss accruals for certain contracts. However,
in 2000 we also increased our accrual for expected future losses on long-term
service contracts by $12.2 million relative to the completion of negotiations
with a prime contractor for a state coalition for which we provide EBT
services.

Income from operations Income from operations increased $42.4 million, or
504.8%, to $50.8 million in 2001 compared to $8.4 million in 2000. As a
percentage of net revenue, income from operations was 9.5% for 2001 compared to
1.9% for the prior year. The increase in operating income for 2001 is due
primarily to an increase in higher margin software sales in 2001. Additionally,
our new call center operations in Mumbai and cost savings in our government
services business contributed to improved margins. Our results for 2001 also
include a net benefit from the reversal of provisions for contract losses of
$2.5 million as compared to a $9.7 million net charge recorded in 2000, and a
reduction in restructuring and asset impairment charges to $3.2 million as
compared to the $6.1 million we recorded in 2000.

These factors were offset somewhat by losses attributable to our relationship
with ACI throughout the entire year of 2001, as opposed to only four months in
2000. In addition, the introduction of new products and services that have not
yet generated sufficient revenue to contribute positively to operating income
and the underutilization of personnel allocated to our software development and
business process outsourcing agreement with Deluxe also contributed to the
decrease in operating income.

Other income (expense)  net Other income (expense) was $0.2 million during
2001 compared to $(1.6) million for 2000, or a decrease in expense of $1.8
million. This decrease in other expense was the result of lower interest cost
associated with our India line of credit that was fully repaid at March 31,
2001, lower interest costs associated with reductions in the principal amount
of capital leases and lower interest costs associated with the absence of
intercompany borrowings from Deluxe. Our intercompany balance with Deluxe was
settled at the Spin-Off. We record our equity in loss of investee in other
expense. This amount represents our 24% share of losses incurred by ACI prior
to our acquisition of the remaining 76% of this company in October 2001. The
increase in our share of the loss in 2001 relates to increased inventory
obsolescence and bad debt charges taken by ACI in 2001.

Provision for income taxesThe provision for income taxes was $17.7 million
in 2001 compared to $3.3 million in 2000 resulting in effective tax rates of
34.6% and 48.6%, respectively. The decrease in the effective tax rate in 2001
from 2000 was the result of partially recognizing the income tax benefit of
certain federal net operating losses which was not previously recognized in
2000. In addition, our Indian software development and business process
management operations contributed to the decrease in our effective tax rate as
they qualify for tax incentives associated with businesses that operate within
designated geographic locations in India. Such incentives generally provide us
with exemptions from Indian tax on certain business income generated from these
operations and phase out through March 2009. The effect of such tax incentives
was to reduce income tax expense by approximately $5.8 million in 2001 and $1.8
million in 2000.

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LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

At December 31, 2002, net working capital was $149.8 million, compared to
$118.6 million at December 31, 2001. Cash and cash equivalents, including cash
in ATMs of approximately $7 million, totaled $119.5 million at December 31,
2002, an increase of $17.6 million from December 31, 2001. This increase was
primarily the result of cash provided by operating activities. At December 31,
2002, we had $3.0 million of restricted cash that we temporarily hold in
custodial accounts on behalf of clients and $1.1 million of deposits subject to
compensating balance arrangements.

ACI has vault cash agreements with various financial institutions who provide
cash to certain of the ATMs owned or managed by us. Although some portion
of this cash may be physically located in our ATMs, these funds are not
included in cash and cash equivalents on our consolidated balance sheet because
we do not take title to it under the bailee/bailor relationship establish by
the agreements. Based upon the daily outstanding balance of funds provided to
the ATMs, ACI generally pays a monthly fee ranging from prime, as defined, plus
one half percent up to prime plus 5%. The average monthly rate paid during 2002
approximated 7%. We indemnify the financial institutions against any loss of
the vault cash in the ATMs. One of the agreements requires ACI to maintain a
security amount equal to 1% of the daily outstanding balance. The agreements
may be terminated upon notice by either party and have various expiration dates
ranging from January 2004 to November 2004. Total cash provided pursuant to
these vault cash agreements was approximately $36 million at December 31, 2002.

As part of our transaction processing business, we provide cash settlement
services to financial institutions and state and local governments. These
services involve the movement of funds between the various parties associated
with an ATM, POS or EBT transaction and this activity results in a balance due
to us at the end of each business day that we recoup over the next few business
days. The balances due us are included in cash on our consolidated balance
sheets. As of December 31, 2002, approximately $18.5 million of settlement
payments were due to us and we received these funds in early January 2003. We
are required to maintain sufficient cash on hand to fund the daily settlement
advances we make against the payments we receive through the settlement
process. The typical overnight settlement balance due to us ranges from $5
million to $20 million. We also seek to maintain an additional cash balance of
approximately $35 million to ensure that we can advance funds to our processing
customers if unusual circumstances prevent us from timely processing their
settlement files. We are evaluating means to reduce the need for us to
maintain these minimum cash balance levels, including the possibility of
obtaining an overnight credit facility to fund these obligations.

Our operations and our capital expenditure and acquisition requirements are
financed primarily through the cash flow from our operations. Short-term
liquidity needs and long term capital expenditure requirements will be provided
from cash and cash equivalents on hand and cash flow from operations.

We terminated our $20 million revolving credit facility in 2002. We never
borrowed any money under this facility, although we did use it to issue letters
of credit in the ordinary course of business from time to time.

Prior to our acquisition of ACI in 2001, we had committed to guarantee up to
approximately $1.8 million of equipment lease payments for ACIs Canadian
customers and as of December 31, 2002, we had guaranteed lease payments
amounting to $1.3 million. Through December 31, 2002, we have been required to
make payments of $128,000 pursuant to these guarantees.

Our India operations previously had a $10.0 million credit facility,
denominated in Indian rupees, available at the lenders prime interest rate.
Borrowings under this facility were due on demand and were guaranteed by us.
The average amount drawn on this credit facility during the first quarter of
2001 was $5.3 million at a weighted average interest rate of 15.5%. In March
2001, we repaid the outstanding balance of this facility and $8.5 million of a
$10.0 million time deposit account maintained by us to support our guaranty of
the facility was returned to us. We have subsequently used time deposits to
secure letters of credit we issue in the ordinary course of business in India.
The amount of time deposits we maintained for this purpose at December 31, 2002
was approximately $1.5 million, although there were no letters of credit
outstanding at that date. We have also pledged $0.4 million of time deposits
as collateral related to the guarantee of performance on a customer contract
and certain obligations related to local government requirements.

In connection with our government services business, collection and ATM
placement activities, we post surety bonds with state agencies guaranteeing our
performance of certain obligations related to the relevant contracts or state
requirements. The aggregate amount of such bonds outstanding at December 31,
2002 was $4.3 million.

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The following table sets forth our contractual cash obligations in total and
for each of the next five years and thereafter as of December 31, 2002:

|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |       |  |  |   |       |  |  |   |        | 
|--------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                        |  | Payments Due by Period
|                                        |  |                       
|(in thousands)                          |  | Total                  |         | 2003 |  | 2004 |        | 2005 |  | 2006 |        | 2007 |  | Thereafter
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |           
|Capital lease and debt obligations      |  | $                      | 2,739   |      |  | $    | 1,401  |      |  | $    | 1,251  |      |  | $          | 44     |  |  | $ | 43    |  |  | $ |      |  |  | $ |       | 
|Outsourcing and maintenance obligations |  |                        | 45,222  |      |  |      | 15,608 |      |  |      | 14,143 |      |  |            | 12,423 |  |  |   | 3,048 |  |  |   |      |  |  |   |       | 
|Operating leases                        |  |                        | 55,769  |      |  |      | 13,622 |      |  |      | 11,347 |      |  |            | 6,998  |  |  |   | 5,224 |  |  |   | 4,348 |  |  |   | 14,230 | 
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total contractual cash obligation       |  | $                      | 103,730 |      |  | $    | 30,631 |      |  | $    | 26,741 |      |  | $          | 19,465 |  |  | $ | 8,315 |  |  | $ | 4,348 |  |  | $ | 14,230 | 
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |       |  |  |   |       |  |  |   |        | 

The following table sets forth our future commercial commitments as of December
31, 2002:

|                            |  |                                 |       |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |       |  |  |   |     |  |  |   |   | 
|--------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | --- |  |  | - | ----- |  |  | - | --- |  |  | - | - | 
|                            |  | Commitment Expiration by Period
|                            |  |                                
|(in thousands)              |  | Total                           |       | 2003 |  | 2004 |       | 2005 |  | 2006 |       | 2007 |  | Thereafter
|                            |  |                                 |       |      |  |      |       |      |  |      |       |      |  |           
|Letters of credit and other |  | $                               | 548   |      |  | $    | 217   |      |  | $    | 331   |      |  | $          |    |  |  | $ |      |  |  | $ |    |  |  | $ |  | 
|Guarantees                  |  |                                 | 1,273 |      |  |      | 7     |      |  |      | 107   |      |  |            | 360 |  |  |   | 608   |  |  |   | 191 |  |  |   |  | 
|Performance bonds           |  |                                 | 4,349 |      |  |      | 1,455 |      |  |      | 1,355 |      |  |            | 539 |  |  |   | 1,000 |  |  |   |    |  |  |   |  | 
|                            |  |                                 |       |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |       |  |  |   |     |  |  |   |   | 
|Total commitments           |  | $                               | 6,170 |      |  | $    | 1,679 |      |  | $    | 1,793 |      |  | $          | 899 |  |  | $ | 1,608 |  |  | $ | 191 |  |  | $ |  | 
|                            |  |                                 |       |      |  |      |       |      |  |      |       |      |  |            |     |  |  |   |       |  |  |   |     |  |  |   |   | 

The Company is party to certain other contracts with third parties whereby the
third party provides services to the Company. These services are operational in
nature and our obligations under these contracts vary from period to period
based on our utilization of these services to serve our customers. The amount
of these commitments are not included in the above tables as they are not
currently determinable.

The following table sets forth a summary of our cash flow activity and should
be read in conjunction with our consolidated statements of cash flows:

|                                          |  |                          |         |      |  |   |         |  
|----------------------------------------- |  | ------------------------ | ------- | ---- |  | - | ------- | -
|                                          |  | Summary of Cash Flows   
|                                          |  | Years Ended December 31,
|                                          |  |                         
|(dollars in thousands)                    |  | 2002                     |         | 2001
|                                          |  |                          |         |     
|Cash provided by operating activities     |  | $                        | 74,792  |      |  | $ | 85,022  |  
|Cash used in investing activities         |  |                          | (57,470 | )    |  |   | (72,555 | )
|Cash provided by financing activities     |  |                          | 294     |      |  |   | 10,673  |  
|                                          |  |                          |         |      |  |   |         |  
|Net increase in cash and cash equivalents |  | $                        | 17,616  |      |  | $ | 23,140  |  
|                                          |  |                          |         |      |  |   |         |  

Cash flows from operating activities were approximately $74.8 million and $85.0
million for the years ended December 31, 2002 and 2001, respectively. The
decrease in operating cash flow results is attributable to the $8.8 million
decrease in our net income over this period, and the reclassification of $29.5
million of cash from restricted to unrestricted in 2001 primarily as a result
of our acquisition of ACI. Offsetting these items is a decrease in accounts
receivable in 2002 and, to a lesser extent, an increase in accounts payable
during 2002 as compared to 2001. The decrease in accounts receivable was due
primarily to collections of receivables related to a large software sale made
at the end of 2001. In 2002, we also established a collections and credit
committee and implemented enhanced collection processes and systems, thereby
improving our ability to collect our outstanding receivables. The success of
this program, and the absence of large software sales in the fourth quarter of
2002, resulted in a reduction of accounts receivable. Although we expect
continued improvement of the collection process, we do not expect similar
significant reductions to accounts receivable in the future.Accounts payable
increased primarily with acquisitions due to an increase in fees owed to the
occupants of the properties at which our ATMs are located.

Cash used in investing activities was $57.5 million for the year ended December
31, 2002. Our investing activities primarily relate to the acquisition of four
ATM businesses, and purchases of fixed assets and expenditures for software of
$20.9 million. Cash used in investing activities was $72.6 million for the year
ended December 31, 2001, primarily related to $40.6 million used in connection
with the acquisition of the remaining 76% ownership interest of ACI, an
investment of $1.3 million we made to acquire a 15% interest in Webtel Pty.
Ltd. in 2001 and purchases of fixed assets and expenditures for software of
$30.9 million.

Cash provided by financing activities was $0.3 million for the year ended
December 31, 2002. We received $3.1 million from the exercise of stock options
and shares purchased through our employee stock purchase plan, and we used cash
to repay debt of $2.8 million. Cash provided by financing activities was $10.7
million for of the year ended December 31, 2001. We used cash to repay debt of
$8.9 million, including the repayment of $5.3 million outstanding under our
Indian credit facility. These payments were partially offset by the return of
$8.5 million of the $10.0 million that we had placed in a time deposit as
collateral to support our guarantee of this facility. In addition, proceeds
from the exercise of stock options and shares purchased through our employee
stock purchase plan provided cash of $11.0 million.

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RECENT DEVELOPMENTS

The Company is currently the subject of an investigation by the Securities and
Exchange Commission (the SEC). In the course of its investigation, the SEC
staff has sought from the Company various documents and information concerning
the financial results and transactions that were the subject of restatement by
the Company in March and December 2002. In January 2003, the SEC staff
received a formal order of investigation, which empowers it to issue subpoenas
to the Company and to third parties. The Company has been cooperating fully
with the SEC staff and intends to continue to do so. The Company may, however,
be the subject of additional inquiries or become subject to a fine or other
remedies. The Company has incurred, and may continue to incur, significant
legal expenses in connection with the investigation.

The Company and its current and former chief executive and chief financial
officers are defendants in three federal securities actions filed in November
and December 2002 in the U.S. District Court for the Eastern District of
Wisconsin (the Federal Securities Actions). The complaints in these actions are
substantially identical and allege, among other things, that during the period
from February 2, 2001 to October 24, 2002 the defendants made false and
misleading statements and omissions of material facts and that the plaintiffs
and other members of a putative class of shareholders suffered damages as a
result. The defendants in the Federal Securities Actions have moved to have
the actions transferred to the District of Arizona and also have moved to
dismiss the actions on various grounds. These motions are pending before the
Court. Also pending before the Court is a motion by one of the plaintiffs to
consolidate the three actions, for his appointment as class representative and
for his selection of lead counsel.

The Company is also a nominal defendant in two substantially identical
shareholder derivative actions filed in the Superior Court of Arizona, Maricopa
County in January 2003 (the Shareholders Derivative Actions). The complaints
allege, among other things, that certain of its current and former directors named in the complaints as defendants, breached their fiduciary
duties to the Company in connection with certain alleged issues involving the
Companys accounting practices and internal controls. The Complaint also names
as a defendant the Companys external auditor. The parties in the Shareholder
Derivative Actions have jointly moved to stay the proceedings, pending the
resolution of the motions to dismiss the Federal Securities Actions. The Court
has yet to rule on that request.

The Company believes the Federal Securities and Shareholder Derivative Actions
are without merit and intends to vigorously defend itself. However, the
Company cannot predict with certainty the outcome of these actions.

In January 2003 we reached an agreement with Deluxe whereby we have received
$5.0 million from Deluxe and we expect to receive an additional $0.9 million.
The receipt of these proceeds is not expected to have a material impact on our
results of operations as they represent the settlement of a previously
recognized receivable and our assumption of an equivalent amount of tax
obligations.

On January 16, 2003, we entered into a purchase agreement for the sale of our
Glendale, Wisconsin administrative facility. We will continue to lease a
portion of the facility through March 2004. We do not expect that this
agreement will have a material impact on our statement of operations as the
proceeds we expect to receive from the sale will approximate the carrying value
of the property.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No.
01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (formerly EITF Abstracts, Topic No. D-103).
This EITF requires that reimbursements received for out-of-pocket expenses
should be classified as revenue and is effective for financial reporting
periods beginning after December 15, 2001. EITF Issue No. 01-14 requires that
financial statements for prior periods presented be reclassified to comply with
these provisions. We typically incur telecommunications, network customer
fees, travel, maintenance and repair, and other transaction costs that are
billed to and reimbursed by our customers. These reimbursements were
previously classified as a reduction in operating expenses. The effect of our
adoption of EITF Issue No. 01-14 was an increase in net revenue and operating
expenses of $30.4 million, $27.7 million and $22.7 million for the years ended
December 31, 2002, 2001 and 2000, respectively, with no effect on our financial
position or net income.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
142, Goodwill and Other Intangible Assets, which became effective for the
Company on January 1, 2002. SFAS No. 142 requires, among other things, the
cessation of the amortization of goodwill. We adopted SFAS No. 142 in
connection with our acquisition of ACI on October 1, 2001. The standard also
includes provisions for the reassessment of the useful lives of existing
recognized intangibles, a new method of measuring reported goodwill for
impairment and the identification of reporting units for purposes of assessing
potential future impairments of goodwill.

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In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 establishes a single accounting
model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 superseded SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and certain provisions of Accounting Principles Board (APB) Opinion No.
30, Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. The provisions of SFAS No.
144 are effective for us in 2002 and are to be applied prospectively. The
adoption of SFAS No. 144 did not have a material impact on our consolidated
financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. We adopted this new standard effective January 1, 2003. We
have as not yet determined if the adoption of this standard will have a
material impact on our financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation sets forth expanded
disclosure requirements in the financial statements about a guarantors
obligations under certain guarantees that it has issued. It also clarifies that
under certain circumstances, a guarantor is required to recognize a liability
for the fair value of the obligation at the inception of the guarantee. Certain
types of guarantees, such as product warranties, guarantees accounted for as
derivatives, and guarantees related to parent-subsidiary relationships are
excluded from the liability recognition provisions of Interpretation No. 45,
although they are subject to the disclosure requirements. The initial liability
recognition provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure requirements of
Interpretation No. 45 are effective for financial statements for interim or
annual periods ending after December 15, 2002. In accordance with
Interpretation No. 45, we have included the required disclosure relating to our
guarantees in our financial statements as of December 31, 2002. We have not
yet determined if the adoption of the new rules will have any material impact
on our financial position or results of operations.

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. We do not believe that
the adoption of EITF Issue No. 00-21 will have a material effect on our
consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. This statement amends SFAS No. 123,
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 to
require prominent disclosure about the effects on reported net income of an
entitys accounting policy decisions with respect to stock-based employee
compensation. This statement also amends APB Opinion No. 28, Interim Financial
Reporting to require disclosure about those effects in interim financial
statements. SFAS No. 148 is effective for financial statements for fiscal years
ending after December 15, 2002. We have elected not to voluntarily change to
the fair value based method of accounting for stock-based compensation at this
time, and have included the additional disclosure requirements in Note 2.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. Interpretation No. 46 prescribes
how to identify variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to consolidate that
entity. This interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities do
not effectively disperse risks among parties involved. Interpretation No. 46 is
effective immediately for variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The interpretation applies in the first fiscal year
or interim period beginning after June 15, 2003, to variable interest entities
in which an enterprise holds a variable interest that it acquired before
February 1, 2003. We do not believe the adoption of Interpretation No. 46 will
have a material impact on our financial position or results of operations.

FORWARD LOOKING STATEMENTS 

When used in this Annual Report on Form 10-K and in future filings by the
Company with the Securities and Exchange Commission, in our press releases,
letters and reports to stockholders and in oral statements made by our
representatives, the words or phrases should result, are expected to,
targeted, will continue, will approximate, is anticipated, estimate,
project or similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act

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of 1995. These statements are necessarily subject to certain risks and
uncertainties, including those discussed in Exhibit 99.1 to this Annual Report
on Form 10-K, that could cause our actual results to differ materially from our
historical experience and our present expectations or projections. Caution
should be taken not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. The factors listed below
could affect our financial performance and could cause our actual results for
future periods to differ from any opinions or statements expressed with respect
thereto. Such differences could be material and adverse. We will not undertake
and specifically decline any obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect events
or circumstances occurring after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.

In 2003, our new management team will be building a long-term strategic growth
plan while simultaneously seeking to improve our operating efficiencies,
enhance our business performance and focus on better serving our
customers. We expect that the full year 2003 diluted earnings
per share and revenue will be in line with the 2002 reported results.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. We operate internationally and are subject
to potentially adverse movements in foreign currency exchange rates and
interest rates. These exposures may change over time as our business evolves
and could have an adverse impact on our financial results. We have not entered
into any derivative instruments or hedging contracts to reduce our exposure to
adverse foreign currency rate or interest rate changes. Currently, we receive
non-U.S. dollar denominated revenues and incur non-U.S. dollar denominated
operating expenses in the United Kingdom, India and Canada. We also have assets
located in these countries. The principal currencies creating foreign exchange
rate risk for us are the British pound, Indian rupee and Canadian dollar. For
the year ended December 31, 2002, less than 10% of our net revenues and
operating expenses were denominated in non-U.S. dollar currencies. We do not
believe that our net income for the year ended December 31, 2002 would have
been materially affected if the U.S. dollar had appreciated or depreciated by
10% against the British pound, the Indian rupee or the Canadian dollar.

Changes in interest rates could impact our anticipated interest income on cash
equivalents and interest expense on variable short-term debt. A 10% adverse
change in interest rates from the interest rates in effect at the end of 2002
would not, however, have a material adverse effect on our net income or
financial condition for 2002.

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INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders of:
eFunds Corporation
Scottsdale, Arizona

We have audited the accompanying consolidated balance sheets of eFunds
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, comprehensive income, stockholders
equity, and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial statement schedule listed in
the index at Item 16. These financial statements and the financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
the financial statement schedule based on our audits. We did not audit the
financial statements of iDLX Holdings BV (a consolidated subsidiary), which
statements reflect total assets constituting 11% and 9%, respectively, of
consolidated total assets as of December 31, 2002 and 2001, and net revenue,
constituting 6% and 4%, respectively, of consolidated net revenue and net
income constituting 30% and 41%, respectively, of consolidated net income for
the years ended December 31, 2002 and 2001. Such financial statements were
audited by other auditors. Those statements as of and for the year ended
December 31, 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements
in their report dated January 25, 2002. The reports of those other auditors
have been furnished to us and our opinion, insofar as it relates to the amounts
included for iDLX Holdings BV, is based solely on the reports of such other
auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of the other auditors provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the reports of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of eFunds Corporation and subsidiaries at December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, based on our audits and (as to the amounts included for
iDLX Holdings BV) the reports of the other auditors, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 6 to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142.

/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 14, 2003

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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EFUNDS CORPORATION
CONSOLIDATED BALANCE SHEETS

|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |         |         |         |         | 
|--------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------------------------------------------ | ------------ | ------- | ------------ | ------- | ------- | ------- | ------- | ------- | 
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         | December 31,
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |             
|(dollars in thousands)                                          |                                                                                                                                                                    | 2002                                       |                                            | 2001        
|                                                                |                                                                                                                                                                    |                                            |                                            |             
|Current assets:                                                 |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                | Cash and cash equivalents                                                                                                                                          |                                            | $                                          | 119,487      |         |              | $       | 101,871 |        
|                                                                | Deposits subject to compensating balance arrangement                                                                                                               |                                            |                                            | 1,133        |         |              |         | 2,448   |        
|                                                                | Restricted custodial cash                                                                                                                                          |                                            |                                            | 3,046        |         |              |         | 1,124   |        
|                                                                | Accounts receivable  net                                                                                                                                          |                                            |                                            | 59,311       |         |              |         | 78,488  |        
|                                                                | Deferred income taxes                                                                                                                                              |                                            |                                            | 11,580       |         |              |         | 13,492  |        
|                                                                | Prepaid expenses and other current assets                                                                                                                          |                                            |                                            | 17,865       |         |              |         | 14,364  |        
|                                                                | Assets held for sale                                                                                                                                               |                                            |                                            | 13,310       |         |              |         |        |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    | Total current assets                       |                                            |              | 225,732 |              |         |         | 211,787 |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|Property and equipment  net                                    |                                                                                                                                                                    |                                            | 50,764                                     |              |         |              | 75,638  |        
|Long-term investments                                           |                                                                                                                                                                    |                                            | 3,758                                      |              |         |              | 2,747   |        
|Intangibles:                                                    |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                | Goodwill  net                                                                                                                                                     |                                            |                                            | 114,036      |         |              |         | 87,151  |        
|                                                                | Software  net                                                                                                                                                     |                                            |                                            | 29,439       |         |              |         | 35,652  |        
|                                                                | Other intangible assets  net                                                                                                                                      |                                            |                                            | 32,397       |         |              |         | 24,780  |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    | Total intangibles  net                    |                                            |              | 175,872 |              |         |         | 147,583 |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                | Other non-current assets                                                                                                                                           |                                            |                                            | 3,292        |         |              |         | 5,161   |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    |                                            | Total non-current assets                   |              |         | 233,686      |         |         |         | 231,129 |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    |                                            |                                            | Total assets |         | $            | 459,418 |         |         | $       | 442,916 | 
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|Current liabilities:                                            |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                | Accounts payable                                                                                                                                                   |                                            | $                                          | 32,598       |         |              | $       | 25,029  |        
|                                                                | Accrued liabilities:                                                                                                                                               |                                            |                                            |              |         |              |         |         |        
|                                                                |                                                                                                                                                                    | Accrued compensation and employee benefits |                                            |              | 3,936   |              |         |         | 17,127  |        
|                                                                |                                                                                                                                                                    | Accrued contract losses                    |                                            |              | 7,578   |              |         |         | 14,777  |        
|                                                                |                                                                                                                                                                    | Accrued income taxes                       |                                            |              | 7,941   |              |         |         | 6,502   |        
|                                                                |                                                                                                                                                                    | Deferred revenue                           |                                            |              | 3,423   |              |         |         | 14,377  |        
|                                                                |                                                                                                                                                                    | Restructuring accruals                     |                                            |              | 2,367   |              |         |         | 2,025   |        
|                                                                |                                                                                                                                                                    | Other                                      |                                            |              | 16,693  |              |         |         | 10,528  |        
|                                                                | Long-term debt due within one year                                                                                                                                 |                                            |                                            | 1,401        |         |              |         | 2,781   |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    | Total current liabilities                  |                                            |              | 75,937  |              |         |         | 93,146  |        
|Long-term debt                                                  |                                                                                                                                                                    |                                            | 1,338                                      |              |         |              | 2,529   |        
|Deferred income taxes                                           |                                                                                                                                                                    |                                            | 9,202                                      |              |         |              | 7,313   |        
|Other long-term liabilities                                     |                                                                                                                                                                    |                                            | 9,421                                      |              |         |              | 5,613   |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    | Total liabilities                          |                                            |              | 95,898  |              |         |         | 108,601 |        
|Commitments and contingencies (Notes 2, 3, 4, 5, 12, 15 and 16) |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|Stockholders equity:                                           |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                | Preferred stock $.01 par value; 100,000,000 shares
authorized; no shares issued and outstanding                                                                    |                                            |                                            |             |         |              |         |        |        
|                                                                | Common stock $.01 par value (authorized: 250,000,000 shares;
issued and outstanding: 46,702,496 and 46,379,841 shares
at December 31, 2002 and 2001, respectively) |                                            |                                            | 467          |         |              |         | 464     |        
|                                                                | Additional paid-in capital                                                                                                                                         |                                            |                                            | 411,451      |         |              |         | 407,210 |        
|                                                                | Accumulated deficit                                                                                                                                                |                                            |                                            | (46,495      | )       |              |         | (71,049 | )      
|                                                                | Accumulated other comprehensive loss                                                                                                                               |                                            |                                            | (1,903       | )       |              |         | (2,310  | )      
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    | Stockholders equity                       |                                            |              | 363,520 |              |         |         | 334,315 |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |        
|                                                                |                                                                                                                                                                    |                                            | Total liabilities and stockholders equity |              | $       | 459,418      |         |         | $       | 442,916 |        
|                                                                |                                                                                                                                                                    |                                            |                                            |              |         |              |         |         |        

See Notes to Consolidated Financial Statements

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EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |         |         | 
|----------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------ | ------- | ----------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                            |                                                                   |                          |         | Year Ended December 31,
|                                                            |                                                                   |                          |         |                        
|(dollars and shares in thousands, except per share amounts) |                                                                   | 2002                     |         | 2001                    |         | 2000
|                                                            |                                                                   |                          |         |                         |         |     
|Net revenue                                                 |                                                                   | $                        | 543,107 |                         |         | $    | 537,159 |         |         | $ | 439,299 |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Operating expenses                                          |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|                                                            | Processing, communication and service costs                       |                          |         | 226,151                 |         |      |         | 199,007 |         |   |         | 135,771 |        
|                                                            | Employee costs                                                    |                          |         | 185,719                 |         |      |         | 205,588 |         |   |         | 194,525 |        
|                                                            | Depreciation and amortization                                     |                          |         | 36,972                  |         |      |         | 39,952  |         |   |         | 31,069  |        
|                                                            | Other operating costs                                             |                          |         | 44,321                  |         |      |         | 41,091  |         |   |         | 53,781  |        
|                                                            | Restructuring and asset impairment charges                        |                          |         | 16,525                  |         |      |         | 3,200   |         |   |         | 6,077   |        
|                                                            | Provision (reversal of provision) for contract losses             |                          |         | (2,000                  | )       |      |         | (2,500  | )       |   |         | 9,700   |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|                                                            |                                                                   | Total operating expenses |         |                         | 507,688 |      |         |         | 486,338 |   |         |         | 430,923 | 
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Income from operations                                      |                                                                   |                          | 35,419  |                         |         |      | 50,821  |         |         |   | 8,376   |        
|Other income (expense)  net                                |                                                                   |                          | 734     |                         |         |      | 171     |         |         |   | (1,594  | )      
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Income before income taxes                                  |                                                                   |                          | 36,153  |                         |         |      | 50,992  |         |         |   | 6,782   |        
|Provision for income taxes                                  |                                                                   |                          | (11,599 | )                       |         |      | (17,653 | )       |         |   | (3,299  | )      
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Net income                                                  |                                                                   | $                        | 24,554  |                         |         | $    | 33,339  |         |         | $ | 3,483   |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|                                                            | Weighted average shares outstanding                               |                          |         | 46,588                  |         |      |         | 45,985  |         |   |         | 42,788  |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|                                                            | Weighted average shares and potential dilutive shares
outstanding |                          |         | 46,738                  |         |      |         | 47,445  |         |   |         | 42,867  |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Net income per share  basic                                |                                                                   | $                        | 0.53    |                         |         | $    | 0.72    |         |         | $ | 0.08    |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        
|Net income per share  diluted                              |                                                                   | $                        | 0.53    |                         |         | $    | 0.70    |         |         | $ | 0.08    |        
|                                                            |                                                                   |                          |         |                         |         |      |         |         |         |   |         |        

See Notes to Consolidated Financial Statements

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EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

|                                 |                                          |      |                         |        |  |      |        |        |   |   |       |        |  
|-------------------------------- | ---------------------------------------- | ---- | ----------------------- | ------ |  | ---- | ------ | ------ | - | - | ----- | ------ | -
|                                 |                                          |      | Year Ended December 31,
|                                 |                                          |      |                        
|(in thousands)                   |                                          | 2002 |                         | 2001   |  | 2000
|                                 |                                          |      |                         |        |  |     
|Net income                       |                                          | $    | 24,554                  |        |  | $    | 33,339 |        |   | $ | 3,483 |       
|Other comprehensive gain (loss): |                                          |      |                         |        |  |      |        |        |   |   |       |       
|                                 | Foreign currency translation adjustments |      |                         | 407    |  |      |        | (709   | ) |   |       | (1,054 | )
|                                 |                                          |      |                         |        |  |      |        |        |   |   |       |       
|                                 | Comprehensive income                     |      | $                       | 24,961 |  |      | $      | 32,630 |   |   | $     | 2,429  |  
|                                 |                                          |      |                         |        |  |      |        |        |   |   |       |       

See Notes to Consolidated Financial Statements

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EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                                       |  |              |        |            |  |             |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |         |  
|------------------------------------------------------ |  | ------------ | ------ | ---------- |  | ----------- | --- | ------------- |  | ------------- | ------- | ------ |  | - | -------- | - |  | - | ------ | - |  | - | ------- | -
|                                                       |  |              |        |            |  |             |     |               |  | Accumulated   |         |       
|                                                       |  | Common Stock |        | Additional |  |             |     |               |  | other         |         | Total 
|                                                       |  |              |        | paid-in    |  | Accumulated |     | comprehensive |  | stockholders
|(in thousands)                                         |  | Shares       |        | Amount     |  | capital     |     | deficit       |  | loss          |         | equity
|                                                       |  |              |        |            |  |             |     |               |  |               |         |       
|Balance, December 31, 1999                             |  |              | 40,000 |            |  | $           | 400 |               |  | $             | 292,198 |        |  | $ | (92,946  | ) |  | $ | (547   | ) |  | $ | 199,105 |  
|Net income                                             |  |              |       |            |  |             |    |               |  |               |        |        |  |   | 3,483    |   |  |   |       |   |  |   | 3,483   |  
|Adjustment for lag in financial
reporting (see Note 2) |  |              |       |            |  |             |    |               |  |               |        |        |  |   | (1,125   | ) |  |   |       |   |  |   | (1,125  | )
|Offering proceeds, net                                 |  |              | 5,500  |            |  |             | 55  |               |  |               | 64,404  |        |  |   |         |   |  |   |       |   |  |   | 64,459  |  
|Contributions by Deluxe, net                           |  |              |       |            |  |             |    |               |  |               | 35,097  |        |  |   |         |   |  |   |       |   |  |   | 35,097  |  
|Dividends paid to Deluxe                               |  |              |       |            |  |             |    |               |  |               |        |        |  |   | (13,800  | ) |  |   |       |   |  |   | (13,800 | )
|Translation adjustment                                 |  |              |       |            |  |             |    |               |  |               |        |        |  |   |         |   |  |   | (1,054 | ) |  |   | (1,054  | )
|                                                       |  |              |        |            |  |             |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2000                             |  |              | 45,500 |            |  |             | 455 |               |  |               | 391,699 |        |  |   | (104,388 | ) |  |   | (1,601 | ) |  |   | 286,165 |  
|Net income                                             |  |              |       |            |  |             |    |               |  |               |        |        |  |   | 33,339   |   |  |   |       |   |  |   | 33,339  |  
|Proceeds from exercise of stock options                |  |              | 732    |            |  |             | 8   |               |  |               | 9,827   |        |  |   |         |   |  |   |       |   |  |   | 9,835   |  
|Restricted stock units                                 |  |              | 32     |            |  |             |    |               |  |               | 333     |        |  |   |         |   |  |   |       |   |  |   | 333     |  
|Proceeds from employee stock purchase plan             |  |              | 116    |            |  |             | 1   |               |  |               | 1,190   |        |  |   |         |   |  |   |       |   |  |   | 1,191   |  
|Tax benefits attributable to stock options
exercised   |  |              |       |            |  |             |    |               |  |               | 4,161   |        |  |   |         |   |  |   |       |   |  |   | 4,161   |  
|Translation adjustment                                 |  |              |       |            |  |             |    |               |  |               |        |        |  |   |         |   |  |   | (709   | ) |  |   | (709    | )
|                                                       |  |              |        |            |  |             |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2001                             |  |              | 46,380 |            |  |             | 464 |               |  |               | 407,210 |        |  |   | (71,049  | ) |  |   | (2,310 | ) |  |   | 334,315 |  
|Net Income                                             |  |              |       |            |  |             |    |               |  |               |        |        |  |   | 24,554   |   |  |   |       |   |  |   | 24,554  |  
|Proceeds from exercise of stock options                |  |              | 105    |            |  |             | 1   |               |  |               | 1,309   |        |  |   |         |   |  |   |       |   |  |   | 1,310   |  
|Restricted stock units                                 |  |              | 24     |            |  |             |    |               |  |               | 217     |        |  |   |         |   |  |   |       |   |  |   | 217     |  
|Proceeds from employee stock purchase plan             |  |              | 194    |            |  |             | 2   |               |  |               | 1,817   |        |  |   |         |   |  |   |       |   |  |   | 1,819   |  
|Tax benefits attributable to stock options
exercised   |  |              |       |            |  |             |    |               |  |               | 898     |        |  |   |         |   |  |   |       |   |  |   | 898     |  
|Translation adjustment                                 |  |              |       |            |  |             |    |               |  |               |        |        |  |   |         |   |  |   | 407    |   |  |   | 407     |  
|                                                       |  |              |        |            |  |             |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |         |  
|Balance, December 31, 2002                             |  |              | 46,703 |            |  | $           | 467 |               |  | $             | 411,451 |        |  | $ | (46,495  | ) |  | $ | (1,903 | ) |  | $ | 363,520 |  
|                                                       |  |              |        |            |  |             |     |               |  |               |         |        |  |   |          |   |  |   |        |   |  |   |         |  

See Notes to Consolidated Financial Statements

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EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |       |         |        |         |  
|------------------------------------------------------ | ------------ | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------ | ------- | ----------------------- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ------- | -
|                                                       |              |                                                                                   |                                                                        |                                            |         | Year Ended December 31,
|                                                       |              |                                                                                   |                                                                        |                                            |         |                        
|(in thousands)                                         |              | 2002                                                                              |                                                                        | 2001                                       |         | 2000                   
|                                                       |              |                                                                                   |                                                                        |                                            |         |                        
|Cash Flows from Operating Activities:                  |             
|                                                       |              | Net income                                                                        |                                                                        | $                                          | 24,554  |                         |         | $     | 33,339  |        |         | $     | 3,483   |       
|                                                       |              | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                       
|                                                       |              |                                                                                   | Depreciation                                                           |                                            |         | 17,725                  |         |       |         | 18,140 |         |       |         | 13,935 |        
|                                                       |              |                                                                                   | Amortization                                                           |                                            |         | 19,247                  |         |       |         | 21,812 |         |       |         | 17,134 |        
|                                                       |              |                                                                                   | Loss on impairment or disposals of property, equipment and intangibles |                                            |         | 7,980                   |         |       |         | 1,753  |         |       |         | 172    |        
|                                                       |              |                                                                                   | Deferred income taxes                                                  |                                            |         | 2,430                   |         |       |         | 10,647 |         |       |         | (1,009 | )      
|                                                       |              |                                                                                   | Equity in loss of investee                                             |                                            |         |                        |         |       |         | 1,097  |         |       |         | 500    |        
|                                                       |              |                                                                                   | Changes in assets and liabilities, net of effects from acquisitions:   |                                           
|                                                       |              |                                                                                   |                                                                        | Restricted custodial cash                  |         |                         | (1,922  | )     |         |        | 29,449  |       |         |        | 847     |  
|                                                       |              |                                                                                   |                                                                        | Accounts receivable                        |         |                         | 20,199  |       |         |        | (15,380 | )     |         |        | (4,542  | )
|                                                       |              |                                                                                   |                                                                        | Accounts payable                           |         |                         | 7,285   |       |         |        | (16,257 | )     |         |        | 8,654   |  
|                                                       |              |                                                                                   |                                                                        | Accrued compensation and employee benefits |         |                         | (12,975 | )     |         |        | (1,724  | )     |         |        | 3,072   |  
|                                                       |              |                                                                                   |                                                                        | Income taxes receivable/payable            |         |                         | 2,302   |       |         |        | 1,969   |       |         |        | 13,414  |  
|                                                       |              |                                                                                   |                                                                        | Accrued contract losses                    |         |                         | (7,199  | )     |         |        | (7,470  | )     |         |        | 1,344   |  
|                                                       |              |                                                                                   |                                                                        | Other assets and liabilities               |         |                         | (4,834  | )     |         |        | 7,647   |       |         |        | (13,235 | )
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|                                                       |              |                                                                                   |                                                                        | Net cash provided by operating activities  |         |                         | 74,792  |       |         |        | 85,022  |       |         |        | 43,769  |  
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|Cash Flows from Investing Activities:                  |             
|                                                       |              | Capital expenditures                                                              |                                                                        |                                            | (20,861 | )                       |         |       | (30,902 | )      |         |       | (41,893 | )     
|                                                       |              | Payments for acquisitions and investments, net of cash acquired                   |                                                                        |                                            | (35,184 | )                       |         |       | (40,620 | )      |         |       | (20,000 | )     
|                                                       |              | Proceeds from sales of property and equipment                                     |                                                                        |                                            |        |                         |         |       | 415     |        |         |       | 407     |       
|                                                       |              | Other                                                                             |                                                                        |                                            | (1,425  | )                       |         |       | (1,448  | )      |         |       | 267     |       
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|                                                       |              |                                                                                   |                                                                        | Net cash used in investing activities      |         |                         | (57,470 | )     |         |        | (72,555 | )     |         |        | (61,219 | )
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|Cash Flows from Financing Activities:                  |             
|                                                       |              | Net borrowings (payments) on line of credit                                       |                                                                        |                                            |        |                         |         |       | (5,303  | )      |         |       | 1,831   |       
|                                                       |              | Proceeds from exercise of stock options and employee stock
purchase plan          |                                                                        |                                            | 3,129   |                         |         |       | 11,026  |        |         |       |        |       
|                                                       |              | Payments on long-term debt                                                        |                                                                        |                                            | (2,835  | )                       |         |       | (3,550  | )      |         |       | (2,107  | )     
|                                                       |              | Release of (investment to establish) loan guarantee collateral                    |                                                                        |                                            |        |                         |         |       | 8,500   |        |         |       | (10,000 | )     
|                                                       |              | Proceeds from initial public offering (net of offering
costs of $7.0 million)     |                                                                        |                                            |        |                         |         |       |        |        |         |       | 64,459  |       
|                                                       |              | Capital contributions by Deluxe                                                   |                                                                        |                                            |        |                         |         |       |        |        |         |       | 23,905  |       
|                                                       |              | Dividends paid to Deluxe                                                          |                                                                        |                                            |        |                         |         |       |        |        |         |       | (13,800 | )     
|                                                       |              | Other                                                                             |                                                                        |                                            |        |                         |         |       |        |        |         |       | 171     |       
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|                                                       |              |                                                                                   |                                                                        | Net cash provided by financing activities  |         |                         | 294     |       |         |        | 10,673  |       |         |        | 64,459  |  
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|Adjustment for lag in financial reporting (see Note 2) |              |                                                                                   |                                                                       |                                            |         |                         |        |       |         |        | (4,127  | )    
|Net increase in cash and cash equivalents              |              |                                                                                   | 17,616                                                                 |                                            |         |                         | 23,140  |       |         |        | 42,882  |      
|Cash and cash equivalents at beginning of period       |              |                                                                                   | 101,871                                                                |                                            |         |                         | 78,731  |       |         |        | 35,849  |      
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|Cash and cash equivalents at end of period             |              | $                                                                                 | 119,487                                                                |                                            |         | $                       | 101,871 |       |         | $      | 78,731  |      
|                                                       |              |                                                                                   |                                                                        |                                            |         |                         |         |       |         |        |         |      
|Supplemental cash flow data                            |             
|Cash paid during the year for:                         |             
|                                                       | Interest     |                                                                                   | $                                                                      | 390                                        |         |                         | $       | 700   |         |        | $       | 3,000 |        
|                                                       | Income taxes |                                                                                   |                                                                        | 5,407                                      |         |                         |         | 7,000 |         |        |         |      |        

See Notes to Consolidated Financial Statements

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EFUNDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

NOTE 1  DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:

eFunds Corporation and its wholly-owned subsidiaries (the Company) provide
transaction processing, risk management and professional services to financial
institutions, retailers, electronic funds transfer networks and government
agencies. The Company has four operating segments: Electronic Payments;
Automated Teller Machine (ATM) Management Services; Decision Support and Risk
Management; and Professional Services. The Electronic Payments segment provides
automated clearinghouse (ACH), point of sale (POS), electronic funds transfer
(EFT) and other processing services and electronic benefit transfer (EBT)
services for government agencies. The ATM Management Services segment provides
ATM deployment, management and branding services. The Decision Support and Risk
Management segment provides risk management based data and other products to
financial institutions, retailers and other businesses that assist in detecting
fraud and assessing the risk of opening a new account or accepting a check. The
Professional Services segment provides EFT software sales, software
applications development, maintenance and installation, and business process
outsourcing services.

The Company was incorporated in Delaware in December 1984 and changed its name
from Deluxe Electronic Payment Systems, Inc. to eFunds Corporation in September
1999. Previously a wholly-owned subsidiary of Deluxe Corporation (Deluxe), the
Company completed its initial public offering (the IPO) in June 2000, issuing
5.5 million shares of common stock at $13.00 per share for $64.5 million, net
of offering expenses. In December 2000, Deluxe distributed all of its remaining
shares of the Companys common stock to its shareholders through a tax-free
spin-off (the Spin-Off) transaction.

In connection with the IPO and the Spin-Off, the Company and Deluxe entered
into various agreements that addressed the allocation of assets and liabilities
between them and that defined their relationship after the separation. The
agreements related to matters such as consummation of the IPO and the
distribution of the Companys stock, registration rights for Deluxe,
intercompany loans, information technology consulting, business process
management services, indemnification, data sharing, real estate matters, tax
sharing and transition services. For transition services, the Company and
Deluxe compensated each other for providing services. The transition period
varied depending on the agreement, but most transition services terminated
following the Spin-Off.

Deluxe has agreed to indemnify the Company for certain future losses arising
from identified loss contracts of the Companys government services business.
The Company plans to record any amounts received from Deluxe under the
indemnification agreement as a reduction of expense if any additional contract
losses are recognized. Under the indemnification agreement, the Company is
required to calculate increases or decreases to the loss contract reserve in a
manner consistent with Deluxes historical practices, which may differ from the
Companys calculation of estimated future losses for financial statement
purposes. Deluxe will also indemnify the Company against any liabilities,
losses or expenses arising from the litigation or claims asserted against the
Company in connection with the operation of the government services business
prior to the completion of the IPO. Deluxes total indemnification obligations
to the Company with respect to the government services business are limited to
$14.6 million. No such indemnification obligations have been incurred through
December 31, 2002.

All transactions between the entities included in the consolidated financial
statements have been eliminated. The historical financial information included
in the consolidated financial statements for the periods prior to the Spin-Off
may not be reflective of what the results of operations, financial condition
and cash flows would have been had the Company actually been a separate,
stand-alone entity during the periods presented. As a result, the historical
financial information may not necessarily be indicative of what the Companys
results of operations, financial condition and cash flows will be in the
future.

For periods prior to the Spin-Off, the consolidated statements of operations
include allocated portions of Deluxes expenses relating to the businesses that
were included in the Spin-Off. Allocations of common expenses were calculated
based on a percentage of Company revenue to total Deluxe revenue, number of
employees, square footage and transaction processing costs and included costs
for various support functions such as human resources, information services and
finance. These common costs to the Company and Deluxe were allocated because
specific identification of the actual costs incurred was not practicable. In
addition, historically, Deluxe has purchased certain assets or paid certain
liabilities that were attributable to the Company. These items were
specifically identified within the Deluxe consolidated financial statements and
have been recorded in the Companys consolidated financial statements.

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NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Consolidation

All significant intercompany accounts, transactions and profits have been
eliminated.

Use of estimates

The Company has prepared the accompanying consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America. In this process, it is necessary for management to make certain
assumptions and related estimates affecting the amounts reported in the
consolidated financial statements and related notes. These estimates and
assumptions are developed based upon all information available using
managements best efforts. However, actual results can differ from assumed and
estimated amounts. These estimates and assumptions include, but are not limited
to:



| | - |  | Estimated fair value of the Companys reporting units used to
perform annual impairment testing of recorded goodwill                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | Estimates of fair value and estimated costs of disposal of assets held for sale                                                      
|
| | - |  | Estimates of useful lives and residual values of property and equipment                                                              
|
| | - |  | Estimates of useful lives of intangible assets                                                                                       
|
| | - |  | Estimates surrounding contract performance variables used when
determining whether a long-term service contract is in a loss
position
|
| | - |  | Estimates regarding the likelihood and the extent to which the
benefits of deferred tax assets will be realized                      

Actual results could differ from these and other estimates.

Adjustment for lag in financial reporting

Effective January 1, 2000, the Companys Indian operations, which had
previously reported their results of operations and financial position on a
one-month lag, changed their reporting dates to coincide with the rest of the
Companys subsidiaries. This change, which was made in conjunction with the
implementation of the Companys central accounting and financial reporting
system, reflects the financial results of that operation on a more timely basis
and improves operating and planning efficiencies. The results of operations for
the Companys Indian operations for the month of December 1999 were excluded
from the Companys consolidated statements of operations and were reflected as
an adjustment to accumulated deficit during the first quarter of 2000. These
operations generated a net loss of $1.1 million and consumed $4.1 million of
cash in the month of December 1999.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the
current period classification.

Statements of cash flows

Non-cash investing and financing activity in 2000 consisted primarily of the
acquisition of real property and a data center from Deluxe for $10 million. The
purchase price was included in the amount contributed to the Companys capital
at March 31, 2000. For the year ended December 31, 2000, non-cash investing and
financing activities consist of the acquisition of assets from or through
Deluxe or the settlement of liabilities on the Companys behalf by Deluxe in
the ordinary course of business that had not been repaid by the Company at the
time Deluxe contributed intercompany balances to the Companys capital at March 31, 2000.

Cash and cash equivalents

The Company considers all cash on hand, money market funds, cash in ATMs, and
other highly liquid investments with original maturities of three months or
less to be cash and cash equivalents. Cash in ATMs at December 31, 2002 was
approximately $7 million. As part of the Companys transaction processing
business, the Company provides cash settlement services to financial
institutions and state and local governments. These services involve the
movement of funds between the various parties associated with an ATM, POS or
EBT transaction and this activity results in a balance due to the Company at
the end of each business day that it recoups over the next few business days.
The balances due the Company are included in cash. As of December 31, 2002,
approximately $18.5 million was due the Company and it received these funds in
early January 2003.

Restricted cash

In connection with the Companys electronic payment business, the Company also
has cash belonging to customers that temporarily resides in custodial accounts
maintained by the Company. The Company records these amounts as current
restricted custodial cash with a corresponding liability within other accrued
liabilities in the consolidated balance sheets.

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Accounts receivable

Accounts receivable are stated net of allowances for uncollectible accounts of
$3.0 million and $4.8 million at December 31, 2002 and 2001, respectively.
Management develops the estimate of the allowance based on the Companys
experience with specific customers, its understanding of their current economic
circumstances and its own judgment as to the likelihood of their ultimate
payment. Management also considers collection experience with the balance of
its receivables portfolio and makes estimates regarding collectibility based on
trends in aging. The estimates utilized to calculate the Companys allowance
for doubtful accounts were revised during the second quarter of 2002 to be more
reflective of its recent collection history following the establishment of a
collections and credit committee and the implementation of enhanced collection
processes. Bad debt is reflected as a component of other operating costs in
the consolidated statement of operations and represents those amounts of
accounts receivables that are deemed uncollectible by the Companys management,
net of amounts recovered during the period that were previously deemed
uncollectible and changes in managements estimates related to the
collectibility of accounts receivable. Bad debt expense was not material in
2002 as management revised their estimates regarding the collectibility of
accounts receivable which resulted in a reduction in the allowance for
uncollectible accounts by $2.5 million. Bad debt expense was $1.8 million in
2001 and $3.3 million in 2000. When a specific account receivable is determined
to be uncollectible, the Company reduces both its accounts receivable and
allowances for uncollectible accounts accordingly. As of December 31, 2001 one
customer accounted for 15.0% of the Companys total receivables.

Assets held for sale

At such time as management determines that a material fixed asset is to be
disposed of within a twelve-month period, those assets are reclassified from
property and equipment to assets held for sale and the depreciation of those
assets is discontinued. Assets held for sale are valued at the lower of their
carrying amount or fair value less cost to sell. As of December 31, 2002,
assets held for sale consisted of two administrative facilities, one located in
Glendale, Wisconsin and the other located in Runcorn, England. In estimating
the properties fair value less cost to sell, management considered recent
appraisals and offers relative to these assets. As a result of these
considerations, the Company recorded a pre-tax loss of $3.0 million to
write-down these assets during 2002 (see Note 7). This amount is reflected in
Restructuring and asset impairment charges in the accompanying condensed
consolidated statements of operations and is reflected in the Companys segment
reporting as unallocated corporate overhead.

Property and equipment

Property and equipment, including leasehold and other improvements that extend
an assets useful life or productive capabilities, are capitalized and stated
at historical cost. Buildings with 40-year lives and computer and other
equipment with lives of three to eight years are generally depreciated using
accelerated methods. Leasehold and building improvements are depreciated on a
straight-line basis over the estimated useful life of the property or the life
of the lease, whichever is shorter. Property and equipment are tested for
impairment in accordance with SFAS No. 144 (see Note 7).

At December 31, property and equipment consisted of the following:

|                           |                              |      |              |         |  |   |         |         | 
|-------------------------- | ---------------------------- | ---- | ------------ | ------- |  | - | ------- | ------- | 
|                           |                              |      | December 31,
|                           |                              |      |             
|(in thousands)             |                              | 2002 |              | 2001   
|                           |                              |      |              |        
|Land and improvements      |                              | $    | 3,079        |         |  | $ | 6,961   |        
|Buildings and improvements |                              |      | 28,741       |         |  |   | 48,445  |        
|Machinery and equipment    |                              |      | 31,038       |         |  |   | 38,530  |        
|Computer equipment         |                              |      | 72,807       |         |  |   | 73,536  |        
|                           |                              |      |              |         |  |   |         |        
|                           | Total property and equipment |      |              | 135,665 |  |   |         | 167,472 | 
|Accumulated depreciation   |                              |      | (84,901      | )       |  |   | (91,834 | )      
|                           |                              |      |              |         |  |   |         |        
|                           | Property and equipment  net |      | $            | 50,764  |  |   | $       | 75,638  | 
|                           |                              |      |              |         |  |   |         |        

Goodwill and other intangible assets

Effective January 1, 2002, goodwill is no longer amortized but instead is
subject to periodic impairment testing in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. Goodwill is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that it might be
impaired. The impairment test consists of a comparison of the estimated fair
value of the reporting unit with its carrying amount, including its goodwill.
Cash flow forecasts used in estimating the fair value of a reporting unit are
based on trends of historical performance and managements estimate of future
performance. The Company reviewed goodwill for potential impairment as of
December 31, 2002 and, based upon the results of this review, concluded that
goodwill was not impaired.

Intangible assets with finite lives are stated at cost, net of accumulated
amortization and are tested for impairment in accordance with SFAS No. 144.
These assets are amortized on the straight-line and accelerated methods, as
appropriate, over the estimated useful lives or periods of expected benefit.
Intangible assets with indefinite lives are no longer amortized but instead are
subject to periodic impairment testing in accordance with SFAS No. 142.

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Accrued contract losses

Provisions for anticipated losses on long-term contracts are recorded in full
in the period in which such losses become evident (see Note 8).

Income taxes

In most cases, the Companys domestic businesses were included in Deluxes
consolidated tax returns through December 29, 2000. Pursuant to a tax sharing
agreement, tax payments are made to and tax benefits are reimbursed by Deluxe
for tax periods prior to the Spin-Off. The consolidated financial statements
include income tax benefits (provisions) and liabilities calculated as if
separate tax returns were prepared for the periods covered. Deferred income
taxes result from temporary differences between the financial reporting basis
of assets and liabilities and their respective tax reporting basis. Future tax
benefits are recognized to the extent that realization of such benefits is more
likely than not.

Undistributed earnings of the Companys foreign subsidiaries amounted to
approximately $24.1 million at December 31, 2002. Those earnings are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided thereon. Upon distribution of those
earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes (subject to an adjustment for foreign tax credits) and
applicable withholding taxes payable to the foreign countries. Determination of
the amount of unrecognized deferred U.S. income tax liability is not
practicable because of the complexities associated with such a hypothetical
calculation.

Revenue recognition

The Companys net revenues consist of fees for transaction processing and
related services, decision support, software and data licensing, maintenance
and support, government services, and information technology consulting and
business process management services. The Companys revenue recognition
policies for these various fees are as follows:



| |  |  | Transaction processing and service fees are recognized in the period
that the service is performed. These services consist of processing
customers electronic debit transactions and settling the funds with the
financial institutions involved in the transactions. Additionally, these
services include monitoring ATMs to alert customers when potential
problems occur. These fees are charged on a per transaction basis,
depending on the contractual arrangement with the customer. Government
services fees are recognized in the period services are provided based
on monthly fees per benefits recipient.                                                                                                                                                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |   |  | In connection with the provision of services in the ATM management services
segment, the Company earns surcharge and interchange fees. Surcharge fees
are the fees the user of an ATM pays at the time of the transaction while
interchange fees are paid by that users financial institution. The
Companys arrangements generally call for it to pay a fee to the occupant
of the property at which the ATM is physically located. The amount of this
fee typically has some relationship to the surcharge and interchange fees
that are collected by the Company on individual transactions. The Company
records the surcharge and interchange fees that it collects at their gross
amounts as revenue and the amounts owed to the occupant of the property at
which the ATM is located as a processing, communication and service cost.                     
|
| |  |  | Decision support fees are recognized as revenue in the period the services
are provided. Decision support services consist of new account applicant and
check verification screenings to manage the risk associated with account
openings and check acceptance. Decision support fees are based on the number
of inquiries against the databases used for screening purposes or monthly
fees based on the net monthly sales of the user of the Companys
products or other similar measures, depending on the
product and service.                                                                                                                                                                                                                                                                                                                               
|
| |  |  | The Company also provides information technology consulting and
business process management services. Revenue from providing such
services is generally recognized under one of two methods, depending on
the relevant contractual terms. Under the time and materials method,
which is applied to nearly all of the Companys professional services
contracts, revenue is based on a fee per hour basis and is recognized as
hours are completed. Under the fixed contract method, a pre-set fee is
agreed upon for a project, and revenue is recognized proportionately to
the percentage of completion of the project. If information technology
consulting services involve significant customization of software that
has been licensed from the Company, the license fee is also recognized
proportionately to the percentage of completion of the project.
|
| |  |  | Software and data license fees for standard products are recognized
when a license agreement has been signed, the license fee is fixed and
determinable, collectibility of the license fee is probable, delivery
has occurred and there are no uncertainties surrounding product
acceptance. If a license contains customer acceptance criteria for which
significant uncertainties exist, the revenue is recognized upon the
earlier of customer acceptance or the expiration of the acceptance
period. Certain software                                                                                                                                                                                                                                                                                                                                        

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| |   |  | products include multiple modules and the license fee charged to the
customer is based on the modules licensed. If a customer contract requires
that the Company deliver multiple elements, then upfront fees are
recognized as revenue if vendor specific objective evidence of fair value
exists for each of the undelivered elements. If vendor specific objective
evidence of fair value does not exist, then the total fees of the
arrangement are recognized over the term of the related agreement based
upon delivery of all essential elements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Software maintenance and support revenue is recognized ratably over
the term of the contract or as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                           

The following table illustrates the Companys revenue generated from software
sales:

|                       |  |                         |        |      |  |      |        |  |  |   |        | 
|---------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                       |  | Year Ended December 31,
|                       |  |                        
|(in thousands)         |  | 2002                    |        | 2001 |  | 2000
|                       |  |                         |        |      |  |     
|License fees           |  | $                       | 12,835 |      |  | $    | 42,447 |  |  | $ | 11,379 | 
|Maintenance            |  |                         | 13,362 |      |  |      | 13,457 |  |  |   | 12,179 | 
|Software modifications |  |                         | 6,793  |      |  |      | 9,373  |  |  |   | 10,663 | 
|                       |  |                         |        |      |  |      |        |  |  |   |        | 
|                       |  | $                       | 32,990 |      |  | $    | 65,277 |  |  | $ | 34,221 | 
|                       |  |                         |        |      |  |      |        |  |  |   |        | 

The process involved in evaluating the appropriateness of revenue recognition
involves judgments about vendor-specific objective evidence of fair value,
collectibility of license fees, and projections of costs to complete projects
for our customers.

Employee stock-based compensation

Until the IPO and the Spin-Off, the Companys employees participated in
Deluxes stock incentive programs. In connection with the IPO and the Spin-Off,
the Company adopted new stock incentive programs for the benefit of its
employees. These plans are more fully described in Note 10. The Company
accounts for those plans using the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effect
on net income and earnings per share if the Company had applied the fair value
recognition provision of SFAS No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |      | 
|------------------------------------------------------------------------------------------------------------------- | ------------------- | ---- | ----------------------- | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|                                                                                                                    |                     |      | Year Ended December 31,
|                                                                                                                    |                     |      |                        
|(dollars in thousands, except per share amounts)                                                                    |                     | 2002 |                         | 2001 |  | 2000
|                                                                                                                    |                     |      |                         |      |  |     
|Net income, as reported                                                                                             |                     | $    | 24,554                  |      |  | $    | 33,339 |      |  | $ | 3,483  |     
|Total stock-based employee compensation expense
determined
under fair value based method for
all awards, net of tax |                     |      | (6,960                  | )    |  |      | (6,310 | )    |  |   | (2,723 | )   
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     
|Pro forma net income                                                                                                |                     | $    | 17,594                  |      |  | $    | 27,029 |      |  | $ | 760    |     
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     
|Earnings per share:                                                                                                 |                     |      |                         |      |  |      |        |      |  |   |        |     
|                                                                                                                    | Basic-as reported   |      | $                       | 0.53 |  |      | $      | 0.72 |  |   | $      | 0.08 | 
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     
|                                                                                                                    | Basic-pro forma     |      |                         | 0.38 |  |      | $      | 0.59 |  |   | $      | 0.02 | 
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     
|                                                                                                                    | Diluted-as reported |      | $                       | 0.53 |  |      | $      | 0.70 |  |   | $      | 0.08 | 
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     
|                                                                                                                    | Diluted-pro forma   |      | $                       | 0.38 |  |      | $      | 0.57 |  |   | $      | 0.02 | 
|                                                                                                                    |                     |      |                         |      |  |      |        |      |  |   |        |     

For purposes of applying SFAS No. 123, the estimated fair value of stock
options granted during 2002, 2001, and 2000 was $7.32, $7.74 and $6.33,
respectively. The fair value of options was estimated at the date of grant
using a Black-Scholes option-pricing model with the following assumptions:

|                        |  |         |      |         |  |         |      |   |  |  |      |  
|----------------------- |  | ------- | ---- | ------- |  | ------- | ---- | - |  |  | ---- | -
|                        |  | 2002    |      | 2001    |  | 2000   
|                        |  |         |      |         |  |        
|Expected volatility     |  |         | 68.1 | %       |  |         | 78.6 | % |  |  | 50.3 | %
|Expected dividend yield |  |         | 0.0  | %       |  |         | 0.0  | % |  |  | 0.0  | %
|Risk-free interest rate |  |         | 3.2  | %       |  |         | 4.6  | % |  |  | 5.0  | %
|Expected life           |  | 5 years |      | 5 years |  | 5 years

Translation adjustments

The financial position and results of operations of the Companys international
subsidiaries are measured using local currencies as the functional currencies.
Assets and liabilities of these operations are translated at the exchange rate
in effect at the balance sheet date. Income statement accounts are translated
at the average exchange rate during the year. Translation adjustments arising
from the use of differing exchange rates from period to period are included in
accumulated other comprehensive loss in the stockholders equity section of the
consolidated balance sheets. Gains and losses that result from foreign currency
transactions are included in earnings.

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Comprehensive income

The Companys total comprehensive income consists of net income and foreign
currency translation adjustments. The foreign currency translation adjustments
are reflected as accumulated other comprehensive loss in the Companys
consolidated balance sheets.

Recent Accounting Pronouncements

In January 2002, the Emerging Issues Task Force (EITF) issued EITF Issue No.
01-14, Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (formerly EITF Abstracts, Topic No. D-103).
This EITF requires
that reimbursements received for out-of-pocket expenses should be classified as
revenue and is effective for financial reporting periods beginning after
December 15, 2001. EITF Issue No. 01-14 requires that financial statements for
prior periods presented be reclassified to comply with these provisions. The
Company typically incurs telecommunications, network customer fees, travel,
maintenance and repair, and other transaction costs that are billed to and
reimbursed by its customers. These reimbursements were previously classified
as a reduction in operating expenses. The effect of the Companys adoption of
EITF Issue No. 01-14 was an increase in net revenue and operating expenses of
$30.4 million, $27.7 million and $22.7 million for the years ended December 31,
2002, 2001 and 2000, respectively, with no effect on the Companys financial
position or net income.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
142, Goodwill and Other Intangible Assets, which became effective for the
Company on January 1, 2002. SFAS No. 142 requires, among other things, the
cessation of the amortization of goodwill (see Note 6). The Company adopted
SFAS No. 142 on January 1, 2002. The standard also includes provisions for the
reassessment of the useful lives of existing recognized intangibles, a new
method of measuring reported goodwill for impairment and the identification of
reporting units for purposes of assessing potential future impairments of
goodwill.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 establishes a single accounting
model for the impairment or disposal of long-lived assets, including
discontinued operations. SFAS No. 144 superseded SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of and certain provisions of Accounting Principles Board (APB) Opinion No. 30,
Reporting the Results of Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. The provisions of SFAS 144 are effective for the
Company in 2002 and are to be applied prospectively. The adoption of SFAS 144
did not have a material impact on the Companys consolidated financial position or
results of operations.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002. The Company has adopted this new standard effective January
1, 2003. The Company has not yet determined if the adoption of this standard
will have a material impact on its financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation sets forth expanded
disclosure requirements in the financial statements about a guarantors
obligations under certain guarantees that it has issued. It also clarifies that
under certain circumstances, a guarantor is required to recognize a liability
for the fair value of the obligation at the inception of the guarantee. Certain
types of guarantees, such as product warranties, guarantees accounted for as
derivatives and guarantees related to parent-subsidiary relationships are
excluded from the liability recognition provisions of Interpretation No. 45,
although they are subject to the disclosure requirements. The initial liability
recognition provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The disclosure requirements of
Interpretation No. 45 are effective for financial statements for interim or
annual periods ending after December 15, 2002. In accordance with
Interpretation No. 45, the Company has included the required disclosure
relating to its guarantees in its financial statements as of December 31, 2002
(see Note 16). The Company has not yet determined if the adoption of the new
rules will have any material impact on its financial position or results of
operations.

In November 2002, the EITF reached a consensus on EITF Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21
provides guidance on how to account for arrangements that involve the delivery
or performance of multiple products, services and/or rights to use assets. The
provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The Company does not
believe that the adoption of EITF Issue No. 00-21 will have a material effect
on its consolidated financial position or results of operations

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. This statement amends SFAS No. 123,
to provide alternative methods of transition for an entity that voluntarily
changes to the fair value
based method of accounting for stock-based employee compensation. It also
amends the disclosure provisions of SFAS No. 123 to

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require prominent disclosure about the effects on reported net income of an
entitys accounting policy decisions with respect to stock-based employee
compensation. This statement also amends APB Opinion No. 28, Interim Financial
Reporting to require disclosure about those effects in interim financial
statements. SFAS No. 148 is effective for financial statements for fiscal years
ending after December 15, 2002. The Company has elected not to change to the
fair value based method of accounting for stock-based compensation at this
time. The Company has included the additional disclosure required by SFAS No.
148 in this Note 2.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements. Interpretation No. 46 prescribes
how to identify variable interest entities and how an enterprise assesses its
interests in a variable interest entity to decide whether to consolidate that
entity. This interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved. Interpretation No. 46
is effective immediately for variable interest entities created after January
31, 2003, and to variable interest entities in which an enterprise obtains an
interest after that date. The interpretation applies in the first fiscal year
or interim period beginning after June 15, 2003, to variable interest entities
in which an enterprise holds a variable interest that it acquired before
February 1, 2003. The Company does not believe the adoption of Interpretation
No. 46 will have a material impact on its financial position or results of
operations.

NOTE 3  TRANSACTIONS WITH DELUXE:

Prior to the IPO in June 2000, the Company was a wholly owned subsidiary of
Deluxe. Subsequent to the IPO and through the Spin-Off, the Company remained a
majority owned subsidiary of Deluxe. Prior to the Spin-Off, Deluxe allocated
$16.4 million of expenses incurred during the year ended December 31, 2000 to
the Company for the cost of services provided. These costs included items
related to data sharing, real estate matters and transition services. The
allocated amounts also included expenses for various support functions such as
human resources, information services and finance. Costs common to the Company
and Deluxe were allocated because specific identification of the actual costs
incurred was not practicable. The Company believes that this allocation method
was reasonable. The amounts allocated to the Company are included primarily in
processing, communication and service costs and in other operating costs in the
Companys consolidated statements of operations. During 2000, certain of the
costs for these support functions were incurred directly by the Company. The
allocation of costs to the Company by Deluxe ceased at the Spin-Off.

Under Deluxes centralized cash management system, advances from Deluxe and
excess cash sent to Deluxe through March 31, 2000, are reflected as
contributions by and distributions to Deluxe and are included in stockholders
equity in the consolidated balance sheets. Deluxe also charged the Company for
interest expense or credited the Company for interest income based on the cash
the Company had borrowed from or provided to Deluxe. The Company was charged
net interest expense from Deluxe of $0.9 million for the year ended December
31, 2000. The average interest rate used to calculate this amount was 6.7%.
This charge is included in other income (expense)-net in the Companys
consolidated statements of operations. The interest rate for net receivables
from Deluxe was based on the average 30-day commercial paper composite rate.
The interest rate for net payables was based on the average 30-day commercial
paper composite rate plus 2%. At March 31, 2000, Deluxe forgave the net
outstanding amount it was owed by the Company. The Company recorded these
transactions as capital contributions. The Company also paid a dividend to
Deluxe of $13.8 million at March 31, 2000. Subsequent to March 31, 2000, and
through the Spin-Off, the Company and Deluxe repaid any net amounts owed to
each other in cash. The interest rates applied subsequent to March 31, 2000,
were based on the one-month LIBOR rate plus 0.25%.

On March 31, 2000, the Company purchased real property and a data center
located in Phoenix, Arizona and certain related personal property from a
subsidiary of Deluxe at its then net book value of approximately $10 million.
The Company previously rented portions of this facility from Deluxe. The
Company now leases portions of this facility to Deluxe for various periods
through December 2003.

Transactions involving the purchase and sale of goods and services between the
Company and Deluxe were executed at either then current market prices or
agreed-upon transfer prices.

Although no longer related parties, the Company and Deluxe continue to maintain
a business relationship. Sales to Deluxe include fees related to services
provided pursuant to a five-year software development and business process
outsourcing agreement executed during 2000. Fees under this agreement are based
on the actual number of hours of services that the Company provides to Deluxe.
If Deluxe fails to spend a minimum of $43 million for software development
services under this agreement in any year, it will be obligated to make
payments to the Company based on a schedule in the contract that is reflective
of the Companys estimates of its lost profits. If Deluxe exceeds the $43
million spending target per year, Deluxe will be entitled to receive reduced
rates. For the years ended December 31, 2002 and 2001, Deluxes spending
attributable to this agreement was $42.6 million and $41.1 million,
respectively, which did not meet the minimum-spending target, and accordingly a
minimal level of shortfall fees were accrued. This
agreement also calls for the Company to provide business process management
services, including accounts receivable, accounts

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payable and other general accounting and data entry services to Deluxe. Revenue
from Deluxe for business process outsourcing services was $4.2 million and $6.2
million for the years ended December 31, 2002 and 2001, respectively. The
provision of services by the Company under the software development and
business process outsourcing agreement is non-exclusive, and Deluxe may
contract with any third party for the provision of professional services. This
agreement will expire on March 31, 2005, and will automatically renew each year
thereafter for an additional one-year term unless terminated by either party.

NOTE 4  LONG-TERM INVESTMENTS:

At December 31, long-term investments are carried at historical cost and
consisted of the following:

|                                                                 |  |              |       |      |  |   |       | 
|---------------------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | 
|                                                                 |  | December 31,
|                                                                 |  |             
|(in thousands)                                                   |  | 2002         |       | 2001
|                                                                 |  |              |       |     
|Investment in Webtel Pty. Ltd.                                   |  | $            | 1,312 |      |  | $ | 1,312 | 
|Cash surrender value of insurance contracts                      |  |              | 2,112 |      |  |   | 1,119 | 
|Certificate of deposit bearing interest at 7% maturing June 2004 |  |              | 334   |      |  |   | 316   | 
|                                                                 |  |              |       |      |  |   |       | 
|                                                                 |  | $            | 3,758 |      |  | $ | 2,747 | 
|                                                                 |  |              |       |      |  |   |       | 

In December 2001, the Company entered into a subscription agreement to acquire
a 15% interest in Webtel Pty. Ltd., an Australian corporation (Webtel).
Pursuant to the subscription agreement, the Company invested $1.3 million in
Webtel in 2001 and has committed to invest an additional $0.8 million in Webtel
upon the satisfaction of certain conditions specified in such agreement. The
certificate of deposit secures a guarantee issued by an Indian bank with
respect to the Companys performance under a customer contract.

NOTE 5  BUSINESS COMBINATIONS:

In March 2000, the Company paid cash of $20.0 million for an approximate 24%
interest in Access Cash International L.L.C., a Delaware limited liability
company (ACI) from ATM Holding, Inc., a Minnesota Corporation (ATM Holding).
ACI was the second largest independent provider of ATM services in the United
States. ACI provided turnkey ATM deployment solutions, including ATM sales and
management activities, as well as branding and advertising services. The
Company accounted for this initial investment under the equity method of
accounting, which requires that an investor record its share of the losses
relating to its ownership interest. Accordingly, the Companys results of
operations for the period from March 2000 through September 2001 include its
24% share of the results of operations of ACI. The difference of $20.0 million
between the amount of the investment and the underlying equity in the net
assets of ACI was being amortized over 15 years and the amortization was
included in other income-net.

In September 2000, the Company entered into an ATM deployment and management
agreement with ACI under which the Company received fees paid by consumers
utilizing ATMs deployed by it and interchange fees from their banks. ACI
managed this network of ATMs in exchange for a management fee determined by
reference to the number of ATMs deployed. In June 2001, the ATM deployment and
management agreement was amended (Amendment Agreement) and extended until at
least March 31, 2002. In July 2001, the Company and ATM Holding entered into an
agreement (Letter Agreement) acknowledging their mutual desire to pursue a
transaction by which the Company would acquire the remaining 76% of ACI.

The June 2001 Amendment Agreement and the July 2001 Letter Agreement resulted
in payments among the Company, ACI and ATM Holding. These payments were
accounted for as advances and repayments between the parties and the net amount
of these payments was treated as a $1.3 million reduction to the ultimate
purchase price of ACI.

Effective October 1, 2001, the Company acquired the remaining approximately 76%
equity interest in ACI. The final acquisition was accounted for as a purchase
in accordance with the provisions of SFAS No. 141, Business Combinations. As
a result of the acquisition of the remaining equity interest in ACI, the
Company consolidated ACIs results of operations with its own, as ACI was a
wholly-owned subsidiary from the date of acquisition forward.

The purchase price (Purchase Price) of the remaining 76% of ACI was $44.6
million, of which approximately $40.3 million was paid in cash on or prior to
the closing date of the acquisition. Payment of the balance of approximately
$4.3 million is subject to the satisfaction of certain post-closing conditions
and the Company expects to pay $0.7 million of this amount in the first half of
2003. The Purchase Price was determined by negotiation between the parties and
resulted in the recognition of goodwill as that price exceeded the estimated
fair values of identifiable assets and liabilities.

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The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed in connection with the acquisition of ACI, including
the remaining balance of the initial $20.0 million investment:

|                            |                           |      |            |        | 
|--------------------------- | ------------------------- | ---- | ---------- | ------ | 
|                            |                           |      | October 1,
|(in thousands)              |                           | 2001
|                            |                           |     
|Current assets              |                           | $    | 12,074     |       
|Property and equipment      |                           |      | 4,404      |       
|Goodwill                    |                           |      | 48,994     |       
|Other intangible assets     |                           |      | 13,178     |       
|Other non-current assets    |                           |      | 347        |       
|                            |                           |      |            |       
|                            | Total assets acquired     |      |            | 78,997 | 
|                            |                           |      |            |       
|Current liabilities         |                           |      | 14,818     |       
|Long-term debt              |                           |      | 3,517      |       
|Other long-term liabilities |                           |      | 1,895      |       
|                            |                           |      |            |       
|                            | Total liabilities assumed |      |            | 20,230 | 
|                            |                           |      |            |       
|                            | Net assets acquired       |      | $          | 58,767 | 
|                            |                           |      |            |       

Other intangible assets primarily represent the estimated fair value of ACIs
contractual relationships with the occupants of the property at which
the ATMs that ACI owns or manages are located, which are being amortized over the periods to which they are
expected to have value to the Company. The entire amount of goodwill associated
with this acquisition was assigned to the ATM management services segment.

The following table summarizes the transactions between the Company and ACI
during the period from March 2000 when the Company made its initial investment
in ACI until September 30, 2001 when the Company acquired the remainder of the
equity interests in ACI.

|               |                         |      |   |        |   |  |   |        |  
|-------------- | ----------------------- | ---- | - | ------ | - |  | - | ------ | -
|(in thousands) |                         | 2001 |   | 2000  
|               |                         |      |   |       
|Revenue:       |                         |      |   |        |   |  |   |       
|               | Surcharge/interchange   |      | $ | 50,673 |   |  | $ | 19,861 |  
|               | Transaction processing  |      |   | 893    |   |  |   | 539    |  
|               | ATM cash                |      |   | 1,459  |   |  |   | 2,113  |  
|               | Other                   |      |   | 157    |   |  |   | 186    |  
|Expenses:      |                         |      |   |        |   |  |   |       
|               | Management fee          |      |   | 49,924 |   |  |   | 20,948 |  
|               | Other                   |      |   | 23     |   |  |   | 300    |  
|Other:         |                         |      |   |        |   |  |   |       
|               | Equity in losses of ACI |      |   | (1,097 | ) |  |   | (500   | )

On January 31, 2002, the Company purchased substantially all of the ATM-related
assets of Hanco Systems, Inc. (Hanco), an independent ATM deployment and
management company. Hanco managed a network of approximately 2,500 ATMs in 30
states. Effective May 1, 2002, the Company purchased Samsar ATM Company, Inc.
(Samsar), a Seattle-based provider of ATM services which managed an ATM network
of more than 1,000 ATMs in the northwest United States. Effective June 1, 2002,
the Company purchased Evergreen Teller Services, Inc. (Evergreen), a
California-based provider of ATM services for more than 1,600 ATMs located
throughout California and the northwest United States. Effective August 1,
2002, the Company purchased the ATM-related assets of Cash Resources, Inc.
(CRI), a Colorado based provider of ATM services for more than 2,800 ATMs
located mostly in the western half of the United States. The operating results
of Hanco, Samsar, Evergreen and CRI have been included in the Companys
consolidated financial statements since the date of each purchase. The Company
currently manages a network of approximately 16,800 ATM machines.

The total purchase price of these acquisitions was approximately $39.7 million
of which approximately $35.2 million was paid in cash. Payment of approximately
$2.7 million of the purchase price is subject to satisfaction of certain
post-closing conditions and the Company paid $0.3 million of this amount in the
first quarter of 2003. The purchase price was allocated to the assets and
liabilities of the acquired companies and the unallocated portion of the
purchase price was recorded as goodwill. The following table summarizes the
estimated fair value of assets acquired and liabilities assumed at the date of
each acquisition. Of the $11.7 million of intangible assets, $10.5 million was
assigned to acquired contracts and $1.2 million was assigned to non-compete
agreements.

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|                       |                       |   |        |        | 
|---------------------- | --------------------- | - | ------ | ------ | 
|(in thousands)         |                       |   |        |       
|Current assets         |                       | $ | 1,784  |       
|Property and equipment |                       |   | 1,085  |       
|Intangible assets      |                       |   | 11,720 |       
|Goodwill               |                       |   | 24,969 |       
|Other assets           |                       |   | 100    |       
|                       |                       |   |        |       
|                       | Total assets acquired |   |        | 39,658 | 
|                       |                       |   |        |       
|Current liabilities    |                       |   | 1,734  |       
|                       |                       |   |        |       
|                       | Net assets acquired   |   | $      | 37,924 | 
|                       |                       |   |        |       

The following table summarizes the unaudited pro forma results of operations of
the Company as though the acquisition of Hanco, Samsar, Evergreen, CRI and ACI
had occurred at the beginning of each period presented:

|                      |         |      |             |      |  |   |         |      | 
|--------------------- | ------- | ---- | ----------- | ---- |  | - | ------- | ---- | 
|                      |         |      | (unaudited)
|                      |         |      |            
|(in thousands)        |         | 2002 |             | 2001
|                      |         |      |             |     
|Revenue               |         | $    | 565,152     |      |  | $ | 591,088 |     
|Net income            |         |      | 24,610      |      |  |   | 29,712  |     
|Net income per share: |         |      |             |      |  |   |         |     
|                      | Basic   |      | $           | 0.53 |  |   | $       | 0.65 | 
|                      | Diluted |      | $           | 0.53 |  |   | $       | 0.63 | 

NOTE 6  INTANGIBLES:

Intangible assets consist primarily of goodwill, capitalized software costs and
acquired contracts.

Goodwill

When the Company acquires another company, generally accepted accounting
principles require the Company to estimate the fair value of the other
companys tangible assets and liabilities and identifiable intangible assets.
Based upon these estimates, the purchase price is allocated to the assets and
liabilities of the acquired company for the purpose of recording these items in
the Companys financial records. Any unallocated purchase price is considered
to be, and recorded as, goodwill. The distinction between the amount of the
purchase price allocated either to tangible assets and liabilities or
identifiable intangible assets and goodwill is significant as goodwill is not
amortized to the consolidated statement of operations but is instead subject to
an annual impairment test as discussed below. Estimates inherent in the
process of this purchase price allocation include assumptions regarding the
timing and amounts of future cash inflows and outflows, the saleability of
inventories, selection of discount rates, contract renewal rates and general
market conditions. Where appropriate, third-party valuation professionals are
used to assist management in making these estimates.

The changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows:

|                                |  |            |       |            |  |            |        |              |  |          |       |       |  |   |        |  |  |   |        |  |  |   |         | 
|------------------------------- |  | ---------- | ----- | ---------- |  | ---------- | ------ | ------------ |  | -------- | ----- | ----- |  | - | ------ |  |  | - | ------ |  |  | - | ------- | 
|                                |  |            |       |            |  |            |        |              |  | Decision |       |       |  |   |        |  |  |   |        |  |  |  
|                                |  |            |       |            |  | ATM        |        | Support      |  |          |       |       |  |   |        |  |  |   |        | 
|                                |  | Electronic |       | Management |  | And Risk   |        | Professional |  |          |       |       |  |   |        | 
|(in thousands)                  |  | Payments   |       | Services   |  | Management |        | Services     |  | Other    |       | Total
|                                |  |            |       |            |  |            |        |              |  |          |       |      
|Balance as of January 2002      |  | $          | 1,600 |            |  | $          | 48,662 |              |  | $        | 5,724 |       |  | $ | 20,559 |  |  | $ | 10,606 |  |  | $ | 87,151  | 
|Goodwill acquired during year   |  |            |      |            |  |            | 24,969 |              |  |          |      |       |  |   |       |  |  |   |       |  |  |   | 24,969  | 
|Contingent
consideration        |  |            |      |            |  |            | 1,916  |              |  |          |      |       |  |   |       |  |  |   |       |  |  |   | 1,916   | 
|                                |  |            |       |            |  |            |        |              |  |          |       |       |  |   |        |  |  |   |        |  |  |   |         | 
|Balance as of December 31, 2002 |  | $          | 1,600 |            |  | $          | 75,547 |              |  | $        | 5,724 |       |  | $ | 20,559 |  |  | $ | 10,606 |  |  | $ | 114,036 | 
|                                |  |            |       |            |  |            |        |              |  |          |       |       |  |   |        |  |  |   |        |  |  |   |         | 

Effective January 1, 2002, the Company adopted SFAS No. 142, which prohibits
the amortization of goodwill and intangible assets with indefinite useful lives
and requires that these assets be tested for impairment at least annually (see
Note 7). The following table reconciles the net income and earnings per share
the Company reported for the years ended December 31, 2001 and 2000 to exclude
historical goodwill and related tax effects:

|                                                         |         |      |                         |      |  |   |       |      | 
|-------------------------------------------------------- | ------- | ---- | ----------------------- | ---- |  | - | ----- | ---- | 
|                                                         |         |      | Year Ended December 31,
|                                                         |         |      |                        
|(in thousands, except per share amounts)                 |         | 2001 |                         | 2000
|                                                         |         |      |                         |     
|Reported net income                                      |         | $    | 33,339                  |      |  | $ | 3,483 |     
|Adjustment amount for purchased goodwill amortization    |         |      | 3,907                   |      |  |   | 4,045 |     
|Adjustment amount for ACI equity investment amortization |         |      | 654                     |      |  |   | 513   |     
|                                                         |         |      |                         |      |  |   |       |     
|Adjusted net income                                      |         | $    | 37,900                  |      |  | $ | 8,041 |     
|                                                         |         |      |                         |      |  |   |       |     
|Reported net income per share:                           |         |      |                         |      |  |   |       |     
|                                                         | Basic   |      | $                       | 0.72 |  |   | $     | 0.08 | 
|                                                         | Diluted |      | $                       | 0.70 |  |   | $     | 0.08 | 
|Adjusted net income per share:                           |         |      |                         |      |  |   |       |     
|                                                         | Basic   |      | $                       | 0.82 |  |   | $     | 0.19 | 
|                                                         | Diluted |      | $                       | 0.80 |  |   | $     | 0.19 | 

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Software-internal use

The Company capitalizes the cost of software developed or obtained for internal
use once the preliminary project stage has been completed, management commits
to funding the project and it is probable that the project will be completed
and that the software will be used to perform the function intended.
Capitalized costs include only (1) external direct costs of materials and
services consumed in developing or obtaining internal-use software, (2) payroll
and payroll-related costs for employees who are directly associated with and
who devote time to the internal-use software project, and (3) interest costs
incurred, when material, while developing internal-use software. Capitalization
of costs ceases when the project is substantially complete and the software is
ready for its intended use.

Acquired contracts

Contracts acquired through acquisitions were specifically identified in
connection with the acquisition of other companies. Acquired contracts
represent the estimated fair value of the contractual relationship with
occupants of the property at which the ATMs are physically located. The fair
value of these intangibles is measured as the present value of the estimated
net cash flows from the contracts, including expected renewals. Management
exercises judgment in the assessment of the related useful lives, fair value
and recoverability of these intangibles. The majority of these acquired
contract intangibles are amortized on an accelerated method that is intended to
mirror the cash flow patterns and duration used in estimating the value
recognized as an acquired contract.

Other intangibles

Other intangibles consist primarily of capitalized costs related to software
developed for licensing and resale and other assets obtained in connection with
the acquisition of other companies such as non-competition agreements. Assets
such as non-competition agreements are carried at their estimated fair value at
the date of acquisition less any applicable amortization. Amortization is
recognized over the periods of the non-competition agreements.

Software developed for licensing and resale is capitalized once technological
feasibility has been established. Costs incurred prior to establishing
technological feasibility are expensed as incurred. Technological feasibility
is established when all planning, designing, coding and testing activities that
are necessary to determine that a product can be produced to meet its design
specifications, including functions, features and technical performance
requirements, have been completed. Capitalization of costs ceases when the
product is available for general release to customers. Such costs are amortized
on a product-by-product basis normally over three years and no longer than five
years. Software developed for resale is carried at the lesser of amortized cost
or net realizable value.

Other intangible assets, both acquired and developed, subject to amortization
were as follows:

|                      |  |              |      |          |  |                   |         |                   |  |         |          |              |  |             |        |  |  |   |         |  |  |   |         |   |  |   |        | 
|--------------------- |  | ------------ | ---- | -------- |  | ----------------- | ------- | ----------------- |  | ------- | -------- | ------------ |  | ----------- | ------ |  |  | - | ------- |  |  | - | ------- | - |  | - | ------ | 
|                      |  |              |      |          |  | December 31, 2002 |         | December 31, 2001
|                      |  | Wtd. Avg.    |      |          |  |                  
|                      |  | Amortization |      | Gross    |  |                   |         |                   |  |         |          |              |  | Gross       |        |  |  |   |         |  |  |  
|                      |  | Period       |      | Carrying |  | Accumulated       |         |                   |  |         |          | Carrying     |  | Accumulated |        |  |  |  
|(in thousands)        |  | In Years     |      | Amounts  |  | Amortization      |         | Net               |  | Amounts |          | Amortization |  | Net        
|                      |  |              |      |          |  |                   |         |                   |  |         |          |              |  |            
|Software-internal
use |  |              | 3.8  |          |  | $                 | 69,111  |                   |  | $       | (39,672  | )            |  | $           | 29,439 |  |  | $ | 65,079  |  |  | $ | (29,427 | ) |  | $ | 35,652 | 
|Acquired contracts    |  |              | 11.6 |          |  |                   | 22,262  |                   |  |         | (1,455   | )            |  |             | 20,807 |  |  |   | 11,693  |  |  |   | (195    | ) |  |   | 11,498 | 
|Other                 |  |              | 4.8  |          |  |                   | 73,353  |                   |  |         | (61,763  | )            |  |             | 11,590 |  |  |   | 71,768  |  |  |   | (58,486 | ) |  |   | 13,282 | 
|                      |  |              |      |          |  |                   |         |                   |  |         |          |              |  |             |        |  |  |   |         |  |  |   |         |   |  |   |        | 
|                      |  |              |      |          |  | $                 | 164,726 |                   |  | $       | (102,890 | )            |  | $           | 61,836 |  |  | $ | 148,540 |  |  | $ | (88,108 | ) |  | $ | 60,432 | 
|                      |  |              |      |          |  |                   |         |                   |  |         |          |              |  |             |        |  |  |   |         |  |  |   |         |   |  |   |        | 

For the years ended December 31, 2002, 2001 and 2000 amortization expense for
intangible assets was $19.2 million, $21.8 million and $17.1 million,
respectively. The estimated future annual amortization expense for intangible
assets held at December 31, 2002 is $19 million, $15 million, $10 million, $6
million and $3 million for the years 2003, 2004, 2005, 2006 and 2007,
respectively.

NOTE 7  RESTRUCTURING AND ASSET IMPAIRMENT CHARGES:

The process of evaluating fixed assets, goodwill and other intangible assets,
including capitalized software costs and acquired customer contracts, for
impairment involves judgments about market conditions and economic indicators,
estimates of future cash flows and assumptions about our strategic plans with
regard to our operations. To the extent additional information arises or our
strategies change, it is possible that our conclusions regarding the carrying
value of our intangible assets could change and materially affect our financial
position or results of operations because we would then incur a charge to
write-down these assets to the fair value estimated using these new
assumptions.

Long-lived assets to be held and used

Whenever events or changes in circumstances indicate that a long-lived asset
that is not held for sale may be impaired, the Company evaluates the
recoverability of the asset by measuring its carrying amount against the
estimated undiscounted future cash flows associated with it. Should the sum of
the expected future net cash flows be less than the carrying value of the asset
being evaluated, an impairment loss would be recognized. The impairment loss
would be calculated as the amount by which the carrying value of the asset
exceeds its fair value. In evaluating whether there is any impairment of a
long-lived asset associated with a long-term service contract,

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the amount of any loss contract accrual is excluded from the undiscounted
future cash flows associated with the long-lived asset when determining whether
the asset is impaired.

Long-lived assets held for sale

The Company evaluates the recoverability of property and equipment and
identifiable intangibles held for sale by comparing the assets carrying amount
with its fair value less costs to sell. Should the fair value less costs to
sell be less than the carrying value of the long-lived asset(s), an impairment
loss would be recognized. The impairment loss would be calculated as the amount
by which the carrying value of the asset(s) exceeds the fair value of the
asset(s) less costs to sell.

The Company has recorded restructuring and asset impairment charges in
accordance with its accounting policies as follows:

|                                        |                                                  |      |                         |        |  |      |       |       |  |   |       |       | 
|--------------------------------------- | ------------------------------------------------ | ---- | ----------------------- | ------ |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                        |                                                  |      | Year Ended December 31,
|                                        |                                                  |      |                        
|(in thousands)                          |                                                  | 2002 |                         | 2001   |  | 2000
|                                        |                                                  |      |                         |        |  |     
|Property and equipment                  |                                                  | $    | 5,067                   |        |  | $    |      |       |  | $ |      |      
|Software                                |                                                  |      | 2,122                   |        |  |      |      |       |  |   |      |      
|                                        |                                                  |      |                         |        |  |      |       |       |  |   |       |      
|Total asset impairment charges          |                                                  |      | 7,189                   |        |  |      |      |       |  |   |      |      
|Restructuring charges (see table below) |                                                  |      | 9,336                   |        |  |      | 3,200 |       |  |   | 6,077 |      
|                                        |                                                  |      |                         |        |  |      |       |       |  |   |       |      
|                                        | Total restructuring and asset impairment charges |      | $                       | 16,525 |  |      | $     | 3,200 |  |   | $     | 6,077 | 
|                                        |                                                  |      |                         |        |  |      |       |       |  |   |       |      

Restructuring accruals

Through December 31, 2002, restructuring charges have been accrued in the
period in which management committed to execute the restructuring actions.
These charges are included in restructuring and asset impairment charges in the
Companys consolidated statements of operations.

During 2002, management initiated cost reduction efforts associated with
specific product lines and corporate-wide initiatives, including the relocation
of certain administrative functions to Scottsdale, Arizona. These measures
resulted in restructuring and asset impairment charges of $16.5 million. The
charges were comprised of severance benefits totaling $4.5 million for the
elimination of 343 positions primarily in the United States, lease related
costs of $4.8 million related to the consolidation of facilities, impairment of
fixed assets totaling $5.1 million (including a $3 million charge to write-down
a building in Glendale, Wisconsin that is held for sale), and a charge of $2.1
million for software impairment related to products that were discontinued.

During 2001, the planned closure of the Companys operations in Bothell,
Washington, resulted in a $1.8 million accrual of severance charges for the
elimination of 224 positions and a $1.4 million accrual for lease related
costs. In 2000, the Company incurred restructuring charges in connection with
the Spin-Off from Deluxe and also as a result of the reduction of its workforce
in the United Kingdom division by 31 employees.

The following table summarizes the change in the Companys restructuring
accruals for 2002, 2001 and 2000 including the long-term portion of
approximately $4.6 million and $0.9 million at December 31, 2002 and 2001,
respectively:

|                                 |  |           |      |           |  |               |        |       |  |   |        |   |  |   |        |  
|-------------------------------- |  | --------- | ---- | --------- |  | ------------- | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                 |  | Employees |      | Severance |  | Lease Related |        |       |  |  
|(in thousands, except employees) |  | Affected  |      | Related   |  | Cost & Other  |        | Total
|                                 |  |           |      |           |  |               |        |      
|Balance December 31, 1999        |  |           | 6    |           |  | $             | 1,242  |       |  | $ |       |   |  | $ | 1,242  |  
|Expense provision                |  |           | 31   |           |  |               | 555    |       |  |   | 5,522  |   |  |   | 6,077  |  
|Cash payments                    |  |           | (28  | )         |  |               | (1,419 | )     |  |   |       |   |  |   | (1,419 | )
|                                 |  |           |      |           |  |               |        |       |  |   |        |   |  |   |        |  
|Balance December 31, 2000        |  |           | 9    |           |  |               | 378    |       |  |   | 5,522  |   |  |   | 5,900  |  
|Expense provision                |  |           | 224  |           |  |               | 1,803  |       |  |   | 1,397  |   |  |   | 3,200  |  
|Cash payments                    |  |           | (159 | )         |  |               | (1,170 | )     |  |   | (5,040 | ) |  |   | (6,210 | )
|                                 |  |           |      |           |  |               |        |       |  |   |        |   |  |   |        |  
|Balance December 31, 2001        |  |           | 74   |           |  |               | 1,011  |       |  |   | 1,879  |   |  |   | 2,890  |  
|Expense provision                |  |           | 343  |           |  |               | 4,517  |       |  |   | 4,819  |   |  |   | 9,336  |  
|Cash payments                    |  |           | (275 | )         |  |               | (3,730 | )     |  |   | (1,511 | ) |  |   | (5,241 | )
|                                 |  |           |      |           |  |               |        |       |  |   |        |   |  |   |        |  
|Balance December 31, 2002        |  |           | 142  |           |  | $             | 1,798  |       |  | $ | 5,187  |   |  | $ | 6,985  |  
|                                 |  |           |      |           |  |               |        |       |  |   |        |   |  |   |        |  

NOTE 8  ACCRUED CONTRACT LOSSES:

The Company has entered into long-term service contracts that are definitive
agreements to provide services over a period of time in excess of one year and
with respect to which the Company has no contractual right to adjust the prices
or terms at which its services are supplied during the term of the contract.
The Companys accrued contract losses pertain to long-term service contracts
for transaction processing in the electronic payments segment.

In determining the profitability of a long-term service contract, only direct
and allocable indirect costs associated with the contract are included in the
calculation. The appropriateness of allocations of indirect costs depends on
the circumstances and involves the

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judgment of management, but such costs may include the costs of indirect labor,
contract supervision, tools and equipment, supplies,
quality control and inspection, insurance, repairs and maintenance,
depreciation and amortization and, in some circumstances, support costs. The
method of allocating any indirect costs included in the analysis is also
dependent upon the circumstances and the judgment of management, but the
allocation method must be systematic and rational. Selling, general and
administrative costs are not included in the analysis. Provisions for estimated
losses on long-term service contracts, if any, are made in the period in which
the loss first becomes probable and reasonably estimable. Projected losses are
based on managements best estimates of a contracts revenue and costs. Actual
losses on individual long-term service contracts are compared with loss
projections periodically, with any changes in the estimated total contract loss
recognized as they become probable and reasonably estimable. Certain direct
costs associated with the Companys contracts are common to a number of
contracts and are attributed to each contract based on its use of the services
associated with these common direct costs. Revenue, case counts or other
applicable statistics are used to attribute these costs to individual
contracts.

The Company has historically incurred losses related to its government services
business and has established a reserve to provide for expected losses on
certain existing long-term service contracts of this business. The Companys
estimates of such losses are based on a variety of assumptions including
assumptions about future case levels, number of transactions per case and costs
related to processing transactions and support services. These assumptions are
subject to significant uncertainties and may differ substantially from actual
results. In the event such differences arise, a revision to the loss contract
reserve would be required. Any such revision could have a material effect on
the Companys financial position or results of operations. Additional
provisions for contract losses and reversals of provision for contract losses
are recorded in the Provision (reversal of provision) for contract losses
line item of the accompanying consolidated statements of operations and in the
electronic payments segment. During the third quarter of 2002, the Company
recorded a $2.0 million reversal of the provision to reflect a reduction in the
expected future losses related to its government EBT contracts.

During 2001, the Company recorded a net credit of $2.5 million to reflect an
overall reduction in the level of expected future losses on long-term service
contracts within its electronic payments segment. The net credit is composed of
reductions to the reserve of $3.8 million reflecting costs lower than
originally anticipated, offset by a provision for a loss of $1.3 million for an
additional state where projected future costs exceed projected future revenue.

In April 2000, the Company completed negotiations with the prime contractor for
a state coalition for which the Company provides EBT services. Prior to this,
the Company and the prime contractor were operating without a binding, legally
enforceable contract. The Company increased its accrual for expected future
losses on long-term service contracts by $12.2 million to reflect the signing
of this agreement with this contractor. Offsetting this charge was the reversal
of $2.5 million of previously recorded contract loss accruals. These reversals
resulted from productivity improvements and cost savings from lower than
anticipated telecommunications and interchange expenses. The net charge of
$9.7 million was recorded in the second quarter of 2000.

The following table summarizes the activity of the accrued contract loss
reserve:

|                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|----------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                          |  | Year Ended December 31,
|                                          |  |                        
|(in thousands)                            |  | 2002                    |        | 2001 |  | 2000
|                                          |  |                         |        |      |  |     
|Beginning balance                         |  | $                       | 14,777 |      |  | $    | 22,247 |   |  | $ | 20,599 |  
|Provision for contract losses             |  |                         |       |      |  |      | 1,295  |   |  |   | 12,200 |  
|Reversal of provision for contract losses |  |                         | (2,000 | )    |  |      | (3,795 | ) |  |   | (2,500 | )
|Charges to reserve                        |  |                         | (5,199 | )    |  |      | (4,970 | ) |  |   | (8,052 | )
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|Ending balance                            |  | $                       | 7,578  |      |  | $    | 14,777 |   |  | $ | 22,247 |  
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  

NOTE 9  PROVISION FOR INCOME TAXES:

Income (loss) before income taxes consists of:

|               |       |      |                          |        |  |      |        |        |  |   |       |       | 
|-------------- | ----- | ---- | ------------------------ | ------ |  | ---- | ------ | ------ |  | - | ----- | ----- | 
|               |       |      | Years Ended December 31,
|               |       |      |                         
|(in thousands) |       | 2002 |                          | 2001   |  | 2000
|               |       |      |                          |        |  |     
|Domestic       |       | $    | 28,846                   |        |  | $    | 39,891 |        |  | $ | 3,868 |      
|Foreign        |       |      | 7,307                    |        |  |      | 11,101 |        |  |   | 2,914 |      
|               |       |      |                          |        |  |      |        |        |  |   |       |      
|               | Total |      | $                        | 36,153 |  |      | $      | 50,992 |  |   | $     | 6,782 | 
|               |       |      |                          |        |  |      |        |        |  |   |       |      

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The components of the provision for income taxes are as follows:

|                                 |         |       |   |                          |         |      |   |        |         |   |   |        |        |  
|-------------------------------- | ------- | ----- | - | ------------------------ | ------- | ---- | - | ------ | ------- | - | - | ------ | ------ | -
|                                 |         |       |   | Years Ended December 31,
|                                 |         |       |   |                         
|(in thousands)                   |         | 2002  |   | 2001                     |         | 2000
|                                 |         |       |   |                          |         |     
|Current tax benefit (provision)  |         |       |   |                          |         |      |   |        |         |   |   |       
|                                 | Federal |       | $ | (7,339                   | )       |      | $ | (6,486 | )       |   | $ | (4,030 | )     
|                                 | Foreign |       |   | (854                     | )       |      |   | (100   | )       |   |   | (47    | )     
|                                 | State   |       |   | (1,456                   | )       |      |   | (3,114 | )       |   |   | (231   | )     
|                                 |         |       |   |                          |         |      |   |        |         |   |   |       
|                                 |         | Total |   |                          | (9,649  | )    |   |        | (9,700  | ) |   |        | (4,308 | )
|Deferred tax benefit (provision) |         |       |   |                          |         |      |   |        |         |   |   |       
|                                 | Federal |       |   | (1,620                   | )       |      |   | (8,389 | )       |   |   | 1,198  |       
|                                 | State   |       |   | (330                     | )       |      |   | 436    |         |   |   | (189   | )     
|                                 |         |       |   |                          |         |      |   |        |         |   |   |       
|                                 |         | Total |   | $                        | (11,599 | )    |   | $      | (17,653 | ) |   | $      | (3,299 | )
|                                 |         |       |   |                          |         |      |   |        |         |   |   |       

The Companys effective tax rate on pretax income differs from the U.S.
Federal statutory tax rate of 35% as follows:

|                                                               |  |                          |         |      |  |      |         |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                               |  | Years Ended December 31,
|                                                               |  |                         
|(in thousands)                                                 |  | 2002                     |         | 2001 |  | 2000
|                                                               |  |                          |         |      |  |     
|Income tax at Federal statutory rate                           |  | $                        | (12,652 | )    |  | $    | (17,847 | ) |  | $ | (2,374 | )
|State income taxes net of Federal
income tax benefit           |  |                          | (1,161  | )    |  |      | (1,676  | ) |  |   | (273   | )
|Difference between Federal statutory
rate and foreign tax rate |  |                          | 2,531   |      |  |      | 3,556   |   |  |   | 1,713  |  
|Amortization and write down of
intangibles                     |  |                          |        |      |  |      | (1,570  | ) |  |   | (1,412 | )
|Change in valuation allowance                                  |  |                          | 2,083   |      |  |      | 2,989   |   |  |   | (826   | )
|Other                                                          |  |                          | (2,400  | )    |  |      | (3,105  | ) |  |   | (127   | )
|                                                               |  |                          |         |      |  |      |         |   |  |   |        |  
|Provision for income taxes                                     |  | $                        | (11,599 | )    |  | $    | (17,653 | ) |  | $ | (3,299 | )
|                                                               |  |                          |         |      |  |      |         |   |  |   |        |  

Tax effected temporary differences, which give rise to a significant portion of
deferred tax assets and liabilities are as follows:

|                                     |  |          |        |             |  |          |       |             |  |   |         |   |  |   |       | 
|------------------------------------ |  | -------- | ------ | ----------- |  | -------- | ----- | ----------- |  | - | ------- | - |  | - | ----- | 
|                                     |  | 2002     |        | 2001       
|                                     |  |          |        |            
|                                     |  | Deferred |        | Deferred    |  | Deferred |       | Deferred   
|                                     |  | tax      |        | tax         |  | tax      |       | tax        
|(in thousands)                       |  | assets   |        | liabilities |  | assets   |       | liabilities
|                                     |  |          |        |             |  |          |       |            
|Net operating loss carryforwards     |  | $        | 9,010  |             |  | $        | (444  | )           |  | $ | 11,606  |   |  | $ |      | 
|Reserve for legal proceedings        |  |          | 2      |             |  |          |      |             |  |   | 114     |   |  |   |      | 
|Accrued contract losses              |  |          | 2,899  |             |  |          |      |             |  |   | 5,917   |   |  |   |      | 
|Restructuring and other accruals     |  |          | 4,104  |             |  |          |      |             |  |   | 1,107   |   |  |   |      | 
|Property and equipment               |  |          | 99     |             |  |          |      |             |  |   |        |   |  |   | 695   | 
|Intangibles                          |  |          |       |             |  |          | 9,646 |             |  |   |        |   |  |   | 6,618 | 
|Employee benefit and incentive plans |  |          | 1,906  |             |  |          |      |             |  |   | 1,155   |   |  |   |      | 
|Miscellaneous reserves and accruals  |  |          | 2,560  |             |  |          |      |             |  |   | 2,067   |   |  |   |      | 
|Deferred revenue                     |  |          | 1,604  |             |  |          |      |             |  |   | 2,648   |   |  |   |       | 
|Prepaid expenses                     |  |          | (1,843 | )           |  |          |      |             |  |   |        |   |  |   |      | 
|All other                            |  |          | 348    |             |  |          |      |             |  |   | 484     |   |  |   |      | 
|                                     |  |          |        |             |  |          |       |             |  |   |         |   |  |   |       | 
|Subtotal                             |  |          | 20,689 |             |  |          | 9,202 |             |  |   | 25,098  |   |  |   | 7,313 | 
|Valuation allowance                  |  |          | (9,109 | )           |  |          |      |             |  |   | (11,606 | ) |  |   |      | 
|                                     |  |          |        |             |  |          |       |             |  |   |         |   |  |   |       | 
|Total deferred taxes                 |  | $        | 11,580 |             |  | $        | 9,202 |             |  | $ | 13,492  |   |  | $ | 7,313 | 
|                                     |  |          |        |             |  |          |       |             |  |   |         |   |  |   |       | 

The valuation allowance relates principally to the uncertainty of realizing
federal, foreign and state net operating loss carryforwards. The valuation
allowance includes approximately $1.2 million for net operating loss
carryforwards of a business that was acquired in 1999. Any utilization of these
net operating loss carryforwards would be recorded as a reduction of goodwill.
The amount of net operating loss utilization for 2002 recorded as a reduction
of goodwill was $0.2 million.

At December 31, 2002, net operating loss carryforwards relating to federal,
state and foreign jurisdictions amounted to $4.5 million, $109.1 million and
$13.9 million, respectively. Of these carryforwards $13.7 million of foreign
net operating losses may be carried forward indefinitely and $ 0.2 million
expire in 2008. It is anticipated that benefits associated with the
utilization, if any, of approximately $12.9 million of the foreign net
operating loss carryforwards would be offset by United States residual tax.
The federal net operating loss carryforwards are subject to certain limitations
on their utilization pursuant to Section 382 of the Internal Revenue Code.
Federal and State net operating loss carryforwards are subject to expiration as
follows:

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|               |       |         |   |       |       |       |       |         |        |   |       |         |        | 
|-------------- | ----- | ------- | - | ----- | ----- | ----- | ----- | ------- | ------ | - | ----- | ------- | ------ | 
|(in thousands) |       | Federal |   | State |       | Total
|               |       |         |   |       |       |      
|2002-2005      |       | $       |  |       |       | $     | 3,196 |         |        | $ | 3,196 |        
|2006-2010      |       |         |  |       |       |       | 481   |         |        |   | 481   |        
|               |       | 2011    |   |       | 1,260 |       |       |         | 9,602  |   |       |         | 10,862 | 
|               |       | 2012    |   |       |      |       |       |         | 5,191  |   |       |         | 5,191  | 
|               |       | 2013    |   |       |      |       |       |         | 21,789 |   |       |         | 21,789 | 
|               |       | 2014    |   |       |      |       |       |         | 30,791 |   |       |         | 30,791 | 
|               |       | 2015    |   |       |      |       |       |         | 31,693 |   |       |         | 31,693 | 
|               |       | 2016    |   |       |      |       |       |         | 7      |   |       |         | 7      | 
|               |       | 2017    |   |       | 3,285 |       |       |         | 3,022  |   |       |         | 6,307  | 
|               |       | 2018    |   |       |      |       |       |         | 1,190  |   |       |         | 1,190  | 
|               |       | 2019    |   |       |      |       |       |         | 750    |   |       |         | 750    | 
|               |       | 2020    |   |       |      |       |       |         | 985    |   |       |         | 985    | 
|               |       | 2021    |   |       |      |       |       |         | 1      |   |       |         | 1      | 
|               |       | 2022    |   |       |      |       |       |         | 370    |   |       |         | 370    | 
|               |       |         |   |       |       |       |       |         |        |   |       |        
|               | Total |         | $ | 4,545 |       |       | $     | 109,068 |        |   | $     | 113,613 |       
|               |       |         |   |       |       |       |       |         |        |   |       |        

The Companys Indian software development and business process management
operations qualify for tax incentives associated with businesses which operate
within designated geographic locations in India. These incentives generally
provide the Company with exemptions from Indian tax on certain business income
generated from these operations and phase out through March 2009. These tax
incentives reduced the Companys income tax expense by approximately $2.7
million, $5.8 million and $1.8 million in the years ended December 31, 2002,
2001 and 2000, respectively. As a result of a recent change in Indian tax law,
effective from April 1, 2002 through March 31, 2003, 10% of this previously
tax-exempt income will be subject to Indian income tax at the rate of 36.75%.

Accounting for income taxes requires significant judgments in the development
of estimates used in income tax calculations. Such judgments would include, but
would not be limited to, the likelihood the Company would realize the benefits
of net operating loss carryforwards, the adequacy of valuation allowances, the
rates used to measure transactions with foreign subsidiaries and the
development of valuation models used for measuring the value of certain
transactions. In addition, the Companys operations are subject to government
regulations in the United States and in foreign countries in which the Company
operates relating to taxation. The judgments and estimates used by the Company
are subject to challenge by domestic and foreign taxing authorities. The
Company recognizes tax liabilities at such time as they are judged to be
probable of being incurred and they can be reasonably estimated. It is possible
that either foreign or domestic taxing authorities could challenge those
judgments and estimates and draw conclusions that would cause the Company to
incur tax liabilities in excess of those currently recorded.

NOTE 10  EMPLOYEE BENEFIT PLANS:

Stock purchase plan

Until the Spin-Off, the Companys U.S. employees participated in Deluxes
employee stock purchase plan. This plan enabled eligible employees within the
Deluxe organization to purchase Deluxes common stock at 75% of its fair market
value on the last business day of each periodic three-month purchase period.
Participation by the Companys employees in the Deluxe stock purchase plan
terminated at the time of the Spin-Off. Compensation expense was recognized for
the difference between the participating employees purchase price and the fair
value of the stock purchased in the amount of $0.9 million in 2000.

Following the Spin Off, the Company established a non-compensatory Employee
Stock Purchase Plan (ESPP) as defined in Section 423(b) of the Internal Revenue
Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
The Company has reserved 2.3 million shares for issuance in accordance with the
provisions of the ESPP. All regular full-time employees of the Company , other
than its United Kingdom employees, are eligible to participate in the ESPP,
subject to certain limitations. The ESPP enables eligible employees to purchase
the Companys common stock at the lesser of 85% of its fair market value on the
first or last business day of each three-month purchase period (six months with
respect to the first purchase period in 2000).

Stock incentive plans

Employees of the Company participated in Deluxes other stock incentive plans
through the date of the Spin-Off. Under these plans, stock-based awards could
be issued to employees via a broad range of methods, including non-qualified or
incentive stock options, restricted stock and restricted stock units, stock
appreciation rights and other similar awards. Options become exercisable in
varying amounts beginning generally one year after the date of grant.

In connection with the Spin-Off, Deluxe and the Company decided that Deluxe
options outstanding as of the record date for the Spin-Off would be converted
to options to purchase shares of the Company and options to purchase shares of
Deluxe based on a formula that compared the market value of the Companys and
Deluxes common stock at the record date for the Spin-Off. The formula was
designed to maintain an equivalent intrinsic value for the option holder. To
accommodate the conversion, the Company established the eFunds Corporation
Stock Incentive Plan for Deluxe Conversion Awards (the Conversion Plan).

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Under the Conversion Plan, the converted options retain their remaining terms,
vesting and other characteristics as provided in the Deluxe plans. Options to
purchase 2.9 million shares of the Companys common stock were outstanding with
a weighted average exercise price of $13.75 per share at December 31, 2000
under the Conversion Plan. The Company did not record compensation expense as a
result of the conversion process.

In connection with the IPO, the Company established the eFunds Corporation 2000
Stock Incentive Plan under which 9.1 million shares were reserved for issuance.
The plan provides for a broad range of methods to deliver stock-based awards
similar to those of the Deluxe plans, except that incentive stock options may
not be issued under the Companys stock incentive plan. Options issued under
the plan become exercisable in varying amounts beginning generally one year
after the date of grant and generally become fully vested after three years.
Awards made under the plan have a maximum term of ten years.

Deluxe issued restricted shares and restricted stock units to Company employees
as follows: 11,456 units at a weighted-average fair value of $26.19 per share
during 2000. All outstanding Deluxe restricted stock units held by employees of
the Company were cancelled in connection with the Spin-Off. The Company issued
53,079 restricted stock units in 2002, 53,514 restricted stock units in 2001,
and 10,000 of such units in 2000 prior to the Spin-Off. These awards generally
vested over periods ranging from one to five years. No consideration is paid by
the employees for these awards. The Company recorded compensation expense of
$42,000, $665,000 and $328,000 for restricted share and restricted stock unit
awards for the years ended December 31, 2002, 2001 and 2000 respectively. In
lieu of cash compensation one member of the Board of Directors elected to
receive 7,763 restricted stock units in 2002 and 1,537 such units in 2001.

Information with respect to stock option activity is as follows:

|                                           |  |                         |            |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |        |  
|------------------------------------------ |  | ----------------------- | ---------- | ----- |  | --------- | ----- | ----- |  | ------ | --------- | --------- |  | - | ----- |  |  | --------- | --------- | - |  | - | ------ | -
|                                           |  | Year Ended December 31,
|                                           |  |                        
|                                           |  | 2002                    |            | 2001  |  | 2000      |       |       |  |       
|                                           |  |                         |            |       |  |           |       |       |  |       
|                                           |  |                         |            |       |  | Wtd. Avg. |       |       |  |        |           | Wtd. Avg. |  |   |       |  |  | Wtd. Avg.
|                                           |  |                         |            |       |  | Exercise  |       |       |  |        |           | Exercise  |  |   |       |  |  | Exercise 
|                                           |  | Shares                  |            | Price |  | Shares    |       | Price |  | Shares |           | Price    
|                                           |  |                         |            |       |  |           |       |       |  |        |           |          
|Options outstanding at beginning of year   |  |                         | 5,671,385  |       |  | $         | 12.95 |       |  |        | 5,485,908 |           |  | $ | 13.33 |  |  |           |          |   |  | $ |       |  
|Deluxe options converted to eFunds
options |  |                         |           |       |  |           |      |       |  |        |          |           |  |   |      |  |  |           | 2,918,435 |   |  |   | 13.75  |  
|Options granted                            |  |                         | 1,468,317  |       |  |           | 12.22 |       |  |        | 1,330,174 |           |  |   | 11.51 |  |  |           | 2,772,458 |   |  |   | 12.84  |  
|Options exercised                          |  |                         | (105,186   | )     |  |           | 12.46 |       |  |        | (732,312  | )         |  |   | 13.43 |  |  |           |          |   |  |   |       |  
|Options cancelled                          |  |                         | (1,167,315 | )     |  |           | 12.85 |       |  |        | (412,385  | )         |  |   | 12.57 |  |  |           | (204,985  | ) |  |   | (12.89 | )
|                                           |  |                         |            |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |        |  
|Options outstanding at end of year         |  |                         | 5,867,201  |       |  | $         | 12.84 |       |  |        | 5,671,385 |           |  | $ | 12.95 |  |  |           | 5,485,908 |   |  | $ | 13.33  |  
|                                           |  |                         |            |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |        |  
|Options exercisable                        |  |                         | 4,362,040  |       |  | $         | 13.15 |       |  |        | 2,582,192 |           |  | $ | 13.63 |  |  |           | 1,380,409 |   |  | $ | 14.23  |  
|                                           |  |                         |            |       |  |           |       |       |  |        |           |           |  |   |       |  |  |           |           |   |  |   |        |  

For options outstanding and exercisable at December 31, 2002, the exercise
price ranges and average remaining lives in years were as follows:

|                |  |             |           |                |  |                |      |             |  |                |       |  |  |  |           |  |  |   |       | 
|--------------- |  | ----------- | --------- | -------------- |  | -------------- | ---- | ----------- |  | -------------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|Ranges of       |  | Options     |           | Wtd. Avg.      |  | Wtd. Avg.      |      | Options     |  | Wtd. Avg.     
|Exercise Prices |  | Outstanding |           | Remaining Life |  | Exercise Price |      | Exercisable |  | Exercise Price
|                |  |             |           |                |  |                |      |             |  |               
|$7.13-$12.87    |  |             | 1,750,533 |                |  |                | 8.08 |             |  | $              | 10.61 |  |  |  | 1,014,126 |  |  | $ | 11.05 | 
|$13.00-$13.88   |  |             | 2,640,964 |                |  |                | 7.66 |             |  |                | 13.17 |  |  |  | 1,972,587 |  |  |   | 13.11 | 
|$14.05-$21.33   |  |             | 1,475,704 |                |  |                | 5.70 |             |  |                | 14.91 |  |  |  | 1,375,327 |  |  |   | 14.75 | 
|                |  |             |           |                |  |                |      |             |  |                |       |  |  |  |           |  |  |   |       | 
|                |  |             | 5,867,201 |                |  |                | 7.29 |             |  | $              | 12.84 |  |  |  | 4,362,040 |  |  | $ | 13.15 | 
|                |  |             |           |                |  |                |      |             |  |                |       |  |  |  |           |  |  |   |       | 

Profit sharing, defined contribution and 401(k) plans

As part of the Spin-Off, the Company established a new 401(k) plan effective on
January 1, 2001. During 2002, employees could contribute the lesser of $11,000
or 10% of their eligible wages to the plan. Employees age 50 or over could
contribute up to an additional $1,000 during 2002. The Company matches 100% of
the first 5% of wages contributed. The 401(k) plan has a profit sharing feature
whereby the Company will contribute up to an additional 10% of an employees
contribution, depending on the Companys performance, as long as the employee
is enrolled in the plan and contributing at least 3% of their eligible wages.
The Companys expense for matching amounted to $5.2 million for
the year ended December 31, 2002, and the expense for matching and
profit sharing was $9.7 million for the year ended December 31, 2001. The
Company also maintains a defined contribution plan for its UK based employees.
Expenses under this plan amounted to $0.2 million and $0.4 million in 2002 and
2001, respectively.

Prior to the Spin-Off from Deluxe, the Company participated in Deluxes profit
sharing plans, defined contribution pension plan and plans established under
section 401(k) of the Internal Revenue Code to provide retirement benefits for
certain employees. The plans covered substantially all U.S. based full-time
employees with approximately 15 months of service. Contributions to the profit
sharing and defined contribution plans were made solely by the Company.
Employees were able to contribute up to the lesser of $10,000 or

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10% of their wages to the 401(k) plan. The Company matched the first 1% of
wages contributed and 50% of the next 4% of wages contributed. All
contributions were remitted to the plans respective trustees, and benefits
provided were paid from accumulated funds of the trusts.

Contributions to the defined contribution pension plan equaled 4% of eligible
compensation in 2000. Related expense allocated to the Company for 2000 was
$4.9 million. Contributions to the profit sharing plans varied based on the
Companys performance. Related expense incurred by the Company for these plans
was $3.1 million in 2000. Company contributions to the 401(k) plan were $2.3
million in 2000. Profit sharing and defined contribution expenses were recorded
by the Company based on system generated payroll reports detailing the eligible
wages on which the contribution is based. The expense was determined based on
Deluxes contribution percentage for the plan year multiplied by the applicable
wages. During 2000, the allocation for 401(k) expense was based on a fixed
percentage of the Companys salaries and wages and varied by business segment.

The Company has also established a deferred compensation plan that permits
eligible employees to defer base salary, annual cash incentive compensation
and/or sales incentive compensation in accordance with the terms of the plan.
The amount of compensation to be deferred is based on elections made by each
participant. The amounts of base salary, annual cash incentive compensation and
sales incentive compensation deferred by a participant is credited with
earnings and investment gains and losses by assuming that the amount deferred
was invested in one or more investment options selected by the participant. The
Company will make certain matching and profit-sharing contributions to the
participants deferred compensation accounts related to earnings in excess of
allowable 401(k) contribution limits. The plan provides that the Company may
make additional contributions to the participants accounts at its sole
discretion. The Companys supplemental matching and profit sharing
contributions amounted to $0.4 million for 2001 and $0.1 million for 2002.
There were no supplemental contributions for 2000.

NOTE 11  POST-RETIREMENT BENEFITS:

Prior to the Spin-Off, the Company provided certain health care benefits for a
portion of its retirees. Although the plan was combined with the Deluxe
Corporation Post-Retirement Health Care Plan (the Deluxe plan), the actuarial
valuation for the Companys plan was calculated separately from the rest of the
Deluxe plan.

The Company terminated this plan as of the date of the Spin-Off.
Employees and retirees who were eligible for medical benefits as of the
Spin-Off will continue to receive this benefit, although the obligation to
provide this benefit was assumed by Deluxe. In connection with the termination
of this plan, the Company recognized a gain of $0.6 million relating to the
termination of retiree medical coverage for those not eligible for benefits as
of the Spin-Off date. Net post-retirement benefit cost for the year ended
December 31, 2000 amounted to $0.2 million.

NOTE 12  LEASE AND DEBT COMMITMENTS:

Long-term debt was as follows:

|                                |       |      |              |       |  |   |        |       | 
|------------------------------- | ----- | ---- | ------------ | ----- |  | - | ------ | ----- | 
|                                |       |      | December 31,
|                                |       |      |             
|(in thousands)                  |       | 2002 |              | 2001 
|                                |       |      |              |      
|Capital leases and other        |       | $    | 2,739        |       |  | $ | 5,310  |      
|Less amount due within one year |       |      | (1,401       | )     |  |   | (2,781 | )    
|                                |       |      |              |       |  |   |        |      
|                                | Total |      | $            | 1,338 |  |   | $      | 2,529 | 
|                                |       |      |              |       |  |   |        |      

Long-term debt consists principally of capital lease obligations related to
equipment. The capital lease obligations bear interest rates of 6.1% to 28.5%
and are due through the year 2004. Carrying value approximates fair value for
these obligations. Maturities of long-term debt for the five years ending
December 31, 2007, are $1.5 million in 2003,
$1.1 million in 2004 and $0.1 million
in 2005. The net book value of equipment under capital leases was $1.8 million
at December 31, 2002.

The Company has entered into operating leases on certain facilities and
equipment. Future minimum lease payments for non-cancelable operating leases
for each of the years in the five-year period ending December 31, 2007, are
$13.6 million in 2003, $11.3 million in 2004, $7.0 million in 2005, $5.2
million in 2006, $4.3 million in 2007 and $14.2 million thereafter. Rental
expense was $17.8 million, $13.5 million and $17.5 million in 2002, 2001 and
2000, respectively.

On December 29, 2000, the Company obtained a $15.0 million revolving credit
facility with a term of nine months. The Company did not borrow any funds under
this facility through its maturity in September 2001. In September 2001, the
Company obtained a revolving credit facility in the amount of $20.0 million.
The lender reissued an irrevocable standby letter of credit in the amount of
$4.0 million to guarantee the Companys performance under a government services
contract with the state of New York. In November 2001, the letter of credit was
reduced to $1.0 million and, accordingly, the Companys borrowing capacity
under the new facility was

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increased from $16.0 million to $19.0 million. The Company did not borrow any
funds under this facility and it was terminated by agreement with the lending
bank in August 2002.

The Companys India operations had a $10.0 million credit facility, denominated
in Indian rupees, available at the lenders prime interest rate. Borrowings
under this facility were due on demand and guaranteed by the Company. The
average amount drawn on this line during 2000 was $4.5 million at a weighted
average interest rate of 15.4%. The average amount drawn on this credit
facility during the first quarter of 2001 was $5.3 million at a weighted
average interest rate of 15.5%. In March 2001, the Company repaid the
outstanding balance of this facility and $8.5 million of a $10.0 million time
deposit account maintained by the Company to support its guaranty was returned
to the Company. The Company has subsequently utilized time deposits to secure
its letters of credit issued in the ordinary course of business.

NOTE 13  INCOME PER SHARE AND STOCKHOLDERS EQUITY:

The following table reflects the calculation of basic and diluted income per
share:

|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |        | 
|----------------------------------------------------------------------- | ----------------------------------------------------------------- | ---- | ----------------------- | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|                                                                        |                                                                   |      | Year Ended December 31,
|                                                                        |                                                                   |      |                        
|(dollars and shares outstanding in thousands, except per share amounts) |                                                                   | 2002 |                         | 2001   |  | 2000
|                                                                        |                                                                   |      |                         |        |  |     
|Net income per share  basic                                            |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Net income                                                        |      | $                       | 24,554 |  |      | $ | 33,339 |  |  | $ | 3,483  | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Weighted average shares outstanding                               |      |                         | 46,588 |  |      |   | 45,985 |  |  |   | 42,788 | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Net income per share  basic                                      |      | $                       | 0.53   |  |      | $ | 0.72   |  |  | $ | 0.08   | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|Net income per share  diluted                                          |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Net income                                                        |      | $                       | 24,554 |  |      | $ | 33,339 |  |  | $ | 3,483  | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Weighted average shares outstanding                               |      |                         | 46,588 |  |      |   | 45,985 |  |  |   | 42,788 | 
|                                                                        | Dilutive impact of options                                        |      |                         | 150    |  |      |   | 1,460  |  |  |   | 79     | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Weighted average shares and potential
dilutive shares outstanding |      |                         | 46,738 |  |      |   | 47,445 |  |  |   | 42,867 | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       
|                                                                        | Net income per share  diluted                                    |      | $                       | 0.53   |  |      | $ | 0.70   |  |  | $ | 0.08   | 
|                                                                        |                                                                   |      |                         |        |  |      |   |        |  |  |   |       

Options to purchase 4,361,050 shares, 94,838 shares and 5,394,546 shares of
common stock were excluded from the above calculation, as they were
antidilutive for the years ended December 31, 2002, 2001 and 2000,
respectively.

On January 27, 2000, the Company increased the number of its authorized shares
from 2,500 to 250 million. On May 12, 2000, the Company declared a 16,000 to
one stock split, increasing the shares issued and outstanding from 2,500 to 40
million. All share and per share amounts included in the accompanying financial
statements have been restated to give effect to this stock split.

On April 4, 2000, the Company authorized 100 million shares of preferred stock
with a par value of $.01 per share. No preferred shares are issued or
outstanding.

In connection with the IPO, the Company adopted a stockholder rights plan. The
rights issued under this plan have anti-takeover effects, as they will cause
substantial dilution to a person or group that attempts to acquire control of
the Company pursuant to an offer that is not approved by the Companys Board of
Directors. The rights should not interfere with any tender offer or merger
approved by the Board because the Board of Directors may redeem the rights or
approve an offer at any time prior to such time as any person becomes the
beneficial owner of 15% or more of the Companys outstanding common stock.

NOTE 14  BUSINESS SEGMENT INFORMATION:

As a result of restructuring, integration initiatives and its ATM acquisition
strategy, in 2002 the Company reorganized its segments to consolidate its
government services business with its Electronic Payments segment. In addition,
new segments consisting of ATM Management Services, Decision Support and Risk
Management, and Professional Services have been separately identified. The
Company reports segment information consistent with the way management
internally disaggregates its operations to assess performance and to allocate
resources. The Electronic Payments segment provides ACH, POS, EFT and other
payment processing services for financial services companies, and EBT services
for government agencies. The ATM Management Services segment provides ATM
deployment, management and branding services. The Decision Support and Risk
Management segment provides risk management based data and other products to
financial institutions, retailers and other businesses to assist them in
detecting fraud and assessing the risk of opening a new account or accepting a
check. The Professional Services segment provides EFT software sales, software
applications development, maintenance and installation and business process
outsourcing services. The segment information presented below for the year
ended December 31, 2001 has been restated to reflect the Companys current
business segments.

The accounting policies of the segments are the same as those applied to the
Company on a consolidated basis. For internal reporting purposes, the Company
groups costs based upon managerial control. The majority of these managed cost
groups are directly assigned

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to a reportable segment. For cost groups supporting more than one reportable
segment, the costs are assigned based upon the product line or project
benefited. The assignment of costs is based upon estimates of factors
considered most appropriate for the cost group such as transactions, calls,
customers, square footage, revenues and headcount. During the third quarter of
2002, management applied similar methodologies for the assignment of certain
costs previously included in unallocated corporate expense. These costs have
also
been reclassified for the year ended December 31, 2001 for comparative purposes
and include expenses directly attributable to product lines such as business
development, marketing, sales and promotion costs. The Company does not
allocate expenses that benefit all segments and are corporate or administrative
in nature. These costs include, but are not limited to, legal, accounting,
human resources, liability insurance and executive expenses.

Information concerning operations in these reportable segments of business is
as follows:

|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |         |         | 
|---------------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------------------------- | - | ----------------------- | ------- |  | - | ------- | ------- | 
|                                                                                               |                                      |                                                                                                     |   | Year Ended December 31,
|                                                                                               |                                      |                                                                                                     |   |                        
|(in thousands)                                                                                 |                                      | 2002                                                                                                |   | 2001                   
|                                                                                               |                                      |                                                                                                     |   |                        
|Net revenue:                                                                                   |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               | Electronic payments                  |                                                                                                     | $ | 185,785                 |         |  | $ | 185,645 |        
|                                                                                               | ATM management services              |                                                                                                     |   | 115,598                 |         |  |   | 73,922  |        
|                                                                                               | Decision support and risk management |                                                                                                     |   | 139,848                 |         |  |   | 137,868 |        
|                                                                                               | Professional services                |                                                                                                     |   | 101,876                 |         |  |   | 139,724 |        
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               |                                      | Total net revenue                                                                                   |   |                         | 543,107 |  |   |         | 537,159 | 
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|Operating expenses before restructuring charges
and reversal of provision for contract losses: |                                      |                                                                                                    
|                                                                                               | Electronic payments                  |                                                                                                     |   | 129,317                 |         |  |   | 141,555 |        
|                                                                                               | ATM management services              |                                                                                                     |   | 112,713                 |         |  |   | 73,446  |        
|                                                                                               | Decision support and risk management |                                                                                                     |   | 108,739                 |         |  |   | 123,887 |        
|                                                                                               | Professional services                |                                                                                                     |   | 77,287                  |         |  |   | 93,137  |        
|                                                                                               | Corporate                            |                                                                                                     |   | 65,107                  |         |  |   | 53,613  |        
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               |                                      | Total operating expenses before restructuring
charges and reversal of provision for contract losses |   |                         | 493,163 |  |   |         | 485,638 | 
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|Restructuring charges and reversal of provision for
contract losses:                          
|                                                                                               | Electronic payments                  |                                                                                                     |   | 1,233                   |         |  |   | (2,500  | )      
|                                                                                               | ATM management services              |                                                                                                     |   | 62                      |         |  |   |        |        
|                                                                                               | Decision support and risk management |                                                                                                     |   | 5,535                   |         |  |   | 3,200   |        
|                                                                                               | Professional services                |                                                                                                     |   | 868                     |         |  |   |        |        
|                                                                                               | Corporate                            |                                                                                                     |   | 6,827                   |         |  |   |        |        
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               |                                      | Total restructuring charges and reversal of provision
contract losses for contract losses           |   |                         | 14,525  |  |   |         | 700     | 
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|Income (loss) from operations:                                                                 |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               | Electronic payments                  |                                                                                                     |   | 55,235                  |         |  |   | 46,590  |        
|                                                                                               | ATM management services              |                                                                                                     |   | 2,823                   |         |  |   | 476     |        
|                                                                                               | Decision support and risk management |                                                                                                     |   | 25,574                  |         |  |   | 10,781  |        
|                                                                                               | Professional services                |                                                                                                     |   | 23,721                  |         |  |   | 46,587  |        
|                                                                                               | Corporate                            |                                                                                                     |   | (71,934                 | )       |  |   | (53,613 | )      
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |        
|                                                                                               |                                      | Income from operations                                                                              |   | $                       | 35,419  |  |   | $       | 50,821  | 
|                                                                                               |                                      |                                                                                                     |   |                         |         |  |   |         |        

The Company has not disclosed assets by segment as this information is not
reviewed by the chief operating decision maker, is not produced internally and
is not practicable to prepare. The Company has also not disclosed comparable
segment data for periods prior to 2001 because the Company was then a
subsidiary of Deluxe, this information was not then produced internally and it
is now not practicable to prepare.

The Company has, however, provided segment data for 2002 on the same basis as
in prior years. During 2001, the Company was organized into two operating
segments based on the nature of each segments customers. These
segments were
Payment Systems and Services and Government Services. The Payment Systems and
Services segment provided the financial services and retail industries with a
comprehensive suite of transaction processing and risk management and decision
support products as well as professional services including information
technology consulting, software development and business process outsourcing
services. The Government Services segment provided online EBT services under
entitlement programs on behalf of state and local government and Medicaid
eligibility verification services.

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Concord EFS
accounted for approximately 11% of the Companys total net revenue (before
reimbursed expenses) during the year ended December 31, 2001. Deluxe accounted
for approximately 14% of the Companys total net revenue (before reimbursed
expenses) during the year ended December 31, 2000. Revenue from both of these
customers was recorded in the Payment Systems and Services segment. No other
customers accounted for more than 10% of the Companys total net revenue before
reimbursed expenses.

Segment information using the prior
presentation is as follows:

|                                                                                              |  |                              |         |            |  |              |         |   |  |  |          | 
|--------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---------- |  | ------------ | ------- | - |  |  | -------- | 
|                                                                                              |  | Year Ended December 31, 2002
|                                                                                              |  |                             
|                                                                                              |  | Payment                      |         |            |  |              |         |   |  | 
|                                                                                              |  | systems and                  |         | Government |  | Total       
|(in thousands)                                                                                |  | services                     |         | services   |  | Consolidated
|                                                                                              |  |                              |         |            |  |             
|Total net revenue                                                                             |  | $                            | 487,774 |            |  |              | $55,333 |   |  |  | $543,107 | 
|Operating expenses before restructuring charges and reversal of
provision for contract losses |  |                              | 454,611 |            |  |              | 38,552  |   |  |  | 493,163  | 
|Restructuring charges and reversal of provision for contract losses                           |  |                              | 16,525  |            |  |              | (2,000  | ) |  |  | 14,525   | 
|Income from operations                                                                        |  |                              | 16,638  |            |  |              | 18,781  |   |  |  | 35,419   | 
|Depreciation and amortization expense                                                         |  |                              | 36,972  |            |  |              |        |   |  |  | 36,972   | 
|Segment assets                                                                                |  |                              | 437,463 |            |  |              | 21,955  |   |  |  | 459,418  | 
|Capital purchases                                                                             |  |                              | 20,861  |            |  |              |        |   |  |  | 20,861   | 

|                                                                                              |  |                              |         |            |  |              |         |   |  |  |          | 
|--------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---------- |  | ------------ | ------- | - |  |  | -------- | 
|                                                                                              |  | Year Ended December 31, 2001
|                                                                                              |  |                             
|                                                                                              |  | Payment                      |         |            |  |              |         |   |  | 
|                                                                                              |  | systems and                  |         | Government |  | Total       
|(in thousands)                                                                                |  | services                     |         | services   |  | Consolidated
|                                                                                              |  |                              |         |            |  |             
|Total net revenue                                                                             |  | $                            | 487,087 |            |  |              | $50,072 |   |  |  | $537,159 | 
|Operating expenses before restructuring charges and reversal of provision for contract losses |  |                              | 449,843 |            |  |              | 35,795  |   |  |  | 485,638  | 
|Restructuring charges and reversal of provision for contract losses                           |  |                              | 3,200   |            |  |              | (2,500  | ) |  |  | 700      | 
|Income from operations                                                                        |  |                              | 34,044  |            |  |              | 16,777  |   |  |  | 50,821   | 
|Depreciation and amortization expense                                                         |  |                              | 39,952  |            |  |              |        |   |  |  | 39,952   | 
|Segment assets                                                                                |  |                              | 422,672 |            |  |              | 20,244  |   |  |  | 442,916  | 
|Capital purchases                                                                             |  |                              | 30,902  |            |  |              |        |   |  |  | 30,902   | 

|                                                                                              |                   |          |                              |          |            |              |        |        |  |   |         |         | 
|--------------------------------------------------------------------------------------------- | ----------------- | -------- | ---------------------------- | -------- | ---------- | ------------ | ------ | ------ |  | - | ------- | ------- | 
|                                                                                              |                   |          | Year Ended December 31, 2000
|                                                                                              |                   |          |                             
|                                                                                              |                   |          | Payment                      |          |            |              |        |        |  |   |        
|                                                                                              |                   |          | systems and                  |          | Government |              | Total 
|(in thousands)                                                                                |                   | services |                              | services |            | Consolidated
|                                                                                              |                   |          |                              |          |            |             
|Net revenue from unaffiliated external customers                                              |                   | $        | 330,452                      |          |            | $            | 49,563 |        |  | $ | 380,015 |        
|Net revenue from Deluxe                                                                       |                   |          | 59,284                       |          |            |              |       |        |  |   | 59,284  |        
|                                                                                              | Total net revenue |          |                              | 389,736  |            |              |        | 49,563 |  |   |         | 439,299 | 
|Operating expenses before restructuring charges and reversal of
provision for
contract losses |                   |          | 375,177                      |          |            |              | 39,969 |        |  |   | 415,146 |        
|Restructuring charges and reversal of provision for contract losses                           |                   |          | (6,077                       | )        |            |              | (9,700 | )      |  |   | (15,777 | )      
|Income (loss) from operations                                                                 |                   |          | 8,482                        |          |            |              | (106   | )      |  |   | 8,376   |        
|Depreciation and amortization expense                                                         |                   |          | 31,069                       |          |            |              |       |        |  |   | 31,069  |        
|Segment assets                                                                                |                   |          | 366,735                      |          |            |              | 22,397 |        |  |   | 389,132 |        
|Capital purchases                                                                             |                   |          | 41,893                       |          |            |              |       |        |  |   | 41,893  |        

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A summary of the Companys
revenue by segment and product line using the prior presentation follows:

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 2002
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(in thousands)                       |  | services                     |         | services   |  | Total
|                                     |  |                              |         |            |  |      
|Transaction processing               |  | $                            | 246,050 |            |  | $     | 55,333 |  |  | $ | 301,383 | 
|Risk management and decision support |  |                              | 139,848 |            |  |       |       |  |  |   | 139,848 | 
|Professional services                |  |                              | 101,876 |            |  |       |       |  |  |   | 101,876 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|Total net revenue                    |  | $                            | 487,774 |            |  | $     | 55,333 |  |  | $ | 543,107 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 2001
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(in thousands)                       |  | services                     |         | services   |  | Total
|                                     |  |                              |         |            |  |      
|Transaction processing               |  | $                            | 209,495 |            |  | $     | 50,072 |  |  | $ | 259,567 | 
|Risk management and decision support |  |                              | 137,868 |            |  |       |       |  |  |   | 137,868 | 
|Professional services                |  |                              | 139,724 |            |  |       |       |  |  |   | 139,724 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|Total net revenue                    |  | $                            | 487,087 |            |  | $     | 50,072 |  |  | $ | 537,159 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 2000
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(in thousands)                       |  | services                     |         | services   |  | Total
|                                     |  |                              |         |            |  |      
|Transaction processing               |  | $                            | 146,592 |            |  | $     | 49,563 |  |  | $ | 196,155 | 
|Risk management and decision support |  |                              | 136,367 |            |  |       |       |  |  |   | 136,367 | 
|Professional services                |  |                              | 106,777 |            |  |       |       |  |  |   | 106,777 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|Total net revenue                    |  | $                            | 389,736 |            |  | $     | 49,563 |  |  | $ | 439,299 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

Revenue is attributed to geographic areas based on the location of the assets
producing the revenue. The Companys operations by geographic area are as
follows:

|               |                    |      |                         |         |                        |      |         |         |  |      |         |         |  |   |        |        |  |   |        |        | 
|-------------- | ------------------ | ---- | ----------------------- | ------- | ---------------------- | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|               |                    |      | Total Net Revenue       |         | Property and Equipment
|               |                    |      | Year Ended December 31, |         | December 31,          
|               |                    |      |                         |         |                       
|(in thousands) |                    | 2002 |                         | 2001    |                        | 2000 |         | 2002    |  | 2001
|               |                    |      |                         |         |                        |      |         |         |  |     
|United States  |                    | $    | 495,768                 |         |                        | $    | 495,928 |         |  | $    | 413,090 |         |  | $ | 41,038 |        |  | $ | 64,687 |       
|United Kingdom |                    |      | 14,853                  |         |                        |      | 15,318  |         |  |      | 16,219  |         |  |   | 276    |        |  |   | 1,736  |       
|India          |                    |      | 23,169                  |         |                        |      | 23,765  |         |  |      | 9,990   |         |  |   | 8,713  |        |  |   | 8,950  |       
|Canada         |                    |      | 9,317                   |         |                        |      | 2,148   |         |  |      |        |         |  |   | 737    |        |  |   | 265    |       
|               |                    |      |                         |         |                        |      |         |         |  |      |         |         |  |   |        |        |  |   |        |       
|               | Total consolidated |      | $                       | 543,107 |                        |      | $       | 537,159 |  |      | $       | 439,299 |  |   | $      | 50,764 |  |   | $      | 75,638 | 
|               |                    |      |                         |         |                        |      |         |         |  |      |         |         |  |   |        |        |  |   |        |       

NOTE 15  LEGAL PROCEEDINGS:

The Company is party to various legal actions arising in the ordinary course of
business. In the opinion of management, the final disposition of these matters
will not have a material adverse effect on Companys financial position,
results of operations, or cash flows.

The Company is currently the subject of an investigation by the Securities and
Exchange Commission (the SEC). In the course of its investigation, the SEC
staff has sought from the Company various documents and information concerning
the financial results and transactions that were the subject of restatement by
the Company in March and December 2002. In January 2003, the SEC staff
received a formal order of investigation, which empowers it to issue subpoenas
to the Company and third parties. The Company has been cooperating fully with
the SEC staff and intends to continue to do so. The Company may, however, be
the subject of additional inquiries or become subject to a fine or other
remedies. The Company has incurred, and may continue to incur, significant
legal expenses in connection with the investigation.

The Company and its current and former chief executive and chief financial
officers are defendants in three federal securities actions filed in November
and December 2002 in the U.S. District Court for the Eastern District of
Wisconsin (the Federal Securities Actions). The complaints in these actions are
substantially identical and allege, among other things, that during the period
from February 2, 2001 to October 24, 2002 the defendants made false and
misleading statements and omissions of material facts and that the plaintiffs
and other members of a putative class of shareholders suffered damages as a
result. The defendants in the Federal Securities Actions have moved to have
the actions transferred to the District of Arizona and also have moved to
dismiss the actions on

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various grounds. These motions are pending before the Court. Also pending
before the Court is a motion by one of the plaintiffs to consolidate the three
actions, for his appointment as class representative and for his selection of
lead counsel.

The Company is also a nominal defendant in two substantially identical
shareholder derivative actions filed in the Superior Court of Arizona, Maricopa
County in January 2003 (the Shareholders Derivative Actions). The complaints
allege, among other things, that certain of its current and former directors
named in the complaints as defendants, breached their fiduciary duties to the
Company in connection with certain alleged issues involving the Companys
accounting practices and internal controls. The Complaint also names as a
defendant the Companys external auditor. The parties in the Shareholder
Derivative Actions have jointly moved to stay the proceedings, pending the
resolution of the motions to dismiss the Federal Securities Actions. The Court
has yet to rule on that request.

The Company believes the Federal Securities and Shareholder Derivative Actions
are without merit and intends to vigorously defend itself. However, the
Company cannot predict with certainty the outcome of these actions.

NOTE 16  COMMITMENTS AND CONTINGENCIES:

Future commercial commitments

In connection with the Companys government services, collection and ATM
placement activities, the Company posts surety bonds with state agencies
guaranteeing its performance of certain obligations related to the relevant
contracts or state requirements. The aggregate amount of such bonds outstanding
at December 31, 2002 was $4.3 million.

At December 31, 2002, the Company provided guarantees of $1.3 million on
certain equipment lease payments for ACIs Canadian customers. These
guarantees were established prior to the Companys acquisition of ACI in 2001
and expire through December 2007. The Company would be required to make
payments under these guarantees in the event that the ACI customers could not
meet their own payment obligations. Through December 31, 2002, the Company has
been required to make payments of approximately $128,000 pursuant to these
guarantees. The customers ATM equipment assets are utilized as collateral on
these guarantees. There are no amounts being carried as liabilities for the
Companys obligations under these guarantees.

The Company has approximately $1.9 million in time deposits, denominated in
Indian rupees, primarily for use in securing letters of credit issued in the
ordinary course of business by its India operations, although no such letters
were outstanding at December 31, 2002. Approximately $0.5 million of these
time deposits relate to a guarantee of performance on a customer contract and
certain obligations related to local government requirements.

Contractual cash obligations

As of December 31, 2002, the Company had contractual cash obligations for
outsourcing and maintenance obligations in the aggregate amount of $45.2
million. Amounts due under these obligations are $15.6 million in 2003, $14.1
million in 2004, $12.4 million in 2005 and $3.0 million in 2006.

Other commitments

In December 2001, the Company entered into a subscription agreement to acquire
a 15% interest in Webtel Pty. Ltd., an Australian corporation (Webtel).
Pursuant to the subscription agreement, the Company invested $1.3 million in
Webtel in 2001 and has committed to invest an additional $0.8 million upon the
satisfaction of certain conditions specified in the subscription agreement.

The Company operates a call center in Mumbai, India under a customer contract.
The customer is entitled to acquire, after December 31, 2002, a minority
interest in, or sole ownership of, certain assets used by the Company in
performing call center operations for the customer as well as transition
assistance. The price at which such ownership interest may be acquired by the
customer is to be based on a formula as set forth in the contract. As of
December 31, 2002, the customer had accumulated a right to acquire up to an 8%
ownership interest in these assets.

ACI has vault cash agreements with various financial institutions who provide
cash to certain of the ATMs owned or managed by the Company. Although some
portion of this cash may be physically located in the Companys ATMs, this cash
is not included in cash and cash equivalents on the Companys consolidated
balance sheet because the Company does not take title to the cash under the
bailee/bailor relationship established by the agreements. Based upon the daily
outstanding balance of funds provided to the ATMs, ACI generally pays a monthly
fee ranging from prime, as defined, plus one half percent up to prime plus 5%.
The average monthly rate paid during 2002 approximated 7%. The Company
indemnifies the financial institutions against any loss of the cash in the
ATMs. One of the agreements requires ACI to maintain a security account equal
to 1% of the daily outstanding balance. The agreements may be terminated upon
notice by either party and have various expiration dates ranging from January
2004 to November 2004. Total cash provided pursuant to these vault cash
agreements was approximately $36 million at December 31, 2002.

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The Company seeks to maintain an adequate cash balance to ensure that it can
advance funds to its processing customers if unusual circumstances prevent the
Company from the timely processing of its settlement files. Although highly
infrequent, the Company has funded approximately $35 million under such a
circumstance in the past. The Company is evaluating means to reduce the need
for it to maintain these minimum cash balance levels, including the possibility
of obtaining an overnight credit facility to fund these obligations.

NOTE 17  SUBSEQUENT EVENTS:

In January 2003 the Company reached an agreement with Deluxe whereby the
Company has received $5.0 million and expects to receive an additional $ 0.9
million. The receipt of these proceeds is not expected to have a material
impact on the Companys results of operations as they represent the settlement
of a previously recognized receivable and the assumption by the Company of an
equivalent amount of tax obligations.

On January 16, 2003, the Company entered into a purchase agreement for the sale
of its Glendale, Wisconsin administrative facility. The Company will continue
to lease a portion of the facility through March 2004. The Company does not
expect that this agreement will have a material impact on our statement of
operations as the expected proceeds from the sale will approximate the carrying
value of the property.

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SUPPLEMENTAL INFORMATION:

EFUNDS CORPORATION
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                        |                      |          |                         |         |  |              |         |             |  |   |         |      |  |   |         |      | 
|--------------------------------------- | -------------------- | -------- | ----------------------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                        |                      |          | 2002 Quarters Ended,(1)
|                                        |                      |          |                        
|(in thousands except per share amounts) |                      | March 31 |                         | June 30 |  | September 30 |         | December 31
|                                        |                      |          |                         |         |  |              |         |            
|Net revenue                             |                      | $        | 133,997                 |         |  | $            | 133,471 |             |  | $ | 143,995 |      |  | $ | 131,644 |     
|Operating expenses                      |                      |          | 121,539                 |         |  |              | 127,958 |             |  |   | 128,505 | (2)  |  |   | 129,686 |     
|Net income                              |                      |          | 8,526                   |         |  |              | 4,476   |             |  |   | 10,671  |      |  |   | 881     |     
|Per share of common stock:              |                      |          |                         |         |  |              |         |             |  |   |         |      |  |   |         |     
|                                        | Net income  basic   |          | $                       | 0.18    |  |              | $       | 0.10        |  |   | $       | 0.23 |  |   | $       | 0.02 | 
|                                        | Net income  diluted |          | $                       | 0.18    |  |              | $       | 0.10        |  |   | $       | 0.23 |  |   | $       | 0.02 | 

|                                        |                      |          |                         |         |  |              |         |             |  |   |         |      |  |   |         |      | 
|--------------------------------------- | -------------------- | -------- | ----------------------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                        |                      |          | 2001 Quarters Ended,(1)
|                                        |                      |          |                        
|(in thousands except per share amounts) |                      | March 31 |                         | June 30 |  | September 30 |         | December 31
|                                        |                      |          |                         |         |  |              |         |            
|Net revenue                             |                      | $        | 130,555                 |         |  | $            | 127,204 |             |  | $ | 141,275 |      |  | $ | 138,125 |     
|Operating expenses                      |                      |          | 124,746                 |         |  |              | 121,284 |             |  |   | 119,466 | (3)  |  |   | 120,842 |     
|Net income                              |                      |          | 3,744                   |         |  |              | 4,177   |             |  |   | 13,749  |      |  |   | 11,669  |     
|Per share of common stock:              |                      |          |                         |         |  |              |         |             |  |   |         |      |  |   |         |     
|                                        | Net income  basic   |          | $                       | 0.08    |  |              | $       | 0.09        |  |   | $       | 0.30 |  |   | $       | 0.25 | 
|                                        | Net income  diluted |          | $                       | 0.08    |  |              | $       | 0.09        |  |   | $       | 0.29 |  |   | $       | 0.25 | 



|(1) |  | The sum of quarterly earnings per share may not equal
annual earnings per share, due to rounding.                           
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|(2) |  | Includes a credit of $2.0 million to reduce the
reserve for additional expected future losses on existing EBT
contracts.    
|(3) |  | Includes a net credit of $2.5 million to reduce the
reserve for additional expected future losses on existing EBT
contracts.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

Arthur Andersen & Associates
of India (Arthur Andersen India), which audited the
financial statements of iDLX Holdings B.V. (a consolidated subsidiary
of the Company formerly known as iDLX Holdings N.V.), as of and for
the year ended December 31, 2001, ceased operations in 2002.
Arthur Andersen India expressed an unqualified opinion on the
financial statements audited by them in their report dated
January 25, 2002. Prior to the date Arthur Andersen India ceased
providing iDLX Holdings B.V. with audit services, there were no
disagreements between the Company or iDLX Holdings B.V. and Arthur
Andersen India on any matter
of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which, if not resolved to the
satisfaction of Arthur Andersen India would have caused it to make
reference to the subject matter of that disagreement in connection
with its reports.

On December 1, 2002, iDLX
Holdings B.V. engaged SR Batliboi and Associates, an Indian
accounting firm that is a member of Ernst & Young Global
(SR Batliboi), as its independent auditor. The
decision to engage SR Batliboi was made by management and the
Audit Committee of the Board of Directors did not recommend this
change in accountants or provide formal prior approval of the change.

The reports of Deloitte &
Touche LLP, the Companys principal accountant, on the
Companys financial statements for the past two years did not
contain an adverse opinion or a disclaimer of opinion nor were such
reports qualified as to uncertainty, audit scope or accounting
principles.

Deloitte &
Touche LLP did not audit the financial statements of iDLX Holdings
B.V., which statements reflect total assets constituting 11% and 9%,
respectively, of consolidated total assets of the Company as of
December 31, 2002 and 2001, and net revenue, constituting 6% and
4%, respectively, of consolidated net revenue and net income
constituting 30% and
41%, respectively, of consolidated net income of the Company for the
years ended December 31, 2002 and 2001. Those statements as of
and for the years ended December 31, 2002 and 2001 were audited
by SR Batliboi and Arthur Andersen India, respectively.
SR Batliboi and Arthur Andersen India expressed unqualified
opinions on those financial statements in their reports. The reports
of those other auditors have been furnished to Deloitte &
Touche LLP and its opinion, insofar as it relates to the amounts
included for iDLX Holdings B.V., is based solely on the reports of
such other auditors.

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PART III




ITEMS 10, 11, 12, AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT,
EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS, AND CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS

The Companys proxy statement, which will be filed with the Securities and
Exchange Commission on or before April 30, 2003, is incorporated by reference.
Information regarding executive officers of the Registrant appears on page 8 of
this Report.




ITEM 14. CONTROLS AND PROCEDURES

The Company seeks to maintain disclosure controls and procedures (as defined in
Rule 15d-14(c) under the Securities Exchange Act of 1934) that are designed to
ensure that information required to be disclosed in the Companys Securities
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SECs rules and forms and that such information
is accumulated and communicated to the Companys management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the Companys disclosure procedures, management realized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable, and not absolute, assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.

During the 90-day period to the date of this report, an evaluation was
performed under the supervision and with the participation of our Companys
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and the Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective. Subsequent to the date of
the afore mentioned evaluation, there have been no significant changes in the
Companys internal controls or in other factors that could significantly affect
these controls and no corrective actions taken with regards to significant
deficiencies or material weakness in such controls.

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PART IV




ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



|(a) |  | The following financial statements, schedules and independent auditors
report and consent are filed with or incorporated by reference in this
report:
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                  |  |                     |       | 
|----------------------------------------------------------------------------------------------------------------- |  | ------------------- | ----- | 
|Financial Statements                                                                                              |  | Page in This Report
|                                                                                                                  |  |                    
|Independent Auditors Report                                                                                      |  |                     | 30    | 
|Consolidated Balance Sheets at December 31, 2002 and 2001                                                         |  |                     | 31    | 
|Consolidated Statements of Operations for each of the
three years in the period ended December 31, 2002           |  |                     | 32    | 
|Consolidated Statements of Comprehensive Income
for each of the three years in the period ended
December 31, 2002 |  |                     | 33    | 
|Consolidated Statements of Stockholders Equity                                                                   |  |                     | 34    | 
|Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2002           |  |                     | 35    | 
|Notes to Consolidated Financial Statements                                                                        |  |                     | 36-58 | 
|Supplemental Financial Information (Unaudited):                                                                   |  |                     |       | 
|Summarized Quarterly Financial Data                                                                               |  |                     | 59    | 
|Independent Auditors Consent                                                                                     |  |                     | F-1   | 
|Schedule re: Valuation and Qualifying Accounts                                                                    |  |                     | F-2   | 

Schedules other than those listed above are not required or are not applicable,
or the required information is shown in the consolidated financial
statements or notes.



|(b) |  | Reports on Form 8-K
|--- |  | -------------------
|   
|    |  | None               

The following exhibits are filed as part of or are incorporated in this report
by reference:

|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|-------------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  | - | 
|EXHIBIT NUMBER |     | DESCRIPTION |  | METHOD OF FILING                                                                                                                                                                                                                                                                    
|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|               | 2.1 |             |  | Asset Purchase Agreement, dated as of January 31, 2002, by
and between Access Cash International, LLC, (ACI) and
Hanco Systems, Inc. (incorporated by reference to Exhibit
2.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002)                |  |  | * | 
|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|               | 2.2 |             |  | Stock Purchase Agreement, effective as of May 1, 2002, by
and between ACI and Mohammed Youssefi (incorporated by
reference to Exhibit 2.2 to the Companys Quarterly Report
on Form 10-Q for the quarter ended June 30, 2002 (the June
2002 10-Q)                                  |  |  | * | 
|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|               | 2.3 |             |  | Stock Purchase Agreement, effective as of June 1, 2002, by
and between ACI and Daniel J. Pina (incorporated by
reference to Exhibit 2.3 to the June 2002 10-Q)                                                                                                                       |  |  | * | 
|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|               | 2.4 |             |  | Asset Purchase Agreement, effective as of August 1, 2002,
by and between ACI and Cash Resources Inc. (incorporated by
reference to Exhibit 2.4 to the Companys Quarterly Report
on Form 10-Q for the quarter ended September 30, 2002 (the
September 2002 10-Q)                   |  |  | * | 
|               |     |             |  |                                                                                                                                                                                                                                                                                      |  |  |   | 
|               | 3.1 |             |  | Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (the S-1) filed by the
Company with the Securities and Exchange Commission (the
Commission) on April 4, 2000, Registration No.
333-333992) |  |  | * | 

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| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | ----- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - |  | 
| | 3.2   |  |  | Bylaws (incorporated by reference to Exhibit 3.2 to the S-1)                                                                                                                                                                                                                              |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 4.1   |  |  | Form of common stock certificate (incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the S-1 filed by the
Company with the Commission on May 15, 2000 (Amendment No.
1)                                                                                                     |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 4.2   |  |  | Form of Rights Agreement by and between the Company and
Rights Agent, (incorporated by reference to Exhibit 4.2 to
Amendment No. 1)                                                                                                                                                       |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 4.3   |  |  | Certificate of Designations of Series A Participating
Preferred Stock (incorporated by reference to Exhibit 4.3
to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 (the June 2000
10-Q))                                                                |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.1  |  |  | Assignment and Assumption Agreement, dated as of March 31,
2000, by and between the Company and Deluxe Corporation
(Deluxe) (incorporated by reference to Exhibit 10.1 to
the S-1)                                                                                                      |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.2  |  |  | Third Party Indemnification Agreement, dated as of May 1,
2000, by and between the Company and Deluxe (incorporated
by reference to Exhibit 10.2 to Amendment No. 4 (Amendment
No. 4) to the S-1 filed by the Company with the Commission
on June 23, 2000 (Registration No. 333-33992) |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.4  |  |  | Tax Sharing Agreement, dated as of April 1, 2000, by and
between the Company and Deluxe (incorporated by reference
to Exhibit 10.3 to Amendment No. 1)                                                                                                                                    |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.5  |  |  | Sublease, dated as of May 15, 2000, by and between the
Company and Deluxe Financial Services, Inc. (DFSI) for
property located in Shoreview, Minnesota (incorporated by
reference to Exhibit 10.6 to Amendment No. 1)                                                                   |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.6  |  |  | Lease, dated as of May 15, 2000, by and between the Company
and DFSI for property located in Phoenix, Arizona
(incorporated by reference to Exhibit 10.7 to Amendment No.
1)                                                                                                              |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.7  |  |  | Purchase Agreement, dated as of April 3, 2000, by and
between the Company and DFSI for property located in
Phoenix, Arizona (incorporated by reference to Exhibit 10.7
to Amendment No. 1)                                                                                                |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.8  |  |  | Professional Services Agreement, dated as of April 1, 2000,
by and between the Company and Deluxe (incorporated by
reference to Exhibit 10.10 to Amendment No. 1)                                                                                                                         |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.9  |  |  | ONE Application Development and Support Agreement, dated as
of January 1, 2000, by and between the Company and DFSI
(incorporated by reference to Exhibit 10.11 to Amendment
No. 1)                                                                                                       |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.10 |  |  | Government Services Indemnification Agreement, dated as of
May 1, 2000, by and between the Company and Deluxe
(incorporated by reference to Exhibit 10.17 to Amendment
No. 1)                                                                                                             |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.11 |  |  | eFunds Corporation 2000 Stock Incentive Plan, as amended
(incorporated by reference to Exhibit 10.18 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2000 (the 2000 10-K))                                                                                  |  | *
| |       |  |  |                                                                                                                                                                                                                                                                                           |  |   |  | 
| | 10.12 |  |  | eFunds Corporation Stock Incentive Plan for Deluxe
Conversions Awards, as amended December 8, 2000
(incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-8 filed on December 8,
2000, Registration No. 333-51536)                                   |  | *

62



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| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
| |  |  | 10.13 |  |  | Executive Employment Agreement, dated as of May 9, 2000 by
and between the Company and John A. Blanchard III
(incorporated by reference to Exhibit 10.21 to Amendment
No. 1)                                                      |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.14 |  |  | Cross-Indemnification Agreement, dated as of June 26, 2000,
by and between the Company and Deluxe (incorporated by
reference to Exhibit 10.23 to the Companys Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000) |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.15 |  |  | eFunds Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 4.1 to the Companys
Registration Statement on Form S-8 filed on December 8,
2000, Registration Statement No. 333-51568)                    |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.16 |  |  | eFunds Corporation Annual Incentive Plan (incorporated by
reference to Exhibit 10.27 to the 2000 10-K)                                                                                                                            |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.17 |  |  | eFunds Corporation Deferred Compensation Plan (incorporated
by reference to Exhibit 4.1 to the Companys Registration
Statement on Form S-8 filed on December 8, 2000,
Registration Statement No. 333-51564)                      |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.18 |  |  | Change in Control Agreement, dated as of September 16,
2002, between the Company and Paul F. Walsh (incorporated
by reference to Exhibit 10.2 to the September 2002 10-Q)                                                         |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.19 |  |  | Schedule identifying other Change in Control Agreements
omitted pursuant to Instruction 2 to Item 601 of Regulation
S-K                                                                                                           |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.20 |  |  | Mutual Release dated as of May 31, 2002, by and between the
Company and Dr. Nikhil Sinha (incorporated by reference to
Exhibit 10.6 to the June 2002 10-Q)                                                                        |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.21 |  |  | Mutual Release dated as of June 28, 2002, by and between
the Company and Paul H. Bristow (incorporated by reference
to Exhibit 10.24 to the June 2002 10-Q)                                                                       |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.22 |  |  | Separation Agreement, dated as of November 1, 2002, by and
between the Company and Paul W. Finch                                                                                                                                  |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.23 |  |  | Amendment No.1, dated as of October 19, 2000, to the
Executive Employment Agreement, dated May 9, 2000, by and
between the Company and John A Blanchard III (incorporated
by reference to Exhibit 10.36 to the 2000 10-K)         |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.24 |  |  | Executive Transition Assistance Agreement, dated as of June
3, 2002, by and between the Company and Michael A.
Spilsbury (incorporated by reference to Exhibit 10.4 to the
June 2002 10-Q)                                        |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.25 |  |  | Consulting Agreement, dated as of June 20, 2002, by and
between the Company and Thomas S. Liston (incorporated by
reference to Exhibit 10.5 to the June 2002 10-Q)                                                                |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.26 |  |  | Executive Retention Agreement, dated as of June 17, 2002,
by and between the Company and Jerry K. Lester
(incorporated by reference to Exhibit 10.7 to the June 2002
10-Q)                                                        |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.27 |  |  | Executive Employment Agreement dated September 9, 2002 by
and between the Company and Paul F. Walsh (incorporated by
reference to Exhibit 10.1 to the September 2002 10-Q)                                                        |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                   |  |               
| |  |  | 10.28 |  |  | Consent and Resignation, dated September 13, 2002, of John
A. Blanchard III (incorporated by reference to Exhibit 10.3
to the September 2002 10-Q)                                                                                |  | *             

63



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| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | ----- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
| |  |  | 10.29 |  |  | Non-Employee Director Deferred Compensation Plan
(incorporated by reference to Exhibit 10.38 to the 2000
10-K)                                                                                                                                                                                                          |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.30 |  |  | Description of Compensation program for Non-Employee
Directors (incorporated by reference to Exhibit 10.39 to
the 2000 10-K)                                                                                                                                                                                            |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.31 |  |  | Amendment, dated as of December 2000, to Tax Sharing
Agreement, dated effective April 1, 2000, by and between
Deluxe and the Company (incorporated by reference to
Exhibit 10.42 to the 2000 10-K)                                                                                                                      |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.32 |  |  | Letter Agreement, dated November 19, 2001, extending the
ONE Application Development and Support Agreement, dated as
of January 1, 2000, between Deluxe and the Company
(incorporated by reference to Exhibit 10.28 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2001 (the 2001 10-K)) |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.33 |  |  | Transition Assistance Agreement, dated as of December 7,
2001, by and between the Company and Steven F. Coleman
(incorporated by reference to Exhibit 10.29 to the 2001
10-K)                                                                                                                                           |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.34 |  |  | Transition Assistance Agreement, dated as of November 4,
2002, by and between the Company and Clyde L. Thomas                                                                                                                                                                                                           |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.35 |  |  | Schedule identifying additional Transition Assistance
Agreements omitted pursuant to Instruction 2 to Item 601 of
Regulation S-K                                                                                                                                                                                        |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.36 |  |  | Credit Agreement, dated as of September 27, 2001, by and
between the Company and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 10.32 to
the 2001 10-K)                                                                                                                                   |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.37 |  |  | Amendment No. 1 to eFunds Deferred Compensation Plan Trust
(incorporated by reference to Exhibit 10.33 to the 2001
10-K)                                                                                                                                                                                                |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 10.38 |  |  | Letter, dated November 6, 2002, to Jerry K. Lester                                                                                                                                                                                                                                                                      |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 21.1  |  |  | Subsidiaries to the Company                                                                                                                                                                                                                                                                                             |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 23.1  |  |  | Consent of Deloitte & Touche L.L.P. (incorporated by
reference to page F-1 of this Annual Report on Form 10-K)                                                                                                                                                                                                          |  | *             
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 23.2  |  |  | Consent of S.R.
Batliboi & Associates                                                                                                                                                                                                                                                                                   |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 23.3  |  |  | Consent of Arthur Andersen                                                                                                                                                                                                                                                                                              |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 24    |  |  | Power of Attorney                                                                                                                                                                                                                                                                                                       |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 99.1  |  |  | Risk Factors and Cautionary Statements                                                                                                                                                                                                                                                                                  |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 99.2  |  |  | Independent
Auditors Report of S.R. Batliboi & Associates                                                                                                                                                                                                                                                              |  | Filed herewith
| |  |  |       |  |  |                                                                                                                                                                                                                                                                                                                         |  |               
| |  |  | 99.3  |  |  | Independent Auditors Report of Arthur Andersen                                                                                                                                                                                                                                                                         |  | Filed herewith

64



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| |  |  |      |  |  |                                       |  |               
| |  |  | ---- |  |  | ------------------------------------- |  | --------------
| |  |  | 99.4 |  |  | Written Statement by Paul F. Walsh    |  | Filed herewith
| |  |  |      |  |  |                                       |  |               
| |  |  | 99.5 |  |  | Written Statement by Thomas S. Liston |  | Filed herewith



---

|* |  | Incorporated by reference
|- |  | -------------------------

65



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Note to recipients of Form 10-K: Copies of exhibits will be furnished upon
written request and payment of the Companys reasonable expenses ($.25 per
page) in furnishing such copies.

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Scottsdale, Arizona.

|                     |  |                    |  |                                                                             
|-------------------- |  | ------------------ |  | ----------------------------------------------------------------------------
|                     |  | eFUNDS CORPORATION
|                     |  |                    |  |                                                                             
|Date: March 31, 2003 |  | By:                |  | /s/ Paul F. Walsh                                                           
|                     |  |                    |  |                                                                             
|                     |  |                    |  | Paul F. Walsh
Chairman of the Board of Directors and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated on March 31, 2003

|          |     |       |  |                                |                                              |                                                  
|--------- | --- | ----- |  | ------------------------------ | -------------------------------------------- | -------------------------------------------------
|SIGNATURE |     | TITLE
|          |     |      
|          |     |      
|          | By: |       |  | /s/ Paul F. Walsh              |                                              | Chairman of the Board and Chief Executive Officer
|          |     |       |  |                                | (Principal Executive Officer)               
|          |     |       |  | Paul F. Walsh                  |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: |       |  | /s/ Thomas S. Liston           |                                              | Chief Financial Officer                          
|          |     |       |  |                                | (Principal Financial and Accounting Officer)
|          |     |       |  | Thomas S. Liston               |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: | *     |  | Director                      
|          |     |       |  |                                |                                             
|          |     |       |  | Jack Robinson                  |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: | *     |  | Director                      
|          |     |       |  |                                |                                             
|          |     |       |  | John J. (Jack) Boyle III       |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: | *     |  | Director                      
|          |     |       |  |                                |                                             
|          |     |       |  | Janet M. Clark                 |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: | *     |  | Director                      
|          |     |       |  |                                |                                             
|          |     |       |  | Shiela A. Penrose              |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|          | By: | *     |  | Director                      
|          |     |       |  |                                |                                             
|          |     |       |  | Robert C. Naksone              |                                              |                                                  
|          |     |       |  |                                |                                              |                                                  
|*         | By: |       |  | /s/ Paul F. Walsh              |                                              |                                                  
|          |     |       |  |                                |                                             
|          |     |       |  | Paul F. Walsh
Attorney-in-Fact |                                              |                                                  

66



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CERTIFICATION

I, Thomas S. Liston, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of eFunds Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                    
|
| | c) |  | presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                                   | 
|-------------------- |  | ------------------------------------------------- | 
|Date: March 31, 2003 |  | /s/ Thomas S. Liston                             
|                     |  |                                                  
|                     |  | By: Thomas S. Liston
Its: Chief Financial Officer

67



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##### Table of Contents



CERTIFICATION

I, Paul F. Walsh, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of eFunds Corporation;                                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                    
|
| | c) |  | presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                                             | 
|-------------------- |  | ----------------------------------------------------------- | 
|Date: March 31, 2003 |  | /s/ Paul F. Walsh                                          
|                     |  |                                                            
|                     |  | By: Paul F. Walsh
Its: Chief Executive Officer and Chairman

68



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INDEPENDENT AUDITORS CONSENT

The Board of Directors and Stockholders of:
eFunds Corporation
Scottsdale, Arizona

We consent to the incorporation by reference in Registration Statement Nos.
333-51568, 333-51564, 333-51536, and 333-44830 of eFunds Corporation on Form
S-8 of our report dated March 14, 2003 (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the change in the
method of accounting for goodwill and other intangible assets described in Note
6) appearing in this Annual Report on Form 10-K of eFunds Corporation for the
year ended December 31, 2002.

/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 27, 2003

F-1





---



##### Table of Contents






eFUNDS CORPORATION AND SUBSIDIARIES
SCHEDULE RE: VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001 and 2000

|                                |  |      |      |           |  |              |       |            |  |               |       |        |  |   |   |           |  |   |        |   |  |   |       | 
|------------------------------- |  | ---- | ---- | --------- |  | ------------ | ----- | ---------- |  | ------------- | ----- | ------ |  | - | - | --------- |  | - | ------ | - |  | - | ----- | 
|(in thousands)                  |  |      |      |           |  |              |       |            |  | Additions     |       |        |  |   |   |           |  |  
|                                |  |      |      |           |  |              |       |            |  |               |       |        |  |   |   |           |  |  
|                                |  |      |      |           |  | Balance      |       | Charged to |  | Charged to    |       |        |  |   |   | Balance  
|                                |  |      |      |           |  | at beginning |       | costs and  |  | other         |       |        |  |   |   | at end of
|Description                     |  | Year |      | of period |  | expenses     |       | accounts   |  | Deductions(1) |       | period
|                                |  |      |      |           |  |              |       |            |  |               |       |       
|Allowance for Doubtful Accounts |  |      | 2002 |           |  | $            | 4,791 |            |  | $             | (182  | )(2)   |  | $ |  |           |  | $ | (1,597 | ) |  | $ | 3,012 | 
|                                |  |      | 2001 |           |  |              | 5,296 |            |  |               | 1,755 |        |  |   |   |           |  |   | (2,260 | ) |  |   | 4,791 | 
|                                |  |      | 2000 |           |  |              | 4,513 |            |  |               | 3,278 |        |  |   |   |           |  |   | (2,495 | ) |  |   | 5,296 | 



|(1) |  | Deductions from the reserve represent write-offs and recoveries of
amounts for which specific reserves had been previously established.                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | During 2002, management changed its estimates related to the
collectibility of accounts receivable resulting in reduction to bad debt
expense of $2.5 million.

F-2





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##### Table of Contents






EXHIBIT INDEX

|               |  |                                                                                                                                  |  |          |  | 
|-------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | 
|EXHIBIT NUMBER |  | DESCRIPTION OF EXHIBIT                                                                                                           |  | PAGE NO.
|               |  |                                                                                                                                  |  |         
|10.19          |  | Schedule Identifying Other Change in Control Agreements
omitted pursuant to Instruction 2 to Item 601 of
Regulation S-K         
|               |  |                                                                                                                                 
|10.22          |  | Separation Agreement, dated as of November 1, 2002, by
and between the Company and Paul W. Finch                                
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|10.34          |  | Transition Assistance Agreement, dated as of November 4,
2002, by and between the Company and Clyde L. Thomas                   
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|10.35          |  | Schedule Identifying Additional Transition Assistance
Agreements omitted pursuant to Instruction 2 to Item 601
of Regulation S-K
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|10.38          |  | Letter, dated November 6, 2002, to Jerry K. Lester                                                                              
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|21.1           |  | Subsidiaries of the Company                                                                                                     
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|23.2           |  | Consent of S.R. Batliboi & Associates                                                                                           
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|23.3           |  | Consent of Arthur Andersen                                                                                                      
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|24             |  | Power of Attorney                                                                                                               
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|99.1           |  | Risk Factors and Cautionary Statements                                                                                          
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|99.2           |  | Independent Auditors Report of S.R. Batliboi & Associates                                                                      
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|99.3           |  | Independent Auditors Report of Arthur Andersen                                                                                 
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|99.4           |  | Written Statement by Paul F. Walsh                                                                                              
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|99.5           |  | Written Statement by Thomas S. Liston