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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A
AMENDMENT NO. 1 TO

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.

Commission file number 0-30791.

eFUNDS CORPORATION

(Exact name of registrant as specified in its charter)


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|Delaware                                 |  | 39-1506286         
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|(State or other jurisdiction of          |  | (I.R.S. Employer   
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|incorporation or organization)           |  | Identification No.)
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|Gainey Center II                         |  | 85253              
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|8501 N. Scottsdale Road, Suite 300       |  | (Zip Code)         
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|Scottsdale, Arizona                      |  |                    
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|(Address of principal executive offices) |  |                    

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

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|Securities registered pursuant to Section 12(b) of the Act: |  | None                                                                                   
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|Securities registered pursuant to Section 12(g) of the Act: |  | Common Stock, par value $.01 per share
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 $757,517,722 based on the last sales price of the registrants
common stock on the National Association of Securities Dealers Automated
Quotation System on March 27, 2002. The number of outstanding shares of the
registrants common stock as of March 27, 2002 was 46,519,365 and the last
sales price of the registrants common stock on that date was $16.40.

Documents Incorporated by Reference: Portions of the registrants proxy
statement for its 2002 Annual Meeting of Stockholders, which will be filed with
the Securities Exchange Commission on or before April 30, 2002, 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. [X]

This Form 10K/A Amendment No. 1 is filed to amend the Form 10-K for December
31, 2001 to include restated financial statements as discussed in Note 15 to
the consolidated financial statements.

For purposes of this 10-K/A, and in accordance with Rule 12b-15 under the
Securities Exchange Act of 1934, as amended, the registrant has amended and
restated in its entirety each item of its Annual Report on Form 10-K which has
been affected by the financial statement restatement. In order to preserve the
nature and character of the
disclosures set forth in such items as of the original filing date of such
Report, this Form 10-K/A does not otherwise modify the disclosures in that
report which were not affected by the restatement.

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TABLE OF CONTENTS



|              |                                                                           |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART II      
|              | ITEMS 6, 7, 7A AND 8.                                                    
|PART IV      
|              | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
|EXHIBIT INDEX
|EX-23.2      
|EX-99.1      
|EX-99.2      
|EX-99.3      
|EX-99.4      
|EX-99.5      



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PART II

ITEMS 6, 7, 7A AND 8.

SELECTED FINANCIAL DATA, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, AND FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

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
four-year period ended December 31, 2001 and the selected balance sheet data as
of December 31, 2001, 2000, 1999 and 1998, are derived from eFunds audited
consolidated financial statements.

The selected statement of operations data shown on the following page for
the year ended December 31, 1997 and the selected balance sheet data as of
December 31, 1997 are derived from eFunds unaudited consolidated financial
statements. In the opinion of eFunds management, all adjustments necessary for
a fair presentation of these financial statements are included. Other than the
adjustments relating to contract losses, restructuring charges and legal
proceedings discussed in notes 5, 6 and 12, respectively, to the eFunds
consolidated financial statements, the adjustments consist only of normal
recurring items.

On February 19, 1999, we acquired all of the outstanding shares of an
electronic check conversion company. On April 13, 1999, we acquired the
remaining 50% ownership interest in an Indian joint venture that we had
previously created with HCL Corporation of India (HCL). In March 2000, we
acquired an approximate 24% ownership interest in Access Cash International,
L.L.C. (ACI) a provider of automated teller machine (ATM) services. In October
2001, we acquired the remaining 76% interest in ACI. Each of these acquired
companies is included in our payment systems and services segment. Prior to its
acquisition of a controlling interest, each of these companies was recorded in our financial statements
under the equity method of accounting. The acquisitions have been accounted for
under the purchase method of accounting and, as a result, our consolidated
financial statements include the total results of these businesses subsequent
to their acquisition dates. On June 30, 2000, we completed an initial public
offering of 5.5 million shares.

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|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |         |  
|------------------------------------- | ------------------------------------------------------------------------------ | ------- | ------------------------ | ------- | ----------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                      |                                                                                |         | Years Ended December 31,
|                                      |                                                                                |         |                         
|                                      |                                                                                |         | 2001                     |         | 2000        |   | 1999    |         | 1998 |   | 1997   
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |        
|                                      |                                                                                |         | As Restated              |         | As Restated |   | (2)     |         | (3)  |   | (3)    
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |        
|(in thousands, except per share data) |                                                                                | (1) (2) |                          | (1) (2) |             |   |         |         |      |   |         |         |   |   |         |        
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |        
|Statement of Operations Data:         |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|Net revenue                           |                                                                                | $       | 537,159                  |         |             | $ | 439,299 |         |      | $ | 322,367 |         |   | $ | 267,520 |         |   | $ | 229,065 |        
|                                     
|                                     
|                                     
|                                     
|                                      | Cost of revenue excluding loss contract and
asset impairment charges (credits) |         |                          | 337,567 |             |   |         | 275,167 |      |   |         | 205,617 |   |   |         | 171,359 |   |   |         | 143,966 |  
|                                     
|                                     
|                                     
|                                     
|                                      | Loss contract and asset impairment
charges (credits)                           |         |                          | (2,500  | )           |   |         | 9,700   |      |   |         | 8,700   |   |   |         | 40,949  |   |   |         | 2,470   |  
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                      | Total cost of revenue                                                          |         |                          | 335,067 |             |   |         | 284,867 |      |   |         | 214,317 |   |   |         | 212,308 |   |   |         | 146,436 |  
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Gross margin                          |                                                                                |         | 202,092                  |         |             |   | 154,432 |         |      |   | 108,050 |         |   |   | 55,212  |         |   |   | 82,629  |        
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                      | Selling, general and administrative expense                                    |         |                          | 151,271 |             |   |         | 146,056 |      |   |         | 109,138 |   |   |         | 81,823  |   |   |         | 71,940  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Asset impairment charges                                                       |         |                          |        |             |   |         |        |      |   |         |        |   |   |         |        |   |   |         | 9,361   |  
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                      | Total operating expenses                                                       |         |                          | 151,271 |             |   |         | 146,056 |      |   |         | 109,138 |   |   |         | 81,823  |   |   |         | 81,301  |  
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Income (loss) from operations         |                                                                                |         | 50,821                   |         |             |   | 8,376   |         |      |   | (1,088  | )       |   |   | (26,611 | )       |   |   | 1,328   |        
|                                     
|                                     
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|                                     
|Other income (expense)                |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Legal proceedings                                                              |         |                          |        |             |   |         |        |      |   |         | 2,094   |   |   |         | 4,157   |   |   |         | (40,050 | )
|                                     
|                                     
|                                     
|                                     
|                                      | Equity in loss of investee                                                     |         |                          | (1,097  | )           |   |         | (500    | )    |   |         | (1,114  | ) |   |         | (1,759  | ) |   |         | (665    | )
|                                     
|                                     
|                                     
|                                     
|                                      | Interest expense                                                               |         |                          | (670    | )           |   |         | (3,897  | )    |   |         | (2,595  | ) |   |         | (1,024  | ) |   |         | (825    | )
|                                     
|                                     
|                                     
|                                     
|                                      | Interest and other income (expense)                                            |         |                          | 1,938   |             |   |         | 2,803   |      |   |         | 63      |   |   |         | 2,077   |   |   |         | (253    | )
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Income (loss) before income taxes     |                                                                                |         | 50,992                   |         |             |   | 6,782   |         |      |   | (2,640  | )       |   |   | (23,160 | )       |   |   | (40,465 | )      
|                                     
|                                     
|                                     
|                                     
|Benefit (provision) for income taxes  |                                                                                |         | (17,653                  | )       |             |   | (3,299  | )       |      |   | (5,586  | )       |   |   | 8,569   |         |   |   | 6,397   |        
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|Net income (loss)                     |                                                                                | $       | 33,339                   |         |             | $ | 3,483   |         |      | $ | (8,226  | )       |   | $ | (14,591 | )       |   | $ | (34,068 | )      
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss) per share  basic                                            |         | $                        | 0.72    |             |   | $       | 0.08    |      |   | $       | (0.21   | ) |   | $       | (0.36   | ) |   | $       | (0.85   | )
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss) per share  diluted                                          |         | $                        | 0.70    |             |   | $       | 0.08    |      |   | $       | (0.21   | ) |   | $       | (0.36   | ) |   | $       | (0.85   | )
|                                      |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|Shares used in computing:             |                                                                                |         |                          |         |             |   |         |         |      |   |         |         |   |   |         |         |   |   |         |        
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss) per share  basic                                            |         |                          | 45,985  |             |   |         | 42,788  |      |   |         | 40,000  |   |   |         | 40,000  |   |   |         | 40,000  |  
|                                     
|                                     
|                                     
|                                     
|                                      | Net income (loss) per share  diluted                                          |         |                          | 47,445  |             |   |         | 42,867  |      |   |         | 40,000  |   |   |         | 40,000  |   |   |         | 40,000  |  

|                                          |  |              |         |             |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | ----------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                          |  | December 31,
|                                          |  |             
|                                          |  | 2001         |         | 2000        |  | 1999 |         | 1998 |  | 1997
|                                          |  |              |         |             |  |      |         |      |  |     
|                                          |  | As Restated  |         | As Restated |  |      |         |      |  |      |         |  |  |   |         | 
|(in thousands)                            |  | (1)          |         | (1)         |  |      |         |      |  |      |         |  |  |   |         | 
|                                          |  |              |         |             |  |      |         |      |  |      |         |  |  |   |         | 
|Balance Sheet Data:                       |  |              |         |             |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|                                         
|                                         
|                                         
|                                         
|Cash and cash equivalents                 |  | $            | 101,871 |             |  | $    | 78,731  |      |  | $    | 35,849  |  |  | $ | 16,055  |  |  | $ | 23,843  | 
|                                         
|                                         
|                                         
|                                         
|Working capital                           |  |              | 117,776 |             |  |      | 70,899  |      |  |      | 25,607  |  |  |   | 1,869   |  |  |   | 39,686  | 
|                                         
|                                         
|                                         
|                                         
|Total assets                              |  |              | 442,916 |             |  |      | 389,132 |      |  |      | 289,929 |  |  |   | 186,335 |  |  |   | 187,810 | 
|                                         
|                                         
|                                         
|                                         
|Long-term debt, excluding current portion |  |              | 2,529   |             |  |      | 2,244   |      |  |      | 3,597   |  |  |   | 4,029   |  |  |   | 4,571   | 
|                                         
|                                         
|                                         
|                                         
|Total stockholders equity                |  |              | 334,315 |             |  |      | 286,165 |      |  |      | 199,105 |  |  |   | 89,803  |  |  |   | 87,690  | 



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|(1) |  | See Note 15 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Includes effects of the adoption of EITF Issue No. 01-14 as
outlined in Note 15 to the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|   
|   
|   
|(3) |  | Net revenue and Cost of revenue for the years ended December 31,
1998 and 1997 are not comparable to subsequent years presented as 1998
and 1997 do not include the effects of the adoption of EITF Issue
No. 01-14 outlined
in Note 15 to the consolidated financial statements. The Companys
historical financial information has been carved out from Deluxes
consolidated financial statements. It is not practicable for the
Company to extract the financial data necessary to comparably present the
adoption of EITF Issue No. 01-14 to years subsequent to 1998. The effect of
the adoption of EITF Issue No. 01-14 was an equal increase to Net revenue and Cost of
revenue of $27.7 million, $22.7 million, and $20.0 million for the
years 2001, 2000, and 1999, respectively.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESTATEMENT AND ACCOUNTING CHANGES  2001 AND 2000 CONSOLIDATED FINANCIAL STATEMENTS

As discussed in Note 15 to the consolidated financial statements included in
this Form 10-K/A, the consolidated financial statements as of December 31, 2001
and 2000 and for the years ended December 31, 2001 and 2000 have been restated.
The following management discussion and analysis gives effect to the
restatement discussed in Note 15 and to the retroactive application of EITF
Issue No. 01-14.

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.

OVERVIEW  Our Company was incorporated in Delaware in December 1984 and
historically operated our transaction processing and government services
businesses under the names Deluxe Electronic Payment Systems, Inc. and Deluxe
Government Services. Prior to our initial public offering (the IPO) in June
2000, we were a

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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 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
decided to combine 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. (ACI), a limited liability
company that provides automated teller machines (ATM) services. ACI was the
second largest independent provider of 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 Acquisition)
the remaining approximately 76% of the equity interests in ACI for
approximately $44.6 million, of which approximately $40.3 million was paid in
cash on the closing date of the Acquisition. Payment of the $4.3 million
balance of the purchase price is subject to the satisfaction of certain
post-closing conditions. We entered into the ATM deployment and management
agreement and ultimately acquired ACI as part of our strategy to increase our
transaction processing revenues through the acquisition and control of ATM
transactions at the point of origination. The terms of the ATM deployment and
management agreement and our acquisition of ACI were determined by negotiation
of the parties. At the time of the Acquisition, ACI managed a network of
approximately 8,500 ATMs throughout the U.S. and Canada.

ACI had been operating at a loss in periods prior to the Acquisition. A
major objective of the Acquisition was to improve its financial performance in
2002 and beyond. We expect improvement in the ACI business to come from four
major sources: (i) reduced operating costs through the integration of sales,
marketing, operations and facilities, (ii) the elimination of processing fees
for more than 6,000 of ACIs ATMs that were being paid by ACI to third party
processors by migrating the processing of all of ACIs transactions to our data
centers, (iii) the redeployment of under-performing or idle ATMs and (iv)
higher branding revenues from existing and new branding customers. We currently
expect that the Acquisition will be accretive in 2002.

We provide transaction processing and ATM outsourcing services, decision
support and risk management products as well as information technology
consulting and business process management services to financial institutions,
retailers, electronic funds transfer networks, e-commerce providers and
government agencies. We also offer business process outsourcing services to
complement our payments business. Our payment system and services segment
offers all of our products and services to all of our customers other than
government agencies. Our government services segment provides online electronic
transfer of benefits (EBT) under entitlement programs on behalf of state and
local governments and Medicaid eligibility verification services. We operate
primarily in the United States, although our payment systems and services
segment has international operations.

We had previously announced our intention to exit the government services
business when our then-current contractual commitments expired in 2006. We have
revised this position and now intend to pursue contracts for this business
without regard to their expiration date. We also intend to continue to take
steps to further improve the profitability of this business.

Our consolidated financial statements for periods prior to and including
the December 29, 2000 Spin-Off date 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

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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.

OVERVIEW OF CONSOLIDATED STATEMENTS OF OPERATIONS

Net revenues  Our net revenues generally consist of transaction
processing and service fees, decision support fees, software licensing,
maintenance and support fees, government service fees, and information
technology consulting and business process management services fees.

Cost of Revenue  Cost of revenue consists primarily of salaries and
benefits, depreciation and maintenance of equipment and facilities and
amortization of software used to operate our data centers. Expenses are
recognized when incurred, with the exception of installation costs.
Installation costs are capitalized and recognized ratably over the life of the
contract, which approximates the revenue recognition.

Expenses  Selling, general and administration expenses consist of
salaries and benefits, consulting fees, facilities and equipment costs,
recruiting and training, travel expenses, corporate administrative charges,
depreciation and amortization and all other corporate costs.

Interest expense represents the cost of funds for working capital and
other purposes and reflects Deluxes internal cost of funds to the extent
Deluxe provided such funding. Interest expense also includes interest costs
associated with capital leases and borrowings against our line of credit.
Interest income primarily consists of interest earned on short-term investments
such as commercial paper.

Loss Contract and Other Charges  We experienced significant losses in our
government service business beginning in 1997 and continuing into 2000. In
1997, we recorded a $40.0 million charge related to a judgment entered against
us in an action brought by Mellon Bank in connection with a potential bid to
provide electronic benefit transfer services to a state coalition. In 1998,
$4.2 million of this reserve was reversed due to the denial of Mellons motion
for prejudgment interest. In 1999, after we paid the judgment of $32.2 million
to Mellon Bank, we reversed $2.1 million of the reserve through a credit to
legal proceedings expense.

In 1998, we concluded that net revenues from many of our government
services contracts would be lower than anticipated because the number of
recipients had declined as a result of welfare reform and a strong economy. In
addition, we concluded that we had underestimated the costs required to support
our services when bidding for some of these contracts. The primary sources of
these additional costs were a need to install a greater number of point-of-sale
terminals, higher than expected transaction volumes per recipient and higher
support costs. Because we could not recover these costs, we wrote-off $26.3
million of assets used in the government services business and accrued $14.7
million for future losses on these contracts. Subsequent to the 1998 charges,
additional state systems began operations while a continuing strong economy led
to further reductions in the number of welfare cases. In addition, Citibank
notified us that it would not renew an exclusive switching contract we had with
it. As a result, we recorded additional charges in 1999 totaling $8.7 million,
primarily for additional expected future contract losses.

We increased our provision for expected future losses on long-term
contracts by approximately $12.2 million in the second quarter of 2000 to
reflect the signing in April 2000 of a definitive contract with Citibank for a
coalition of states for which Citibank serves as the prime contractor and we
serve as a subcontractor. Prior to executing this agreement with Citibank, we
were providing services for this coalition without a binding subcontract.
Although we believe that we did not have a legal obligation to provide services
to this coalition before signing our agreement with Citibank, the states
included in this coalition did not have alternative means of delivering
benefits under their entitlement programs. As a result, we believed we could
not terminate the provision of services during our contract negotiations with
Citibank because any unilateral decision to do so would have subjected us to a
substantial risk of litigation by the coalition states as well as potential
claims by Citibank. At the same time, our negotiations with Citibank had to be
conducted within the basic framework of our bid to Citibank and its bid to the
coalition states. The execution of the agreement allowed us to avoid the
possibility that our future losses could be larger if Citibank were ultimately
to prevail on its assertions regarding the appropriate pricing and other terms
applicable to our services. Offsetting this charge was the reversal of $2.5
million of previously recorded contract loss accruals resulting from
productivity improvements and cost savings from lower than anticipated
telecommunications and interchange expenses.

5



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In 2001, we continued to reduce the cost of conducting our government
services business and we further reduced our contract loss reserve by $3.8
million. This was offset by an addition to the reserve of $1.3 million for a
state where we had previously underestimated the direct costs of providing
service as we were still in process of completing installation work and had not
yet begun full operations. These two items resulted in a net credit of $2.5
million that is reflected in our statement of operations as a reduction to cost
of sales.

Deluxe has agreed to indemnify us for future losses arising from any
litigation based on the conduct of our government services business prior to
our IPO and from future losses on identified loss contracts in excess of our
$29.2 million loss contract reserve as of April 30, 2000, which amount includes
the $12.2 million charge discussed above. The indemnification obligation does
not apply to losses contemplated by the existing reserves or to any contract
that was not in a loss position as of April 30, 2000. The maximum amount of
litigation and contract losses for which Deluxe will indemnify us is $14.6
million. Any indemnification payments received from Deluxe will be recorded as
a reduction of expense when the additional losses, if any, are recognized.
Through December 31, 2001, no such indemnification payments have been required.

The significant charges (credits) recorded in 2001, 2000, and 1999 on a pretax basis are
as follows:

|                                     |       |      |                          |      |  |      |       |        |  |   |        |       | 
|------------------------------------ | ----- | ---- | ------------------------ | ---- |  | ---- | ----- | ------ |  | - | ------ | ----- | 
|                                     |       |      | Years Ended December 31,
|                                     |       |      |                         
|(dollars in thousands)               |       | 2001 |                          | 2000 |  | 1999
|                                     |       |      |                          |      |  |     
|Legal proceedings reversals          |       | $    |                         |      |  | $    |      |        |  | $ | (2,094 | )    
|                                    
|                                    
|                                    
|                                    
|Asset impairment charges             |       |      |                         |      |  |      |      |        |  |   | 492    |      
|                                    
|                                    
|                                    
|                                    
|Loss contract charges (credits), net |       |      | (2,500                   | )    |  |      | 9,700 |        |  |   | 8,208  |      
|                                    
|                                    
|                                    
|                                    
|Restructuring charges (reversals)    |       |      | 3,200                    |      |  |      | 555   |        |  |   | (2,399 | )    
|                                     |       |      |                          |      |  |      |       |        |  |   |        |      
|                                     | Total |      | $                        | 700  |  |      | $     | 10,255 |  |   | $      | 4,207 | 
|                                     |       |      |                          |      |  |      |       |        |  |   |        |      

These charges (credits) are reflected in the statements of operations for 2001, 2000 and
1999 as follows:

|                                             |       |      |                          |      |  |      |       |        |  |   |        |       | 
|-------------------------------------------- | ----- | ---- | ------------------------ | ---- |  | ---- | ----- | ------ |  | - | ------ | ----- | 
|                                             |       |      | Years Ended December 31,
|                                             |       |      |                         
|(dollars in thousands)                       |       | 2001 |                          | 2000 |  | 1999
|                                             |       |      |                          |      |  |     
|Cost of sales                                |       | $    | (2,500                   | )    |  | $    | 9,700 |        |  | $ | 8,700  |      
|                                            
|                                            
|                                            
|                                            
|Selling, general and administrative expenses |       |      | 3,200                    |      |  |      | 555   |        |  |   | (2,399 | )    
|                                            
|                                            
|                                            
|                                            
|Other income (expense)                       |       |      |                         |      |  |      |      |        |  |   | (2,094 | )    
|                                             |       |      |                          |      |  |      |       |        |  |   |        |      
|                                             | Total |      | $                        | 700  |  |      | $     | 10,255 |  |   | $      | 4,207 | 
|                                             |       |      |                          |      |  |      |       |        |  |   |        |      

For more information about these
charges (credits), refer to Notes 5, 6 and 12 to our
consolidated financial statements.

Critical Accounting Policies and Estimates  Our 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 generally accepted in the United States. 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, accrued contract losses, bad debts, 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. Our net revenues generally consist of transaction
processing and service fees, decision support fees, software licensing,
maintenance and support fees, government service fees, and information
technology consulting and business process management services fees. 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 through electronic funds
transfer networks and settling the funds with the financial institutions
involved in the transactions. Additionally, these services include
monitoring ATMs and point-of-sale devices 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. We
also receive fees paid by consumers utilizing ATM machines owned or
managed by us and interchange fees paid by their banks. Government
services fees are recognized in the period services are provided based
on monthly fees per benefits recipient.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Decision support fees are recognized as revenue in the period the
services are provided. Decision support                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

6



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| |   |  | 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
aggregate dollar value of checks authorized by the retailer or other
similar measures, depending on the product and service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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.
|
| |  |  | The Company also provides information technology consulting and
business process management services. Recognition of revenue from
providing such services is generally recognized under two methods,
depending on contractual terms. Under the time and materials method,
which is relevant to most 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 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 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 fair value,
collectibility of license fees, and projections of costs to complete projects
for our customers.

Our intangible assets consist primarily of goodwill, capitalized software costs
and acquired customer 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.

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 over no longer than five years.
Software developed for resale is carried at the lesser of amortized cost or net
realizable value.

The process of evaluating goodwill and other intangible assets including
capitalized software costs and customer contract costs 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.

We maintain a reserve for expected future losses on certain electronic benefit
transfer 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 our estimates. 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

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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. If the financial
condition of our customers were to deteriorate, thereby impairing their ability
to make payments, additional allowances may be required.

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. 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. 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 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.

As permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, we continue to account for our
employee stock-based compensation in accordance with Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. No
compensation cost has been recognized for fixed stock options issued under our
option programs. We disclosed pro forma net income (loss) and net income (loss)
per share as if the fair value method of SFAS No. 123 had been used. Had we
elected to utilize SFAS No. 123 to account for our stock-based compensation,
our reported net income (loss) would have been $26.5 million, $0.6 million and
$(10.6) million for the years ended December 31, 2001, 2000 and 1999,
respectively. Our earnings (loss) per diluted share would have been $0.56,
$0.01 and $(0.27) for the years ended December 31, 2001, 2000 and 1999,
respectively. See Note 8 to our consolidated financial statements for a full
discussion of our stock based compensation plans.

8



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RECENT EVENTS

Acquisition of Hanco Systems  On January 31, 2002, we purchased substantially
all of the U.S. ATM-related assets of Hanco Systems, Inc., an independent ATM
deployment and management company (Hanco). We paid approximately $11.4
million in cash, plus an additional amount for outstanding accounts receivable
of Hanco and the assumption of certain of its liabilities. Hanco managed a
network of approximately 2,500 ATMs in 30 states. We are actively pursuing the
acquisition of the ATM portfolios of other independent ATM deployment and
management companies.

Transactions with STAR  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, Concord EFS licensed our EFT software and contracted for the
long-term maintenance thereof and for professional services to assist in the
migration effort. The license to Concord EFS represented our largest software
licensing transaction to date. The transition of the processing for the STAR
network to Concord EFS is currently scheduled to be completed by the fourth
quarter of 2002. Concord EFS will pay us fixed monthly fees for the transaction
processing we will perform for the STAR network during the transition period
and we expect to see the revenues from our relationship with STAR decline
substantially from historical levels in future periods. Including software
license and maintenance fees and fees for processing transactions for STAR,
Concord EFS accounted for approximately $56.2 million of net revenues during
the year ended December 31, 2001, or approximately 11% (before reimbursed
expenses) of our total net revenues in that year. We do not expect that the
fees we received from Concord EFS in 2001 will recur at comparable levels in
future periods and we currently estimate that the total net revenues we will
recognize from our relationship with Concord EFS in 2002 will approximate $25
million. Approximately 40% of this amount is expected to be recognized in the
first quarter of 2002 and substantially all of the remaining balance is
expected to occur ratably in the second and third quarters.

Acquisition of Access Cash International, L.L.C.- In March 2000, we paid cash
of $20.0 million for an approximately 24% interest in Access Cash International
L.L.C., a limited liability company that provides automated teller machine
(ATM) management services. 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 deployed. We and ACI entered into an agreement,
dated June 29, 2001 (Amendment Agreement), to amend the ATM deployment and
management agreement whereby ACI agreed to assign its revenue from equipment
sales and maintenance during the second quarter of 2001 to us in order to
settle various disputes that had arisen regarding ACIs performance under the
ATM deployment and management agreement.

The Amendment Agreement also amended the ATM deployment and management
agreement so that, commencing in July 2001, we assumed the obligation for
future ATM equipment sales and related maintenance and agreed to pay ACI a
fixed monthly fee of $0.7 million to support these activities. We retained the
right to cancel this feature of the Amendment Agreement if the equipment sales
and maintenance revenues did not exceed $0.6 million per month. The Amendment
Agreement also provided that we would pay ACI an additional $0.25 million per
month under the ATM deployment and management agreement to provide further
incentives to ACI to support our sales efforts and to defray the cost to ACI of
doing so. The Amendment Agreement also extended the minimum term of the ATM
deployment and management agreement through March 31, 2002.

We and the then majority owner of ACI also entered into an agreement, dated
July 2, 2001 (Letter Agreement), acknowledging our mutual desire to pursue a
transaction by which we would acquire the remaining 76% of ACI. The Letter
Agreement required us to pay $150,000 to the other owners of ACI if we had not
acquired the remaining equity interests in ACI by July 31, 2001 with additional
payments becoming due if we had not acquired the remaining equity interests in
ACI by subsequent milestone dates through March 31, 2002. In addition, the
Letter Agreement required us to pay the other owners of ACI $200,000 in
exchange for their agreement not to pursue other potential purchasers of their
equity interests in ACI.

In February 2002, in response to questions raised by a former ACI employee
regarding the accounting for the Amendment Agreement, we conducted a review of
the Amendment Agreement and the Letter Agreement. Based on the review, we
concluded that these two agreements are inter-dependent and in substance are
one agreement that became effective in July 2001, and that the various elements
of the two agreements cannot be economically separated so as to support
accounting for each element independently. As a result, the payments among ACI,
us and

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the owner of the remaining equity interests in ACI should have been accounted
for as advances and repayments with the net amount being an increase or
decrease to the purchase price for our acquisition of the remaining equity
interests in ACI, rather than as revenues and expenses. Previously, we had
recorded revenue of $2.1 million in the three months ended June 30, 2001, based
on ACIs assignment in the Amendment Agreement of its equipment sales in the
second quarter of 2001 to us to settle disputes related to an existing ATM
deployment and management agreement, and we had also previously recorded in the
three months ended September 30, 2001, revenues of $2.4 million for payments
received from ACI and $3.2 million in costs of revenue for payments made in
accordance with the two agreements. In March 2002, we restated our consolidated
financial statements included in our second and third quarter reports on Form
10-Q to account for the transactions resulting from these two agreements as
discussed above and to record the appropriate related adjustments to the
provision for income taxes and our equity in the earnings of ACI.

Webtel Investment  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 $2.5 million (AUD) in Webtel in 2001 and has committed to invest an
additional $1.5 million (AUD) in Webtel upon the satisfaction of certain
conditions specified in such agreement.

SEC Inquiry  On March 8, 2002 we received a letter from a Staff Accountant at
the Central Regional Office of the Securities and Exchange Commission (the
SEC) stating that the SEC is conducting an inquiry of us and requesting our
voluntary assistance in connection with the provision of certain documents
relating to our 2001 financial results and certain transactions between us and
ACI, among other things. The letter from the SEC states that the inquiry is
non-public and that it should not be construed as an indication that the SEC
believes any violation of law has occurred. We intend to cooperate fully with
the SEC in resolving this matter. We may, however, be the subject of additional
inquiries or become subject to a fine or other liabilities.

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:

|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |       | 
|------------------------------------------------------------------------------ | --------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                                                               |                       |  | Years Ended December 31,
|                                                                               |                       |  |                         
|                                                                               |                       |  | 2001                     |       | 2000 |  | 1999
|                                                                               |                       |  |                          |       |      |  |     
|Net revenue                                                                    |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Payment systems and services                                                   |                       |  | 90.7                     | %     |      |  | 88.7 | %     |  |  | 83.5 | %    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Government services                                                            |                       |  | 9.3                      |       |      |  | 11.3 |       |  |  | 16.5 |      
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                               | Total net revenues    |  |                          | 100.0 |      |  |      | 100.0 |  |  |      | 100.0 | 
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Cost of revenue                                                                |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Payment systems and services                                                   |                       |  | 56.8                     |       |      |  | 54.6 |       |  |  | 50.3 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Government services                                                            |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Cost of revenue excluding loss contract and asset impairment
charges (credits) |                       |  | 6.1                      |       |      |  | 8.0  |       |  |  | 13.5 |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Loss contract and asset impairment charges (credits)                           |                       |  | (0.5                     | )     |      |  | 2.2  |       |  |  | 2.7  |      
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                               | Total cost of revenue |  |                          | 62.4  |      |  |      | 64.8  |  |  |      | 66.5  | 
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Gross margin                                                                   |                       |  | 37.6                     |       |      |  | 35.2 |       |  |  | 33.5 |      
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Selling, general and administrative expense                                    |                       |  | 28.1                     |       |      |  | 33.3 |       |  |  | 33.8 |      
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Income (loss) from operations                                                  |                       |  | 9.5                      |       |      |  | 1.9  |       |  |  | (0.3 | )    
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Other income (expense)                                                         |                       |  |                          |       |      |  |      |       |  |  |      |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Legal proceedings                                                              |                       |  |                         |       |      |  |     |       |  |  | 0.6  |      
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Equity in loss of investee                                                     |                       |  | (0.2                     | )     |      |  | (0.1 | )     |  |  | (0.3 | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Interest expense                                                               |                       |  | (0.1                     | )     |      |  | (0.9 | )     |  |  | (0.8 | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Interest and other income (expense)                                            |                       |  | 0.3                      |       |      |  | 0.6  |       |  |  | (0.0 | )    
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Income (loss) before income taxes                                              |                       |  | 9.5                      |       |      |  | 1.5  |       |  |  | (0.8 | )    
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Provision for income taxes                                                     |                       |  | (3.3                     | )     |      |  | (0.7 | )     |  |  | (1.7 | )    
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      
|Net income (loss)                                                              |                       |  | 6.2                      | %     |      |  | 0.8  | %     |  |  | (2.5 | )%   
|                                                                               |                       |  |                          |       |      |  |      |       |  |  |      |      

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.

Payment systems and services  Net revenue increased $97.4 million, or
25.0%, to $487.1 million in 2001 from $389.7 million in 2000. A variety of
factors contributed to the increase in revenue. Total revenue from ACI,
including pre-acquisition revenue from the ATM deployment and management
agreement, vault cash agreement and

10



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processing agreement in effect prior to our acquisition of ACI and from
the ownership of ACI after our acquisition, increased by $49.7 million to $72.4
million in 2001 from approximately $22.7 million in 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
Concord EFS 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 this
segments 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 most significant customers.

Total sales to Deluxe were $47.6 million, $59.3 million and $9.8 million
for the years ended December 31, 2001, 2000 and 1999, 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. Although Deluxe has indicated to us that it expects to purchase software
development services from us in 2002 at approximately the $43 million level
contemplated by our outsourcing agreement with it, further efforts at expense
reductions by Deluxe could cause the revenues we receive from Deluxe to
continue to decline. The loss of Deluxe as a customer or a continuing material
reduction in the amount of services it orders from us would materially
adversely affect our future results of operations and financial condition. 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.

Government services  Net revenue increased $0.5 million, or 1.0%, to
$50.1 million in 2001 from $49.6 million in 2000. The increase in revenue for
2001 compared to 2000 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. Although we continue to pursue EBT contracts where we can obtain them on
a profitable basis, we expect to see a decline in the revenues of the
government services segment in 2002 if our Medicaid eligibility verification
contract with the state of New York expires. This contract provided us $11.9
million of revenue in 2001 and was originally scheduled to expire at the end of
October 2001. New York has extended this agreement through October 2002. It is
possible that we may receive further extensions, but we are unable to predict
whether we in fact will receive any such extensions. No other EBT contracts are
scheduled to expire until the fourth quarter of 2002 (at which time a contract
that generated $1.8 million of revenue in 2001 is scheduled to expire),
although all of our government services contracts are terminable by the
contracting governmental entity at any time. We have recently been informed
that we have been awarded the prime EBT contracts for the States of Alabama and
Missouri. The contract with Alabama will commence in June 2002 and we believe
the Missouri agreement will commence in January 2003. When fully operational,
these relationships are expected to generate an aggregate of approximately $4.5
million in annual incremental revenues over the amounts we received from these
states in 2001 by reason of our subcontract with Citibank.

COST OF REVENUE  Cost of revenue increased $50.2 million, or 17.6%, to
$335.1 million in 2001 from $284.9 million in 2000. As a percentage of net
revenue, cost of revenue was 62.4% in 2001, compared to 64.8% in

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2000. Excluding a net credit of $2.5 million and a net charge of $9.7
million to our reserve for future losses on certain government EBT contracts
taken in 2001 and 2000, respectively, cost of revenue, as a percentage of net
revenue was 62.8% and 62.6% in 2001 and 2000, respectively.

Payment systems and services  Cost of revenue increased $65.0 million, or
27.1%, to $305.1 million in 2001 from $240.1 million in 2000. As a percentage
of payment systems and services net revenue, cost of revenue increased to 62.6%
in 2001 as compared to 61.6% in 2000. Total cost of revenue related to ACI 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. Costs associated
with the new call center in Mumbai, India of approximately $9.5 million also
contributed to the increase in cost of revenue over last year.
Telecommunication costs increased approximately $4.3 million 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.
Additionally, cost of revenue in the payment systems and services segment has
increased as a result of costs associated with the introduction of newer
products and services. Software license revenues of $42.4 million in 2001 did
not contribute significantly to cost of revenue.

Government services  Cost of revenue decreased $14.8 million, or 33.0%,
to $30.0 million in 2001 from $44.8 million in 2000. As a percentage of
government services net revenue, cost of revenue decreased to 59.9% in 2001 as
compared to 90.4% in 2000. Excluding a net credit of $2.5 million and a net
charge of $9.7 million to our reserve for future losses on certain government
EBT contracts taken in 2001 and 2000, respectively, cost of revenue was $32.5
million in 2001 and $35.1 million in 2000. Excluding these items, cost of
revenue as a percentage of net revenue was 64.9% in 2001 and 70.8% in 2000. The
decrease in cost of revenue, exclusive of the credits and charges incurred in
2001 and 2000, of $2.6 million relates to a reduction in direct costs resulting
from expiration of an electronic benefit switching contract in the third
quarter of 2000, a decrease in rental expense associated with the expiration of
a lease for certain equipment and a reduction in maintenance costs.

GROSS MARGIN  Gross margin increased $47.7 million, or 30.9%, to $202.1
million during 2001 from $154.4 million in 2000. As a percentage of net
revenue, gross margin increased to 37.6% during 2001 as compared to 35.2% in
2000. Excluding net loss contract credits of $2.5 million in 2001 and charges
of $9.7 million recorded in 2000, gross margin as a percentage of net revenue
was 37.2% in 2001 and 37.4% in 2000. Factors causing gross margin to increase
in 2001 include an additional $31 million in software license revenue in 2001
as these revenues carry high gross margins and the new call center in Mumbai
that also made a contribution to gross margin. Cost savings in the government
services business also contributed to increased gross margins. 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 gross margin and the
underutilization of personnel allocated to our software development and
business process outsourcing agreement with Deluxe also contributed to the
decrease in gross margin.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES  SG&A expenses
increased $5.2 million, or 3.6%, to $151.3 million during 2001 from $146.1
million in 2000. In 2001 we incurred a $3.2 million charge related to the
closure of our operations in Bothell, Washington. In 2000, we incurred charges
of $6.1 million related to our separation from Deluxe. Excluding these charges,
SG&A expenses increased $8.1 million, or 5.8%, to $148.1 million during 2001
from $140.0 million in 2000. The increase in SG&A expense over last year is
primarily related to our growth. Depreciation and amortization expense included
in SG&A increased $5.8 million in 2001 reflecting the high level of capital
spending in 2000 and to a lesser degree, 2001. In addition, the acquisition of
ACI in October 2001 contributed $2.1 million to SG&A expenses. Increased
hosting costs associated with our DebitBureau database and costs to support the
demands associated with becoming a public company offset reduced promotion and
advertising expenses, costs savings in the government services business related
to personnel costs and the absence of allocated costs from Deluxe. Excluding
the $3.2 million incurred for the closure of the Bothell operations in 2001 and
the $6.1 million incurred in 2000 for costs related to our separation from
Deluxe, SG&A expense as a percentage of net revenue decreased to 27.6% in 2001
from 31.9% in 2000.

OTHER INCOME (EXPENSE)  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-

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Off. These savings were partially offset by costs associated with the
disposal of certain computer equipment and the write-off of certain leasehold
improvements when we moved our corporate headquarters in the fourth quarter of
2001. The equity in loss of investee 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. The income tax benefit of
these losses was not previously recognized. 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 such businesses that operate within designated geographic
locations. 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.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

NET REVENUE  Net revenue increased $116.9 million, or 36.3%, to $439.3
million in 2000 from $322.4 million in 1999. On a full year pro forma basis
assuming our April 1999 acquisition of the remaining 50% interest in our joint
venture with HCL occurred on January 1, 1999, net revenue increased $112.6
million, or 34.5%, to $439.3 million in 2000 from $326.7 million in 1999.

Payment systems and services  Net revenue increased $120.4 million, or
44.7%, to $389.7 million in 2000 from $269.3 million in 1999. Net revenue was
not recorded for our joint venture with HCL in the first quarter of 1999
because the equity method of accounting was used prior to our acquisition of
the remaining 50% interest in this entity in April 1999. On a pro forma basis
taking into account this acquisition as if it had occurred on January 1, 1999,
payment systems and services net revenue increased $116.1 million, or 42.4%, to
$389.7 million in 2000 from $273.6 million in 1999.

Two new agreements contributed significantly to the increase in our
revenues in 2000. Our software development and outsourcing agreement with
Deluxe contributed $59.3 million in revenue during the year ended December 31,
2000. Revenue for similar services provided to Deluxe in 1999 amounted to $9.8
million. In addition, our September 2000 ATM deployment and management
agreement with ACI, in which we then owned a 24% interest, contributed
approximately $19.9 million in incremental revenue and when coupled with our
existing vault cash and processing agreements, resulted in total revenue of
$22.7 million.

Our collection service offerings contributed significantly to our revenue
growth by generating incremental revenue of $14 million over 1999. Increases in
transaction processing and account inquiry verification volumes of 8% and
16.8%, respectively, in 2000 over 1999, also contributed to our increase in
revenue, although the revenue increases related to increased transaction
processing volumes were offset, to some extent, by lower fees for new customers
and customers renewing their agreements. The increase in revenue related to
account verification inquiry volumes was further enhanced by price increases.
Total net revenue from Deluxe was $59.3 million, or 14.2% of our total net
revenues in 2000 (before reimbursed expenses) and $9.8 million, or 3.2% of our total net revenues for
1999 before reimbursed expenses.

Government services  Net revenues decreased $3.5 million, or 6.6%, to
$49.6 million during 2000 from $53.1 million in 1999. The decrease was
primarily due to the expiration of an electronic benefit transfer contract in
the second quarter of 2000 partially offset by increased revenues from Medicaid
eligibility verification services performed for the State of New York.

COST OF REVENUE  Cost of revenue increased $70.6 million, or 32.9%, to
$284.9 million in 2000 from $214.3 million in 1999. As a percentage of net
revenue, cost of revenue was 64.8% in 2000, compared to 66.5% in 1999.
Excluding net charges of $9.7 million and $8.7 million for loss contract and
asset impairment charges in the government services business taken in 2000 and
1999, respectively, cost of revenue, as a percentage of net revenue was 62.6%
and 63.8% in 2000 and 1999, respectively. On a full year pro forma basis
assuming our April 1999 acquisition of the remaining 50% interest in our Indian
joint venture with HCL occurred on January 1, 1999 and excluding loss contract
and asset impairment charges, cost of revenue as a percentage of net revenue
was 62.6% and 63.8% in 2000 and 1999, respectively.

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Payment systems and services  Cost of revenue increased $78.1 million, or
48.2%, to $240.1 million in 2000 from $162.0 million in 1999. As a percentage
of payment systems and services net revenue, cost of revenue increased to 61.6%
in 2000 as compared to 60.2% in 1999. On a full year pro forma basis assuming
our April 1999 acquisition of the remaining 50% interest in our Indian joint
venture with HCL occurred on January 1, 1999, cost of revenue increased $75.3
million, or 45.7%, to $240.1 million in 2000 from $164.8 million in 1999. On a
pro forma basis, cost of revenue was 60.2% of payment systems and services net
revenue in 1999.

The increase in cost of revenue was driven primarily by our software
development and outsourcing agreement with Deluxe, increased collections and
transaction processing activity and initial costs associated with both the new
ATM deployment agreement and the opening of a new call center in Mumbai, India.
The new call center generated minimal revenue in 2000 while the ATM deployment
agreement exhibited a loss of $1.4 million. Including the vault cash and
processing agreements with ACI, total cost of revenue associated with the
relationship amounted to $21.2 million. These increases in cost of revenue were
partially offset by an increasing proportion of work being performed at lower
cost in India, a shift toward electronic customer inquiries in the account
verification business that generates higher margins and decreased reliance on
subcontractors.

Government services  Cost of revenue decreased $7.5 million, or 14.3%, to
$44.8 million in 2000 from $52.3 million in 1999. As a percentage of government
services net revenue, cost of revenue decreased to 90.4% in 2000 as compared to
98.5% in 1999. Excluding $9.7 million and $8.7 million of net loss contract
charges recorded in 2000 and 1999, respectively, cost of revenue as a
percentage of net revenue was 70.8% and 82.1% for 2000 and 1999, respectively.
The reduction in cost of revenue on a percentage basis for the year ended
December 31, 2000 (exclusive of the $9.7 million charge) is a reflection of
programs implemented to serve our customers more efficiently and reduce our
costs as well as reduced costs associated with the expiration of an EBT
contract.

GROSS MARGIN  Gross margin increased $46.3 million, or 42.8%, to $154.4
million during 2000 from $108.1 million in 1999. As a percentage of net
revenue, gross margin increased to 35.2% during 2000 as compared to 33.5% in
1999. Excluding net loss contract and other charges of $9.7 million and $8.7
million recorded in 2000 and 1999, respectively, gross margin as a percentage
of net revenue was 37.4% in 2000 and 36.2% in 1999. Excluding the net loss
contract charges, gross margin, as a percentage of net revenue was 36.2% for
1999 on a pro forma basis taking into account our April 1999 acquisition of the
remaining 50% interest in our Indian joint venture.

SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSES  SG&A expenses
increased $37.0 million, or 33.9%, to $146.1 million during 2000 from $109.1
million in 1999. We incurred $6.1 million in 2000 for one-time transition costs
related to the separation of the Company from Deluxe. These transition and
severance costs contributed to the increase in SG&A expense compared to 1999.
We do not expect to incur further costs and expenses associated with the
separation from Deluxe in future periods. The increase in SG&A in 2000 over
1999 was also related to the acquisition of the remaining 50% interest in our
joint venture with HCL in April 1999. No SG&A expenses were recorded for this
entity in the first quarter of 1999 because the equity method of accounting was
used prior to this acquisition. Other factors contributing to the increase were
additional promotional advertising geared toward creating brand awareness of
the eFunds name, infrastructure investments needed to support higher levels of
business in the payment systems and services area both in the United States and
India related to our new software development and outsourcing agreement with
Deluxe and increased goodwill amortization due to the acquisition of an
electronic check conversion company in February 1999. Also, in the first
quarter of 1999, $2.4 million of restructuring accruals from prior periods were
reversed, reducing SG&A expenses for that year.

As a percentage of net revenue, SG&A expenses decreased to 33.3% during
2000 compared to 33.8% in 1999. Assuming our April 1999 acquisition of the
remaining 50% interest in our Indian joint venture occurred on January 1, 1999
and excluding the $6.1 million incurred in 2000 for costs related to the
spin-off and $2.9 million of one-time costs related to the acquisition incurred
in 1999, SG&A expense as a percentage of net revenue decreased to 31.9% in 2000
from 32.9% in 1999.

OTHER INCOME (EXPENSE)  Other income (expense) was $(1.6) million during
2000 compared to $(1.6) million for 1999. Other income (expense) in 2000
includes the interest earned on the proceeds of our IPO offset by interest
expense related to our inter-company balance payable to Deluxe, interest on our
India line of credit, equity losses of $0.5 million from our 24% investment in
ACI and $1.0 million of goodwill amortization related to that investment. In
1999, other income (expense) included interest income earned from our
intercompany balance receivable from Deluxe and reversals of $2.1 million of
reserves for legal accruals offset by losses recorded under the equity method
of accounting for our Indian joint venture and interest on our India line of
credit. Prior to our

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acquisition of the remaining ownership interest in our operations in India in
April 1999, we recorded our 50% share of the joint ventures losses in interest
and other expense. For the majority of 2000, net intercompany balances were in
a payable position to Deluxe.

PROVISION
FOR INCOME TAXES  The provision for income taxes was $3.3
million in 2000 compared to $5.6 million in 1999 resulting in effective tax
rates of 49% and (212)%, respectively. The decrease in the tax provision for
2000 was due to lower taxes on foreign earnings partially offset by
non-deductible goodwill amortization. Our Indian software development and
business process management operations qualify for tax incentives associated
with such businesses that operate within designated geographic locations. 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 in 2000 was to reduce income tax
expense by approximately $1.8 million.

LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION

At December 31, 2001, cash and cash equivalents were $101.9 million. We
had $1.1 million of restricted cash that we temporarily hold in custodial
accounts on behalf of clients and had supplied $21.1 million in cash to ATMs.
Prior to our acquisition of ACI, we had agreed to make up to $35 million
available for supplying cash to ATMs. The agreements with ACI provided that we
would retain control over and ownership of this cash. Subject to our approval,
ACI determined the level of cash required to be maintained within the ATMs up
to the maximum of $35 million. We received a fee for making such cash
available. The agreements, and the corresponding restrictions on the ATM vault
cash, ceased to be effective following our acquisition of ACI last fall.
Accordingly, we have reclassified the cash in ATMs that had been classified as
restricted at December 31, 2000 to cash and cash equivalents during 2001. ACI
also has a vault cash agreement with a financial institution. The agreement
provides that the financial institution has the option to provide cash services
for ATMs deployed by ACI on a case-by-case basis. ACI pays a monthly fee of the
New York Prime, as defined, plus one half percent on the average daily balance
of funds provided to the ATMs. The bank may terminate the agreement if it
incurs material losses. The Company may terminate the agreement upon payment of
a penalty. The initial term of the agreement expires in November 2003. Total
cash provided as a result of this agreement was $17.8 million at December 31,
2001.

Prior to our acquisition of ACI, we had also committed to guarantee up to
$3.0 million (CAD) of equipment lease payments for ACIs Canadian customers and
through December 31, 2001, we had guaranteed lease payments amounting to $1.3
million (USD) or $2.1 million (CAD). Through December 31, 2001, we have been
required to make payments of $59,000 pursuant to these guarantees.

In September 2001, we obtained a new revolving credit facility in the
amount of $20.0 million to replace an existing facility that was maturing. The
lender reissued an irrevocable standby letter of credit in the amount of $4.0
million to guarantee our 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, our unused borrowing capacity under the new
facility was increased from $16.0 million to $19.0 million. We did not borrow
any funds under this facility through December 31, 2001. Loans under this
facility will bear interest at the applicable prime rate or the LIBOR rate plus
a margin determined by reference to our leverage ratio, as defined in the loan
documents. The facility is guaranteed by certain of our subsidiaries and
requires us to comply with certain financial and non-financial covenants. We
are currently in compliance with all of these requirements. This facility has a
term of one year.

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. 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 subsequently requested that the
amount available for borrowing under the facility be reduced to $1.5 million.
We now use the facility primarily for the purpose of securing letters of credit
issued in the ordinary course of business. This facility matures on September
30, 2002. 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%.
We did not borrow against this credit facility during the remainder of 2001. As
of December 31, 2000, $5.3 million was outstanding at an interest rate of
15.4%. 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 down on this
line during 1999 was $2.7 million at a weighted average interest rate of 15.8%.

In connection with our government services business and our collection
activities, we post surety bonds with state agencies guaranteeing our
performance of certain obligations related to contracts or state requirements.
The

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aggregate amount of such bonds outstanding at December 31, 2001 was $7.8
million. We have also pledged $1.3 million of time deposits maintained in
Indian banks as collateral for guarantees of our performance under a software
development contract.

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, 2001:

|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|--------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---------- | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                        |  | Payments Due by Period
|                                        |  |                       
|(dollars in thousands)                  |  | Total                  |         | 2002 |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | Thereafter
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |           
|Capital lease and debt obligations      |  | $                      | 5,310   |      |  | $    | 2,781  |      |  | $    | 1,417  |      |  | $          | 1,106  |  |  | $ | 6      |  |  | $ |       |  |  | $ |       | 
|                                       
|                                       
|                                       
|                                       
|Outsourcing and maintenance obligations |  |                        | 58,870  |      |  |      | 14,793 |      |  |      | 13,429 |      |  |            | 12,743 |  |  |   | 12,423 |  |  |   | 5,482  |  |  |   |       | 
|                                       
|                                       
|                                       
|                                       
|Operating leases                        |  |                        | 64,083  |      |  |      | 14,453 |      |  |      | 11,354 |      |  |            | 9,257  |  |  |   | 5,580  |  |  |   | 4,929  |  |  |   | 18,510 | 
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|Total contractual cash obligation       |  | $                      | 128,263 |      |  | $    | 32,027 |      |  | $    | 26,200 |      |  | $          | 23,106 |  |  | $ | 18,009 |  |  | $ | 10,411 |  |  | $ | 18,510 | 
|                                        |  |                        |         |      |  |      |        |      |  |      |        |      |  |            |        |  |  |   |        |  |  |   |        |  |  |   |        | 

The following table sets forth our future commercial commitments as of
December 31, 2001:

|                            |  |                                 |        |      |  |      |       |      |  |      |     |      |  |            |     |  |  |   |     |  |  |   |       |  |  |   |   | 
|--------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ----- | ---- |  | ---- | --- | ---- |  | ---------- | --- |  |  | - | --- |  |  | - | ----- |  |  | - | - | 
|                            |  | Commitment Expiration by Period
|                            |  |                                
|(dollars in thousands)      |  | Total                           |        | 2002 |  | 2003 |       | 2004 |  | 2005 |     | 2006 |  | Thereafter
|                            |  |                                 |        |      |  |      |       |      |  |      |     |      |  |           
|Letters of credit and other |  | $                               | 2,357  |      |  | $    | 2,042 |      |  | $    |    |      |  | $          | 315 |  |  | $ |    |  |  | $ |      |  |  | $ |  | 
|                           
|                           
|                           
|                           
|Guarantees                  |  |                                 | 1,320  |      |  |      | 383   |      |  |      | 360 |      |  |            | 311 |  |  |   | 204 |  |  |   | 62    |  |  |   |  | 
|                           
|                           
|                           
|                           
|Performance bonds           |  |                                 | 7,829  |      |  |      | 6,489 |      |  |      | 215 |      |  |            | 125 |  |  |   |    |  |  |   | 1,000 |  |  |   |  | 
|                            |  |                                 |        |      |  |      |       |      |  |      |     |      |  |            |     |  |  |   |     |  |  |   |       |  |  |   |   | 
|Total commitments           |  | $                               | 11,506 |      |  | $    | 8,914 |      |  | $    | 575 |      |  | $          | 751 |  |  | $ | 204 |  |  | $ | 1,062 |  |  | $ |  | 
|                            |  |                                 |        |      |  |      |       |      |  |      |     |      |  |            |     |  |  |   |     |  |  |   |       |  |  |   |   | 

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)                    |  | 2001                     |         | 2000
|                                          |  |                          |         |     
|Cash provided by operating activities     |  | $                        | 85,022  |      |  | $ | 43,769  |  
|                                         
|                                         
|                                         
|                                         
|Cash used in investing activities         |  |                          | (72,555 | )    |  |   | (61,219 | )
|                                         
|                                         
|                                         
|                                         
|Cash provided by financing activities     |  |                          | 10,673  |      |  |   | 64,459  |  
|                                         
|                                         
|                                         
|                                         
|Adjustment for lag in financial reporting |  |                          |        |      |  |   | (4,127  | )
|                                          |  |                          |         |      |  |   |         |  
|Net increase in cash and cash equivalents |  | $                        | 23,140  |      |  | $ | 42,882  |  
|                                          |  |                          |         |      |  |   |         |  

Cash flows from operating activities were approximately $85.0 million and
$43.8 million for the years ended December 31, 2001 and 2000, respectively. The
increase in operating cash flow results primarily from the increase in our net
income of $29.9 million, the lapse of restrictions on our cash because the
acquisition of ACI enabled us to reclassify approximately $27.7 million of cash
from restricted to unrestricted cash as well as an increase in non-cash
expenses. Offsetting these items to some degree was an increase in accounts
receivable of $15.4 million and a decrease in accounts payable of $16.3
million. The increase in accounts receivable is reflective of our revenue
growth and a change in the way we process our billings to and from Deluxe.
Prior to the Spin-Off, all billing activity with Deluxe was settled through a
single intercompany account. Subsequent to the Spin-Off, we send Deluxe
invoices which are recorded as receivables. Excluding the effect of our change
in billing methods with Deluxe, days sales in accounts receivable was 45 days
at December 31, 2001 compared to 43 days at December 31, 2000. The decrease in
accounts payable resulted from a temporary suspension of payments at December
31, 2000 as we separated our payables systems from those of Deluxe. This
suspension was not repeated in 2001.

Cash used in investing activities was $72.6 million for the year ended
December 31, 2001. Our investing activities primarily relate to the acquisition
of the remaining 76% of ACI and our investment in Webtel for a total of $40.6
million and purchases of fixed assets and expenditures for software of $30.9
million. Cash used in investing activities was $61.2 million for the year ended
December 31, 2000 and primarily related to the investment of $20.0 million to
purchase an initial 24% interest in ACI and purchases of capital assets and
software investments of $41.9 million.

Cash provided by financing activities was $10.7 million for 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. The remaining $1.5 million remains in deposit with
the

16



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##### Table of Contents



lender as collateral for letters of credit issued under 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. Cash
provided from financing activities was $64.5 million for the year ended
December 31, 2000 as a result of our IPO in June 2000. In addition, Deluxe
provided $10.1 million to increase our capitalization in preparation for the
Spin-Off and we had net repayments of borrowings of approximately $0.3 million.
We also placed $10.0 million in a time deposit account as collateral to support
our guarantee of our Indian credit facility.

The adjustment for the lag in financial reporting during December 1999
represents the net cash flows of our Indian operations. Previously, this
business reported its results of operations and financial position on a
one-month lag. In January 2000, this business changed its reporting period to
coincide with the rest of our Company. We believe that cash generated from
operations, borrowings under our available credit facility and cash on hand
will provide sufficient funds for our operations for the foreseeable future.

RECENT DEVELOPMENTS

In March 2000, we paid cash of $20.0 million for an approximate 24%
interest in ACI, a limited liability company that provides automated teller
machines services. Effective October 1, 2001, we acquired the remaining
approximately 76% of the equity interests in ACI for approximately $44.6
million, of which approximately $40.3 million was paid in cash on or before the
closing date of the Acquisition. Payment of the $4.3 million balance of the
purchase price is subject to the satisfaction of certain post-closing
conditions.

On January 31, 2002, we purchased substantially all of the U.S.
ATM-related assets of Hanco Systems, Inc., an independent ATM deployment and
management company (Hanco). We paid approximately $11.4 million in cash, plus
an additional amount for outstanding accounts receivable of Hanco and the
assumption of certain of its liabilities. Hanco managed a network of
approximately 2,500 ATMs in 30 states.

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2001, we adopted Statement of Financial Accounting Standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended, which provides guidance on accounting for derivatives and hedging
transactions. The effect of this pronouncement did not have a material impact
on our reported operating results or financial position.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, which established new standards for accounting and
reporting requirements for business combinations and requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Use of the pooling-of-interests method is prohibited. We implemented
SFAS No. 141 in connection with our October 2001 acquisition of the remaining
outstanding equity interest in ACI. The implementation did not have a material
impact on our consolidated financial statements.

In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, that became effective for us on January 1, 2002. SFAS No. 142 requires,
among other things, the cessation of the amortization of goodwill.
The Company adopted SFAS No. 142 in connection with its
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. SFAS No. 142 also requires
us to complete a transitional goodwill impairment test on or before June 30,
2002. We are assessing the total impact the foregoing requirements will have on
our consolidated balance sheet and statement of operations. Goodwill
amortization for the years ended December 31, 2001, 2000 and 1999 amounted to
$3.9 million, $4.0 million and $3.0 million, respectively.

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 Long-Lived Assets to Be Disposed Of,
and certain provisions of 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. We do not believe the adoption of SFAS No. 144 will have a
material impact on our consolidated financial position or results of
operations.

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##### Table of Contents



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, 2001 and 2000, and the related
consolidated statements of operations, comprehensive income (loss),
stockholders equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of iDLX Holdings NV (a consolidated subsidiary), which statements
reflect total assets constituting 9% of consolidated total assets at December
31, 2001 and revenue and net income constituting 4% and 38% respectively, of
consolidated total revenue and net income for the year ended December 31, 2001.
Those statements were audited by other auditors who have ceased operations.
The report of those other auditors has been furnished to us and our
opinion, insofar as it relates to the amounts included for iDLX Holdings NV, is
based solely on the report 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 report of the other auditors provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the report 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, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 15, the accompanying 2001 and 2000 financial statements
have been restated.

/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
February 25, 2002 (March 8, 2002 as to the second paragraph of Note 12;
November  27, 2002 as to the effects of the restatement discussed in Note 15)

18



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##### Table of Contents



EFUNDS CORPORATION
CONSOLIDATED BALANCE SHEETS
(As Restated, See Note 15)

|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |         |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- | ------------------------------------------ | ------------------------------------------ | ------------ | ------- | ----------- | -------- | ------ | ------- | ------- | ------- | 
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         | December 31
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |            
|(dollars in thousands)                                                                                                                                             |                                                      | 2001                                       |                                            | 2000        
|                                                                                                                                                                   |                                                      |                                            |                                            |             
|Current Assets:                                                                                                                                                    |                                                      |                                            |                                            |              |         |             |          |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Cash and cash equivalents                            |                                            | $                                          | 101,871      |         |             | $        | 78,731 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Deposits subject to compensating balance arrangement |                                            |                                            | 2,448        |         |             |          | 10,000 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Restricted custodial cash                            |                                            |                                            | 1,124        |         |             |          | 3,787  |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Accounts receivable  net                            |                                            |                                            | 78,488       |         |             |          | 57,825 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Deferred income taxes                                |                                            |                                            | 13,492       |         |             |          | 13,614 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Prepaid expenses and other current assets            |                                            |                                            | 14,364       |         |             |          | 7,111  |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      | Total current assets                       |                                            |              | 211,787 |             |          |        | 171,068 |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|Property and equipment  net                                                                                                                                       |                                                      |                                            | 75,638                                     |              |         |             | 77,355   |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Long-term investments                                                                                                                                              |                                                      |                                            | 2,747                                      |              |         |             | 18,500   |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Restricted cash                                                                                                                                                    |                                                      |                                            |                                           |              |         |             | 27,734   |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Intangibles:                                                                                                                                                       |                                                      |                                            |                                            |              |         |             |          |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Goodwill  net                                       |                                            |                                            | 87,151       |         |             |          | 43,019 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Software  net                                       |                                            |                                            | 35,652       |         |             |          | 33,150 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Other intangible assets  net                        |                                            |                                            | 24,780       |         |             |          | 15,004 |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      | Total intangibles  net                    |                                            |              | 147,583 |             |          |        | 91,173  |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   | Other non-current assets                             |                                            |                                            | 5,161        |         |             |          | 3,302  |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      |                                            | Total non-current assets                   |              |         | 231,129     |          |        |         | 218,064 |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      |                                            |                                            | Total assets |         | $           | 442,916  |        |         | $       | 389,132 | 
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|Current Liabilities:                                                                                                                                               |                                                      |                                            |                                            |              |         |             |          |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Accounts payable                                     |                                            | $                                          | 25,511       |         |             | $        | 29,163 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Accrued liabilities:                                 |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                                      | Accrued compensation and employee benefits |                                            |              | 17,127  |             |          |        | 18,703  |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                                      | Accrued contract losses                    |                                            |              | 14,777  |             |          |        | 22,247  |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                                      | Accrued income taxes                       |                                            |              | 6,502   |             |          |        | 4,928   |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                                      | Deferred revenue                           |                                            |              | 14,377  |             |          |        | 3,545   |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   |                                                      | Other                                      |                                            |              | 12,936  |             |          |        | 14,180  |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Borrowings on line of credit                         |                                            |                                            |             |         |             |          | 5,303  |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                   | Long-term debt due within one year                   |                                            |                                            | 2,781        |         |             |          | 2,100  |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      | Total current liabilities                  |                                            |              | 94,011  |             |          |        | 100,169 |        
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Long-term debt                                                                                                                                                     |                                                      |                                            | 2,529                                      |              |         |             | 2,244    |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Deferred income taxes                                                                                                                                              |                                                      |                                            | 7,313                                      |              |         |             | 504      |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Other long-term liabilities                                                                                                                                        |                                                      |                                            | 4,748                                      |              |         |             | 50       |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Commitments and contingencies (Notes 2, 10, 12 and 13)                                                                                                             |                                                      |                                            |                                            |              |         |             |          |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|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: 46,379,841 and 45,500,000 shares at December 31, 2001 and 2000,
respectively) |                                                      |                                            | 464                                        |              |         |             | 455      |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Additional paid-in capital                                                                                                                                         |                                                      |                                            | 407,210                                    |              |         |             | 391,699  |       
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Accumulated deficit                                                                                                                                                |                                                      |                                            | (71,049                                    | )            |         |             | (104,388 | )     
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|                                                                                                                                                                  
|Accumulated other comprehensive loss                                                                                                                               |                                                      |                                            | (2,310                                     | )            |         |             | (1,601   | )     
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      | Stockholders equity                       |                                            |              | 334,315 |             |          |        | 286,165 |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        
|                                                                                                                                                                   |                                                      |                                            | Total liabilities and stockholders equity |              | $       | 442,916     |          |        | $       | 389,132 |        
|                                                                                                                                                                   |                                                      |                                            |                                            |              |         |             |          |        |        

See Notes to Consolidated Financial Statements

19



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##### Table of Contents



EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |         |         | 
|----------------------------------------------------------- | ------------------------------------------------------------------------------- | --------------------- | ------- | ----------------------- | ------- | ------------- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                            |                                                                                 |                       |         | Year Ended December 31,
|                                                            |                                                                                 |                       |         |                        
|                                                            |                                                                                 |                       |         | 2001                    |         | 2000          |         | 1999   
|                                                            |                                                                                 |                       |         | (As Restated,           |         | (As Restated, |         |        
|(dollars and shares in thousands, except per share amounts) |                                                                                 | see Note 15)          |         | see Note 15)            |         |              
|                                                            |                                                                                 |                       |         |                         |         |              
|Net Revenue                                                 |                                                                                 | $                     | 537,159 |                         |         | $             | 439,299 |         |         | $ | 322,367 |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                            | Cost of revenue, excluding loss contract and asset impairment
charges (credits) |                       |         | 337,567                 |         |               |         | 275,167 |         |   |         | 205,617 |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Loss contract and asset impairment charges (credits)                            |                       |         | (2,500                  | )       |               |         | 9,700   |         |   |         | 8,700   |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                            |                                                                                 | Total cost of revenue |         |                         | 335,067 |               |         |         | 284,867 |   |         |         | 214,317 | 
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|Gross Margin                                                |                                                                                 |                       | 202,092 |                         |         |               | 154,432 |         |         |   | 108,050 |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Selling, general and administrative expense                                     |                       |         | 151,271                 |         |               |         | 146,056 |         |   |         | 109,138 |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                            | Income (loss) from operations                                                   |                       |         | 50,821                  |         |               |         | 8,376   |         |   |         | (1,088  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Other Income (Expense)                                      |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Legal proceedings                                                               |                       |         |                        |         |               |         |        |         |   |         | 2,094   |        
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Equity in loss of investee                                                      |                       |         | (1,097                  | )       |               |         | (500    | )       |   |         | (1,114  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest expense                                                                |                       |         | (670                    | )       |               |         | (3,897  | )       |   |         | (2,595  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Interest and other income                                                       |                       |         | 1,938                   |         |               |         | 2,803   |         |   |         | 63      |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|Income (loss) before income taxes                           |                                                                                 |                       | 50,992  |                         |         |               | 6,782   |         |         |   | (2,640  | )      
|                                                           
|                                                           
|                                                           
|                                                           
|Provision for income taxes                                  |                                                                                 |                       | (17,653 | )                       |         |               | (3,299  | )       |         |   | (5,586  | )      
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|Net income (loss)                                           |                                                                                 | $                     | 33,339  |                         |         | $             | 3,483   |         |         | $ | (8,226  | )      
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                            | Weighted average shares outstanding                                             |                       |         | 45,985                  |         |               |         | 42,788  |         |   |         | 40,000  |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|                                                            | Weighted average shares and potential dilutive shares outstanding               |                       |         | 47,445                  |         |               |         | 42,867  |         |   |         | 40,000  |        
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|Net income (loss) per share  basic                         |                                                                                 | $                     | 0.72    |                         |         | $             | 0.08    |         |         | $ | (0.21   | )      
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        
|Net income (loss) per share  diluted                       |                                                                                 | $                     | 0.70    |                         |         | $             | 0.08    |         |         | $ | (0.21   | )      
|                                                            |                                                                                 |                       |         |                         |         |               |         |         |         |   |         |        

See Notes to Consolidated Financial Statements

20



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##### Table of Contents



EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

|                          |                                          |          |                         |          |                   |   |       |        |   |   |        |        |  
|------------------------- | ---------------------------------------- | -------- | ----------------------- | -------- | ----------------- | - | ----- | ------ | - | - | ------ | ------ | -
|                          |                                          |          | Year Ended December 31,
|                          |                                          |          |                        
|                          |                                          |          | 2001                    |          | 2000              |   | 1999 
|                          |                                          |          | (As Restated, see       |          | (As Restated, see |   |      
|(dollars in thousands)    |                                          | Note 15) |                         | Note 15) |                   |   |       |       
|                          |                                          |          |                         |          |                   |   |       |       
|Net income (loss)         |                                          | $        | 33,339                  |          |                   | $ | 3,483 |        |   | $ | (8,226 | )     
|                         
|                         
|                         
|                         
|Other comprehensive loss: |                                          |          |                         |          |                   |   |       |        |   |   |        |       
|                         
|                         
|                         
|                         
|                          | Foreign currency translation adjustments |          |                         | (709     | )                 |   |       | (1,054 | ) |   |        | (419   | )
|                          |                                          |          |                         |          |                   |   |       |        |   |   |        |       
|                          | Comprehensive income (loss)              |          | $                       | 32,630   |                   |   | $     | 2,429  |   |   | $      | (8,645 | )
|                          |                                          |          |                         |          |                   |   |       |        |   |   |        |       

See Notes to Consolidated Financial Statements

21



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##### Table of Contents



EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

|                                                                                |  |              |        |            |  |              |     |               |  |               |         |        |  |          |          |             |  |   |        |   |  |   |          |  
|------------------------------------------------------------------------------- |  | ------------ | ------ | ---------- |  | ------------ | --- | ------------- |  | ------------- | ------- | ------ |  | -------- | -------- | ----------- |  | - | ------ | - |  | - | -------- | -
|                                                                                |  |              |        |            |  |              |     |               |  |               |         |        |  | Retained |          | Accumulated |  |   |        |  
|                                                                                |  | Common Stock |        | Additional |  | earnings     |     | other         |  | Total        
|                                                                                |  |              |        | paid-in    |  | (accumulated |     | comprehensive |  | stockholders'
|(dollars and shares in thousands)                                               |  | Shares       |        | Amount     |  | capital      |     | deficit)      |  | loss          |         | equity
|                                                                                |  |              |        |            |  |              |     |               |  |               |         |       
|Balance, December 31, 1998                                                      |  |              | 40,000 |            |  | $            | 400 |               |  | $             | 14,564  |        |  | $        | 74,967   |             |  | $ | (128   | ) |  | $ | 89,803   |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net loss                                                                        |  |              |       |            |  |              |    |               |  |               |        |        |  |          | (8,226   | )           |  |   |       |   |  |   | (8,226   | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Contributions by Deluxe, net                                                    |  |              |       |            |  |              |    |               |  |               | 277,634 |        |  |          |         |             |  |   |       |   |  |   | 277,634  |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Dividends paid to Deluxe                                                        |  |              |       |            |  |              |    |               |  |               |        |        |  |          | (159,687 | )           |  |   |       |   |  |   | (159,687 | )
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Translation adjustment                                                          |  |              |       |            |  |              |    |               |  |               |        |        |  |          |         |             |  |   | (419   | ) |  |   | (419     | )
|                                                                                |  |              |        |            |  |              |     |               |  |               |         |        |  |          |          |             |  |   |        |   |  |   |          |  
|Balance, December 31, 1999                                                      |  |              | 40,000 |            |  |              | 400 |               |  |               | 292,198 |        |  |          | (92,946  | )           |  |   | (547   | ) |  |   | 199,105  |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net income (as restated-see Note 15)                                            |  |              |       |            |  |              |    |               |  |               |        |        |  |          | 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 (as
restated-see Note 15)                            |  |              | 45,500 |            |  |              | 455 |               |  |               | 391,699 |        |  |          | (104,388 | )           |  |   | (1,601 | ) |  |   | 286,165  |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Net income (as restated-see Note 15)                                            |  |              |       |            |  |              |    |               |  |               |        |        |  |          | 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 (as
restated-
see Note 15) |  |              |       |            |  |              |    |               |  |               | 4,161   |        |  |          |         |             |  |   |       |   |  |   | 4,161    |  
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Translation adjustment                                                          |  |              |       |            |  |              |    |               |  |               |        |        |  |          |         |             |  |   | (709   | ) |  |   | (709     | )
|                                                                                |  |              |        |            |  |              |     |               |  |               |         |        |  |          |          |             |  |   |        |   |  |   |          |  
|Balance, December 31, 2001 (as
restated  see Note 15)                          |  |              | 46,380 |            |  | $            | 464 |               |  | $             | 407,210 |        |  | $        | (71,049  | )           |  | $ | (2,310 | ) |  | $ | 334,315  |  
|                                                                                |  |              |        |            |  |              |     |               |  |               |         |        |  |          |          |             |  |   |        |   |  |   |          |  

See Notes to Consolidated Financial Statements

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##### Table of Contents



EFUNDS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |        |         |         |  
|------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------- | --------------------------------------------------- | ------ | ----------------------- | ------- | ------------- | ------ | ------- | ------- | -------- | ------ | ------- | ------- | -
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        | Year Ended December 31,
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                        
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        | 2001                    |         | 2000          |        |         |         |         
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        | (As Restated,           |         | (As Restated, |        |         |         |         
|(dollars in thousands)                                 |                                                                                                                      | See Note 15)                                                         |                                 | See Note 15)                                        |        | 1999                   
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                        
|Cash Flows from Operating Activities:                  |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities: |                                                                      | $                               | 33,339                                              |        |                         | $       | 3,483         |        |         | $       | (8,226   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Depreciation                                                         |                                 |                                                     | 18,140 |                         |         |               | 13,935 |         |         |          | 12,519 |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Amortization                                                         |                                 |                                                     | 21,812 |                         |         |               | 17,134 |         |         |          | 9,982  |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Asset impairment charges                                             |                                 |                                                     |       |                         |         |               |       |         |         |          | 492    |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Loss on sales of property and equipment                              |                                 |                                                     | 1,753  |                         |         |               | 172    |         |         |          | 4,973  |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Deferred income taxes                                                |                                 |                                                     | 10,647 |                         |         |               | (1,009 | )       |         |          | 8,927  |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Equity in loss of investee                                           |                                 |                                                     | 1,097  |                         |         |               | 500    |         |         |          | 1,114  |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      | Changes in assets and liabilities, net of effects from
acquisitions: |                                 |                                                     |        |                         |         |               |        |         |         |          |        |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Restricted cash                 |                                                     |        | 29,449                  |         |               |        | 847     |         |          |        | (27,902 | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Accounts receivable             |                                                     |        | (15,380                 | )       |               |        | (4,542  | )       |          |        | 393     |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Accounts payable                |                                                     |        | (16,257                 | )       |               |        | 8,654   |         |          |        | 7,963   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Income taxes receivable/payable |                                                     |        | 1,969                   |         |               |        | 13,414  |         |          |        | (4,310  | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Reserve for legal proceedings   |                                                     |        |                        |         |               |        |        |         |          |        | (34,200 | )      
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Accrued contract losses         |                                                     |        | (7,470                  | )       |               |        | 1,344   |         |          |        | 5,902   |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                                                                      |                                                                      | Other assets and liabilities    |                                                     |        | 5,923                   |         |               |        | (10,163 | )       |          |        | 10,223  |        
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|                                                       |                                                                                                                      |                                                                      |                                 | Net cash provided by (used in) operating activities |        |                         | 85,022  |               |        |         | 43,769  |          |        |         | (12,150 | )
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|Cash Flows from Investing Activities:                  |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Capital expenditures                                                                                                 |                                                                      |                                 | (30,902                                             | )      |                         |         | (41,893       | )      |         |         | (38,225  | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Payments for acquisitions and investments, net of cash acquired                                                      |                                                                      |                                 | (40,620                                             | )      |                         |         | (20,000       | )      |         |         | (35,667  | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Proceeds from sales of property and equipment                                                                        |                                                                      |                                 | 415                                                 |        |                         |         | 407           |        |         |         | 1,229    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                                                |                                                                      |                                 | (1,448                                              | )      |                         |         | 267           |        |         |         | (546     | )     
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|                                                       |                                                                                                                      |                                                                      |                                 | Net cash used in investing activities               |        |                         | (72,555 | )             |        |         | (61,219 | )        |        |         | (73,209 | )
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|Cash Flows from Financing Activities:                  |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |         
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Net borrowings (payments) on line of credit                                                                          |                                                                      |                                 | (5,303                                              | )      |                         |         | 1,831         |        |         |         | 3,054    |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Proceeds from exercise of stock options and employee stock
purchase plan                                             |                                                                      |                                 | 11,026                                              |        |                         |         |              |        |         |         |         |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Payments on long-term debt                                                                                           |                                                                      |                                 | (3,550                                              | )      |                         |         | (2,107        | )      |         |         | (6,665   | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | 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        |        |         |         | 268,440  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Dividends paid to Deluxe                                                                                             |                                                                      |                                 |                                                    |        |                         |         | (13,800       | )      |         |         | (159,687 | )     
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other                                                                                                                |                                                                      |                                 |                                                    |        |                         |         | 171           |        |         |         | 11       |       
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|                                                       |                                                                                                                      |                                                                      |                                 | Net cash provided by financing activities           |        |                         | 10,673  |               |        |         | 64,459  |          |        |         | 105,153 |  
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|Adjustment for lag in financial reporting (see Note 2) |                                                                                                                      |                                                                      |                                |                                                     |        |                         | (4,127  | )             |        |         |        |         
|                                                      
|                                                      
|                                                      
|                                                      
|Net increase in cash and cash equivalents              |                                                                                                                      |                                                                      | 23,140                          |                                                     |        |                         | 42,882  |               |        |         | 19,794  |         
|                                                      
|                                                      
|                                                      
|                                                      
|Cash and cash equivalents at beginning of period       |                                                                                                                      |                                                                      | 78,731                          |                                                     |        |                         | 35,849  |               |        |         | 16,055  |         
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       
|Cash and cash equivalents at end of period             |                                                                                                                      | $                                                                    | 101,871                         |                                                     |        | $                       | 78,731  |               |        | $       | 35,849  |         
|                                                       |                                                                                                                      |                                                                      |                                 |                                                     |        |                         |         |               |        |         |         |          |       

See Notes to Consolidated Financial Statements

23



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##### Table of Contents



EFUNDS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

NOTE 1: SPIN-OFF AND BASIS OF PRESENTATION: 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. The Company was formerly
a wholly-owned subsidiary of Deluxe Corporation (Deluxe). In January 2000,
Deluxe announced that its board of directors had approved a plan to combine its
electronic payments, risk management, professional services and government
services businesses under the Company and to undertake a series of transactions
designed to establish the Company as an independent, publicly traded company.
As part of this process, Deluxe contributed the ownership of various
subsidiaries and certain assets and liabilities of certain business operations
(the Transferred Businesses) to the Company on March 31, 2000.

The Company issued 5.5 million shares of common stock to the public in June
2000 (the IPO). Proceeds from the offering, based on the offering price of
$13.00 per share, totaled $71.5 million ($64.5 million, net of offering
expenses). Subsequent to the IPO, Deluxe continued to own 40 million shares of
the Companys common stock, representing 87.9% of the Companys total
outstanding common shares.

In October 2000, Deluxe announced that it planned to distribute all of the
shares of the Companys common stock owned by it to its shareholders through a
Spin-Off transaction (the Spin-Off). In November 2000, Deluxe declared a
dividend of the 40 million common shares of the Company held by it. This
dividend was distributed on December 29, 2000, in the amount of approximately
0.5514 of an eFunds share for each outstanding Deluxe share. Deluxe received a
ruling from the Internal Revenue Service that this distribution qualified as
tax-free to Deluxe and its shareholders for U.S. federal income tax purposes,
except to the extent that cash was received in lieu of fractional shares.

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, 2001.

All transactions between the entities included in the consolidated financial
statements have been eliminated. Because the Transferred Businesses and the
Company were under the common control of Deluxe prior to the Spin-Off, the
accompanying consolidated financial statements have been retroactively restated
to reflect the Companys consolidated results of operations and cash flows for
the year ended December 31, 1999, as if Deluxes March 31, 2000 contribution of
the Transferred Businesses to the Company had occurred on January 1, 1999 and
the Company had been operating as a stand-alone business throughout the periods
presented on an as-if-pooled basis.

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

24



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##### Table of Contents



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 Transferred
Businesses. 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.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES: Consolidation  All significant
intercompany accounts, transactions and profits have been eliminated. For
purposes of consolidating certain international operations that are primarily
based in India, the Company used financial statements with a November 30 fiscal
period end through December 31, 1999.

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 segment 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.

Cash and cash equivalents  The Company considers all cash on hand, money
market funds, outstanding transfers of cash for authorized settlement of
automated teller machines (ATMs) with financial institutions, 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, 2001 was
$21.1 million. The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents approximate fair value.

Statements of Cash Flows  Cash paid for income taxes amounted to $7.0 million
for the year ended December 31, 2001. Cash paid for interest amounted to $0.7
million, $3.0 million and $1.1 million for the years ended December 31, 2001,
2000 and 1999, respectively. 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 all periods
presented, 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 each of March 31, 2000 and December 31,
1999.

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. Restricted cash
at December 31, 2000 also includes amounts, which the Company supplied to
Access Cash International L.L.C. for use in its ATM business.

Accounts receivable  Accounts receivable are stated net of allowances for
uncollectible accounts of $4.8 million and $5.3 million at December 31, 2001
and 2000, respectively. The Company records allowances for uncollectible
accounts when it is probable that the accounts receivable balance will not be
collected. When estimating the allowances for uncollectible accounts, the
Company takes into consideration such factors as its day-to-day knowledge of
specific customers, the industry and size of the customers, the overall
composition of its accounts receivable aging, prior history of accounts
receivable write-offs and prior history of allowances in proportion to the
overall receivable balance. Increases in the allowances for uncollectible
accounts are recorded as bad debt expense and are reflected in selling, general
and administrative expense in the Companys consolidated statements of
operations. Bad debt expense was $1.8 million in 2001, $3.3 million in 2000 and
$2.9 million in 1999. When a specific account receivable is determined to be
uncollectible, the Company reduces both its accounts receivable and

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allowances for uncollectible accounts accordingly. As of December 31, 2001 Visa
U.S.A., Inc. accounted for 15.0% of the Companys total receivables.

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.

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

|                           |                              |   |              |         |      |   |         |         | 
|-------------------------- | ---------------------------- | - | ------------ | ------- | ---- | - | ------- | ------- | 
|                           |                              |   | December 31,
|                           |                              |   |             
|(dollars in thousands)     |                              |   | 2001         |         | 2000
|                           |                              |   |              |         |     
|Land and improvements      |                              | $ | 6,961        |         |      | $ | 6,961   |        
|                          
|                          
|                          
|                          
|Buildings and improvements |                              |   | 48,445       |         |      |   | 45,917  |        
|                          
|                          
|                          
|                          
|Machinery and equipment    |                              |   | 38,530       |         |      |   | 29,957  |        
|                          
|                          
|                          
|                          
|Computer equipment         |                              |   | 73,536       |         |      |   | 70,049  |        
|                           |                              |   |              |         |      |   |         |        
|                           | Total property and equipment |   |              | 167,472 |      |   |         | 152,884 | 
|                          
|                          
|                          
|                          
|Accumulated depreciation   |                              |   | (91,834      | )       |      |   | (75,529 | )      
|                           |                              |   |              |         |      |   |         |        
|                           | Property and equipment  net |   | $            | 75,638  |      |   | $       | 77,355  | 
|                           |                              |   |              |         |      |   |         |        

Long-term investments  At December 31, long-term investments consisted of the
following:

|                                                                 |  |      |              |      |  |   |        |  | 
|---------------------------------------------------------------- |  | ---- | ------------ | ---- |  | - | ------ |  | 
|                                                                 |  |      | December 31,
|                                                                 |  |      |             
|(dollars in thousands)                                           |  | 2001 |              | 2000
|                                                                 |  |      |              |     
|Investment in Access Cash International, L.L.C.                  |  | $    |             |      |  | $ | 18,500 | 
|                                                                
|                                                                
|                                                                
|                                                                
|Investment in Webtel Pty. Ltd.                                   |  |      | 1,312        |      |  |   |       | 
|                                                                
|                                                                
|                                                                
|                                                                
|Cash surrender value of insurance contracts                      |  |      | 1,119        |      |  |   |       | 
|                                                                
|                                                                
|                                                                
|                                                                
|Certificate
of deposit bearing interest at 7% maturing June 2004 |  |      | 316          |      |  |   |       | 
|                                                                 |  |      |              |      |  |   |        |  | 
|                                                                 |  | $    | 2,747        |      |  | $ | 18,500 | 
|                                                                 |  |      |              |      |  |   |        |  | 

The Company acquired a 24% equity interest in Access Cash International, L.L.C.
(ACI) in March 2000. The investment was accounted for under the equity method.
In October 2001, the Company acquired the remaining equity interests in ACI and
the balance of the investment was included in the purchase price allocation.
See Note 4. 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 $2.5
million (AUD) in Webtel in 2001 and has committed to invest an additional $1.5
million (AUD) 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.

Intangibles  Intangibles are presented in the consolidated balance sheets net
of accumulated amortization. Goodwill is amortized on a straight-line basis
over periods of 10 to 30 years. Customer contract costs are amortized on a
straight-line basis over a period of time approximating the estimated useful
life of the related contracts. Software and other intangible assets are
amortized on a straight-line basis over periods ranging from one to five years.
Other intangibles consist primarily of software held for licensing and resale.
The Company periodically re-evaluates the original assumptions and rationale
utilized in the establishment of the estimated lives of its identifiable
intangible assets and goodwill.

Total intangibles were as follows:

|                              |       |      |              |         |  |   |          |         | 
|----------------------------- | ----- | ---- | ------------ | ------- |  | - | -------- | ------- | 
|                              |       |      | December 31,
|                              |       |      |             
|(dollars in thousands)        |       | 2001 |              | 2000   
|                              |       |      |              |        
|Goodwill (see Note 4)         |       | $    | 109,690      |         |  | $ | 61,413   |        
|                             
|                             
|                             
|                             
|Software                      |       |      | 65,079       |         |  |   | 52,606   |        
|                             
|                             
|                             
|                             
|Customer contracts acquired   |       |      | 11,693       |         |  |   |         |        
|                             
|                             
|                             
|                             
|Other intangible assets       |       |      | 71,768       |         |  |   | 80,530   |        
|                              |       |      |              |         |  |   |          |        
|                              | Total |      |              | 258,230 |  |   |          | 194,549 | 
|                             
|                             
|                             
|                             
|Less accumulated amortization |       |      | (110,647     | )       |  |   | (103,376 | )      
|                              |       |      |              |         |  |   |          |        
|Intangibles  net             |       | $    | 147,583      |         |  | $ | 91,173   |        
|                              |       |      |              |         |  |   |          |        

Impairment of long-lived assets and intangibles  When 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

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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, 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.

The Company evaluates the recoverability of property and equipment and
identifiable intangibles held for disposal by comparing the assets carrying
amount with its fair value less costs to sell. If a large segment or separable
group of assets that were acquired in a business purchase combination were held
for disposal, all of the unamortized goodwill associated with those assets
would be included in the carrying amount of the assets for purposes of this
evaluation. 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
unamortized goodwill associated with those assets would be eliminated before
recording any reduction in the carrying value of the asset(s).

The Company evaluates the carrying value of goodwill when events or changes in
circumstances with regard to the related businesses indicate that the carrying
amount of the goodwill may not be recoverable. Such circumstances could
include, but are not limited to, (1) a current period operating or cash flow
loss combined with a history of operating or cash flow losses, (2) a forecast
that demonstrates continuing losses, (3) a significant adverse change in legal
factors or in business climate, or (4) an adverse action or assessment by a
regulator. In evaluating the recoverability of goodwill, the Company measures
the carrying amount of the goodwill against the estimated undiscounted future
cash flows of the businesses to which the goodwill relates. In determining the
future cash flows, the Company looks to historical results and current
forecasts. The estimated net cash flows include the effects of income tax
payments and interest charges. Should the sum of the expected future net cash
flows be less than the carrying value of the goodwill, an impairment loss would
be recognized. The impairment loss would be calculated as the amount by which
the net book value of the related businesses exceeds their fair value.

Income taxes  In most cases, the Companys domestic businesses were included
in Deluxes consolidated tax return 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
bases of assets and liabilities and their respective tax reporting bases.
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 $16.4 million at December 31, 2001. 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.

Translation adjustment  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.

Revenue recognition  Revenue is recorded net of any applicable discounts.
Transaction processing and service fees are recognized in the period that the
service is performed. These services consist of processing customers
electronic debit transactions through electronic funds transfer networks and
settling the funds with the financial institutions involved in the
transactions. Additionally, these services include monitoring ATMs and
point-of-sale devices to alert the Companys customers when potential problems
occur. Processing fees are generally charged on a per transaction basis,
depending on the contractual arrangement with the customer. The Company also
receives fees paid by consumers utilizing certain ATMs owned or managed by the
Company and interchange fees paid by their banks.

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Government services fees are recognized in the period services are provided
based on monthly fees per benefits recipient.

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
aggregate dollar value of checks authorized by the retailer or other similar
measures, depending on the product and service.

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 software or data
license contains customer acceptance criteria for which significant
uncertainties exist, the software 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 the
Company to 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.

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 contractual terms. Under the
time and materials method, 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 maintenance and support revenue is recognized ratably over the term of
the contract, or as the services are provided.

Software license fees amounted to $42.4 million and $11.5 million in the years
ended December 31, 2001 and 2000, respectively.

Long-term service contracts  Long-term service contracts 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 long-term service contracts are for transaction processing in the
government services segment and the payment systems and services segment and
business process management services in the payment systems and services
segment. Total revenue for some long-term service contracts may vary based on
the demand for services. Revenue from long-term service contracts are
recognized under the applicable revenue recognition policy above. Expenses are
recognized when incurred, with the exception of installation costs and
commission costs. In existing long-term service contracts, installation costs
are not recovered at the time of installation but are factored into billing
rates over the term of the contract. Accordingly, installation costs for
long-term service contracts are initially capitalized and then amortized over
the life of the contract. Also, commission costs that are direct and
incremental to obtaining long-term service contracts are capitalized and then
amortized over the life of the contract. Any equipment and software purchased
to support a long-term service contract is capitalized and depreciated or
amortized over the life of the related contract or the life of the asset,
whichever is shorter.

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 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

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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 EBT contracts discussed in Note 5 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.

In the event an asset impairment loss is recognized on long-lived assets used
to support a long-term service contract, the original estimation of the
contracts costs is revised to reduce the depreciation and amortization
associated with the impaired assets.

Advertising expense  Advertising and promotional costs are expensed as
incurred. The Company incurred advertising and promotional expense of $3.6
million, $9.9 million, and $0.7 million in 2001, 2000, and 1999, respectively.

Research and development expenses  Research and development costs are charged
to expense as incurred and recorded in selling, general and administrative
expenses. Research and development expenses amounted to $0.3 million, $1.4
million and $3.7 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

Capitalization of internal-use software  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. The
carrying value of internal-use software is reviewed in accordance with the
Companys policy on impairment of long-lived assets and intangibles.

Capitalization of software developed for resale  The Company capitalizes 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 the Company has 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 over no longer than five years. Software
developed for resale is carried at the lesser of amortized cost or net
realizable value.

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. As permitted by Statement
of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, the Company continues to account for its employee stock-based
compensation in accordance with Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees. No compensation cost has been
recognized for fixed stock options issued under the Deluxe or eFunds programs.
The Company discloses pro forma net income (loss) and net income (loss) per
share as if the fair value method of SFAS No. 123 had been used (see Note 8).

Income (loss) per share and
stockholders equity

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

|                                                                        |                                                                   |      |                         |        |  |      |       |        |  |   |        |        |  
|----------------------------------------------------------------------- | ----------------------------------------------------------------- | ---- | ----------------------- | ------ |  | ---- | ----- | ------ |  | - | ------ | ------ | -
|                                                                        |                                                                   |      | Year Ended December 31,
|                                                                        |                                                                   |      |                        
|(dollars and shares outstanding in thousands, except per share amounts) |                                                                   | 2001 |                         | 2000   |  | 1999
|                                                                        |                                                                   |      |                         |        |  |     
|Net income (loss) per share  basic
Net income (loss)                   |                                                                   | $    | 33,339                  |        |  | $    | 3,483 |        |  | $ | (8,226 | )     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Weighted average shares outstanding                               |      |                         | 45,985 |  |      |       | 42,788 |  |   |        | 40,000 |  
|                                                                        |                                                                   |      |                         |        |  |      |       |        |  |   |        |       
|                                                                        | Net income (loss) per share  basic                               |      | $                       | 0.72   |  |      | $     | 0.08   |  |   | $      | (0.21  | )
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Net income (loss) per share  diluted
Net income (loss)                 |                                                                   | $    | 33,339                  |        |  | $    | 3,483 |        |  | $ | (8,226 | )     
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Weighted average shares outstanding                               |      |                         | 45,985 |  |      |       | 42,788 |  |   |        | 40,000 |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Dilutive impact of options                                        |      |                         | 1,460  |  |      |       | 79     |  |   |        |       |  
|                                                                        |                                                                   |      |                         |        |  |      |       |        |  |   |        |       
|                                                                        | Weighted average shares and potential dilutive shares outstanding |      |                         | 47,445 |  |      |       | 42,867 |  |   |        | 40,000 |  
|                                                                        |                                                                   |      |                         |        |  |      |       |        |  |   |        |       
|                                                                        | Net income (loss) per share  diluted                             |      | $                       | 0.70   |  |      | $     | 0.08   |  |   | $      | (0.21  | )
|                                                                        |                                                                   |      |                         |        |  |      |       |        |  |   |        |       

Options to purchase 94,838 shares of common stock were excluded from the above
calculation, as they were antidilutive at December 31, 2001.

On January 27, 2000, the Company increased the number of 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 the 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 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.

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

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.

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. In addition, the Companys operations are governed by and subject to
government regulations in the United States and in foreign countries in which
the Company operates, including laws and regulations relating to taxation. 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.

Recent accounting pronouncements  On January 1, 2001, the Company adopted
Statement of Financial Accounting Standards SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended, which provides
guidance on accounting for derivatives and hedging transactions. The adoption
of this pronouncement did not have an impact on the reported operating
results or financial position of the Company.

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In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations, which established new standards for accounting and
reporting requirements for business combinations and requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Use of the pooling-of-interests method is prohibited. The Company
implemented SFAS No. 141 in connection with its October 2001 acquisition of the
remaining outstanding equity interest in Access Cash International, L.L.C. See
Note 4. The implementation did not have a material impact on the Companys
consolidated financial statements.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
142, Goodwill and Other Intangible Assets, that became effective for the
Company on January 1, 2002. SFAS No. 142 requires, among other things, the
cessation of the amortization of goodwill. The Company adopted SFAS
No. 142 in connection with its 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. SFAS No. 142 also requires the Company to complete a
transitional goodwill impairment test on or before June 30, 2002. The Company
is assessing the total impact the foregoing requirements will have on its
consolidated balance sheet and statement of operations. Goodwill amortization
for the years ended December 31, 2001, 2000 and 1999 amounted to $3.9 million,
$4.0 million and $3.0 million, respectively.

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 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 Company does not believe the adoption of SFAS 144
will have a material impact on its consolidated financial position or results
of operations.

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

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 and $25.6 million for the years
ended December 31, 2000 and 1999, respectively, to the Company for the cost of
corporate services provided. In 2000, these costs included items related to
data sharing, real estate matters and transition services. Prior to 2000, these
allocations were based on the ratio of the Companys revenue to Deluxes
revenue, the number of employees in the two organizations and transaction
processing costs. The allocated amounts 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 in selling, general and administrative expense in the consolidated
statements of operations. During 2000, certain of the costs for these support
functions were incurred directly by the Company. The remaining corporate
services provided by Deluxe were allocated to the Company based on estimates of
the costs that would have been incurred by the Company if it were a
stand-alone, independent company. The amounts allocated to the Company are
included in selling, general and administrative expense in the Companys
consolidated statements of operations. 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 or
credited net interest income (expense) by or from Deluxe of $(0.9) million and
$2.8 million for the years ended December 31, 2000 and 1999, respectively. The
average interest rates used to calculate these amounts were 6.7% and 5.1% for
the years ended December 31, 2000 and 1999, respectively. These charges and
credits are included in interest and other income (expense) 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

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plus 2%. At December 31, 1999 and again 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 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%.

Deluxe provided the Company with an unsecured revolving credit facility of up
to $75 million until the Spin-Off. The Company never borrowed any funds under
this facility.

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 for $10.0 million. The Company previously rented portions
of this facility. The purchase price of the property and data center was at the
net book value that was recorded on the general ledger of the Deluxe
subsidiary. The Company has leased portions of another 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. Purchases from Deluxe were $0.2 million and $2.9
million for the years ended December 31, 2000 and 1999, respectively.

Sales to Deluxe were $59.3 million and $9.8 million for the years ended
December 31, 2000 and 1999, respectively. Although no longer related parties,
the Company and Deluxe continue to maintain a business relationship. Sales to
Deluxe for the year ended December 31, 2000, 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 the Company based on a schedule
in the contract that is reflective of the Companys estimates of its lost
profits. For the year ended December 31, 2001, Deluxes spending attributable
to 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 the Company 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. 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.

NOTE 4: BUSINESS COMBINATIONS: Effective October 1, 2001, the Company acquired
(the Acquisition) the remaining approximately 76% equity interest (the
Interests) in Access Cash International L.L.C., a Delaware limited liability
company (ACI), from ATM Holding, Inc., a Minnesota corporation (ATM Holding).
The acquisition has been accounted for as a purchase in accordance with the
provisions of SFAS No. 141. ACI is the second largest independent provider of
automated teller machine (ATM) services in the United States. ACI provides
turnkey ATM deployment solutions, including ATM sales and management
activities, as well as branding and advertising services. The Acquisition is
part of a strategy to increase the Companys transaction processing revenues
through the acquisition and control of ATM transactions at the point of
origination.

The total purchase price (the Purchase Price) of the Interests was $44.6
million, of which approximately $40.3 million was paid in cash on or prior to
the Closing Date. Payment of the balance of the Purchase Price (approximately
$4.3 million) is subject to the satisfaction of certain post-closing
conditions. If these conditions are resolved such that the Company is required
to pay any portion of the balance of the Purchase Price, such payments will be
accounted for as an increase to goodwill. The Purchase Price was determined by
negotiation between the parties and was paid using the available cash reserves
of the Company.

In March 2000, the Company paid cash of $20.0 million for an approximate 24%
interest in ACI. The Company accounted for this initial investment under the
equity method of accounting. The difference of $20.0 million between the
investment and the underlying equity in the net assets of ACI was being
accounted for in the same manner as goodwill and amortized over 15 years.
Following the Acquisition of the Interests, the Company owned 100% of the
outstanding equity interests in ACI. Accordingly, under the equity method of
accounting the Companys results of operations for the year ended December 31,
2001 include its 24% share of the results of ACIs operations for the

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period from January 1, 2001, to September 30, 2001 which is recorded in equity
in loss of investee, and 100% of the results of ACIs operations for the period
from October 1, 2001 to December 31, 2001.

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,
|(dollars 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 its customers, which are being amortized over an
estimated useful life of 15 years. The entire amount of goodwill was assigned
to the payment systems and services segment. Of that total amount, $45.6
million is expected to be deductible for tax purposes.

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

|                       |         |      |             |      |  |   |         |      | 
|---------------------- | ------- | ---- | ----------- | ---- |  | - | ------- | ---- | 
|                       |         |      | (unaudited)
|(dollars in thousands) |         | 2001 |             | 2000
|                       |         |      |             |     
|Revenue                |         | $    | 536,425     |      |  | $ | 480,856 |     
|                      
|                      
|                      
|                      
|Net income             |         |      | 28,970      |      |  |   | (135    | )   
|                      
|                      
|                      
|                      
|Net income per share:  |         |      |             |      |  |   |         |     
|                      
|                      
|                      
|                      
|                       | Basic   |      | $           | 0.63 |  |   | $       | 0.00 | 
|                      
|                      
|                      
|                      
|                       | Diluted |      | $           | 0.61 |  |   | $       | 0.00 | 

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. The ATM deployment and management agreement was of no
further effect upon completion of the Acquisition. 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.

Collectively, 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
purchase price of ACI.

Prior to the Acquisition, the Company had entered into agreements with ACI to
supply cash for ATMs managed by ACI and deployed by the Company in various
locations throughout the United States. These vault cash agreements provided
that the Company would retain control over and ownership of this cash. Subject
to the approval of the Company, ACI determined the level of cash required to be
maintained within the ATMs up to an authorized level. The Company received a
fee for making such cash available. The agreements, and the corresponding
restrictions on the vault cash ceased to be effective following the
Acquisition. Accordingly, the Company has reclassified the cash in ATMs that
had been classified as restricted at December 31, 2000, to cash and cash
equivalents during 2001. ACI also has a vault cash agreement with a financial
institution. The agreement provides that the financial institution has the
option to provide cash services for ATMs deployed by ACI on a case-by-case
basis. ACI pays a monthly fee of the New York Prime, as defined, plus one half
percent on the average daily balance of funds provided to the ATMs. The bank
may terminate the agreement if it incurs material losses. The Company may
terminate the agreement upon

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payment of a penalty. The initial term of the agreement expires in November
2003. Total cash provided as a result of this agreement was $17.8 million at
December 31, 2001.

Prior to the Acquisition, the Company had agreed to guarantee up to $3.0
million (CAD) of equipment lease payments for ACIs Canadian customers and
through December 31, 2001, the Company had guaranteed lease payments amounting
to $1.3 million. Through December 31, 2001, the Company made payments of
$59,000 pursuant to these guarantees.

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.

|                       |                         |      |   |        |   |  |   |        |  
|---------------------- | ----------------------- | ---- | - | ------ | - |  | - | ------ | -
|(dollars 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 April 13, 1999, Deluxe acquired the remaining 50% ownership interest in
HCL-Deluxe, N.V. (eFunds India) for $23.4 million in cash. This entity
commenced operations as a joint venture between Deluxe and HCL Corporation of
India in September 1997. eFunds India provides information technology
consulting and business process management services to financial services
companies and to all of the Companys and Deluxes businesses. The ownership of
eFunds India was transferred to the Company under the Plan discussed in Note 1.
The acquisition was accounted for under the purchase method of accounting.
Accordingly, the consolidated financial statements of the Company include the
entire results of this business from the date the Company acquired 100%
ownership. Prior to this point, the Company recorded its 50% ownership of the
joint ventures results under the equity method of accounting. This business is
included in the payment systems and services segment. The purchase price was
allocated to the assets acquired and liabilities assumed based on their
relative fair values on the date of purchase. Total cost in excess of net
assets acquired in the amount of $24.9 million is reflected as goodwill and is
being amortized over 15 years.

On February 19, 1999, Deluxe acquired all of the outstanding shares of eFunds
Corporation of Tustin, California, an electronic check conversion company, for
$13 million in cash. The company provides electronic check conversion and
electronic funds transfer solutions for financial services companies and
retailers. The ownership of this company was transferred to the Company under
the Plan discussed in Note 1. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the consolidated financial
statements of the Company include the results of this business subsequent to
its acquisition date. This business is included in the payment systems and
services segment. The purchase price was allocated to the assets acquired and
liabilities assumed based on their relative fair values on the date of
purchase. Total cost in excess of net assets acquired in the amount of $15.7
million is reflected as goodwill and is being amortized over 10 years.

NOTE 5: CONTRACT LOSSES: The Company has historically incurred losses related
to its government services business and has established a reserve to provide
for expected future losses on existing long-term service 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 government services segment. This amount is reflected in cost of
revenue in the Companys consolidated statement of operations. The net credit
is composed of reductions to the reserve of $3.8 million reflecting costs which
continue to be 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.

During the second quarter of 2000, the Company recorded net charges of $9.7
million for additional expected future losses on the contracts of the
government services segments electronic benefits transfer (EBT) business. This
amount is reflected in cost of sales in the Companys consolidated statement of
operations. In April 2000, the Company completed negotiations with the prime
contractor for a state coalition for which the Company provides

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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 fact that the Company had a signed 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.

During 1999, charges of $8.2 million were recorded to provide for additional
expected future losses on the contracts of the government services segment and
an additional $0.5 million was recorded to reflect the impairment of the assets
used in servicing such contracts. These charges are reflected in cost of sales
in the 1999 consolidated statement of operations. A majority of the charges
resulted from the conclusion of negotiations with a prime contractor regarding
the timing and costs of transitioning switching services from the Company to a
new processor. Also, lower than projected actual transaction volumes (primarily
related to states fully rolled-out in 1999) contributed to the changes in the
estimates underlying the previously recognized charges.

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

|                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|----------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                          |  | Year Ended December 31,
|                                          |  |                        
|(dollars in thousands)                    |  | 2001                    |        | 2000 |  | 1999
|                                          |  |                         |        |      |  |     
|Beginning balance                         |  | $                       | 22,247 |      |  | $    | 20,599 |   |  | $ | 14,697 |  
|                                         
|                                         
|                                         
|                                         
|Provision for contract losses             |  |                         | 1,295  |      |  |      | 12,200 |   |  |   | 8,208  |  
|                                         
|                                         
|                                         
|                                         
|Reversal of provision for contract losses |  |                         | (3,795 | )    |  |      | (2,500 | ) |  |   |       |  
|                                         
|                                         
|                                         
|                                         
|Charges to reserve                        |  |                         | (4,970 | )    |  |      | (8,052 | ) |  |   | (2,306 | )
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  
|Ending balance                            |  | $                       | 14,777 |      |  | $    | 22,247 |   |  | $ | 20,599 |  
|                                          |  |                         |        |      |  |      |        |   |  |   |        |  

NOTE 6: RESTRUCTURING CHARGES: The Companys consolidated balance sheets
reflect restructuring accruals of $2.4 million and $0.4 million as of December
31, 2001 and 2000, respectively, for employee severance and other costs. During
the first quarter of 2001, a restructuring charge of $3.2 million was recorded
relating to the planned closure of the Companys operations in Bothell,
Washington. This new restructuring charge is reflected in selling, general and
administrative (SG&A) expenses in the consolidated statement of operations.

In 2000, the Company identified additional opportunities for savings in the
payment systems and services segment and planned to reduce the workforce in the
United Kingdom division of this segment by 31 employees. Accordingly, the
Company expensed $0.6 million.

During 1999, the Company reversed $2.4 million of restructuring accruals
relating to its 1998 initiative to reduce SG&A expense and a 1996 plan to
reduce the workforce at the international operations of the payment systems and
services segment. The reduction in the SG&A expense initiative accrual was due
to higher than anticipated attrition that resulted in severance payments to 37
fewer employees than originally anticipated. Also, due to the Companys
decision in 1999 to retain the international operations of its payment systems
and services segment, planned reductions within that business were canceled.
These accrual reversals are reflected in SG&A expense in the 1999 consolidated
statement of operations.

The following table summarizes the change in the Companys restructuring
accruals for 2001, 2000 and 1999:

|                               |  |                          |      |        |  |          |        |           |  |          |     |        |  |           |        |   |  |  |      |   |  |   |        |  
|------------------------------ |  | ------------------------ | ---- | ------ |  | -------- | ------ | --------- |  | -------- | --- | ------ |  | --------- | ------ | - |  |  | ---- | - |  | - | ------ | -
|                               |  | Years Ended December 31,
|                               |  |                         
|                               |  | 2001                     |      | 2000   |  | 1999    
|                               |  |                          |      |        |  |         
|                               |  | Number of                |      |        |  |          |        | Number of |  |          |     |        |  | Number of |        |   |  | 
|                               |  | employees                |      |        |  |          |        | employees |  |          |     |        |  | employees |        |   |  | 
|(dollars in thousands)         |  | affected                 |      | Amount |  | affected |        | Amount    |  | affected |     | Amount
|                               |  |                          |      |        |  |          |        |           |  |          |     |       
|Balance  beginning of year    |  |                          | 9    |        |  | $        | 378    |           |  |          | 6   |        |  | $         | 1,242  |   |  |  | 186  |   |  | $ | 4,672  |  
|                              
|                              
|                              
|                              
|Provisions for restructuring   |  |                          | 224  |        |  |          | 3,200  |           |  |          | 31  |        |  |           | 555    |   |  |  |     |   |  |   |       |  
|                              
|                              
|                              
|                              
|Severance and other costs paid |  |                          | (159 | )      |  |          | (1,170 | )         |  |          | (28 | )      |  |           | (1,419 | ) |  |  | (18  | ) |  |   | (1,031 | )
|                              
|                              
|                              
|                              
|Adjustments to accrual         |  |                          |     |        |  |          |       |           |  |          |    |        |  |           |       |   |  |  | (162 | ) |  |   | (2,399 | )
|                               |  |                          |      |        |  |          |        |           |  |          |     |        |  |           |        |   |  |  |      |   |  |   |        |  
|Balance  end of year          |  |                          | 74   |        |  | $        | 2,408  |           |  |          | 9   |        |  | $         | 378    |   |  |  | 6    |   |  | $ | 1,242  |  
|                               |  |                          |      |        |  |          |        |           |  |          |     |        |  |           |        |   |  |  |      |   |  |   |        |  

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NOTE 7: PROVISION FOR INCOME TAXES:
Income (loss) before income taxes consists of:

|                       |       |      |                          |        |  |      |       |       |  |   |        |        |  
|---------------------- | ----- | ---- | ------------------------ | ------ |  | ---- | ----- | ----- |  | - | ------ | ------ | -
|                       |       |      | Years Ended December 31,
|                       |       |      |                         
|(dollars in thousands) |       | 2001 |                          | 2000   |  | 1999
|                       |       |      |                          |        |  |     
|Domestic               |       | $    | 39,891                   |        |  | $    | 3,868 |       |  | $ | (2,163 | )     
|                      
|                      
|                      
|                      
|Foreign                |       |      | 11,101                   |        |  |      | 2,914 |       |  |   | (477   | )     
|                       |       |      |                          |        |  |      |       |       |  |   |        |       
|                       | Total |      | $                        | 50,992 |  |      | $     | 6,782 |  |   | $      | (2,640 | )
|                       |       |      |                          |        |  |      |       |       |  |   |        |       

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

|                                 |         |       |   |                          |         |      |   |        |        |   |   |         |        |  
|-------------------------------- | ------- | ----- | - | ------------------------ | ------- | ---- | - | ------ | ------ | - | - | ------- | ------ | -
|                                 |         |       |   | Years Ended December 31,
|                                 |         |       |   |                         
|(dollars in thousands)           |         | 2001  |   | 2000                     |         | 1999
|                                 |         |       |   |                          |         |     
|Current tax benefit (provision)  |         |       |   |                          |         |      |   |        |        |   |   |        
|                                
|                                
|                                
|                                
|                                 | Federal |       | $ | (6,486                   | )       |      | $ | (4,030 | )      |   | $ | 5,527   |       
|                                
|                                
|                                
|                                
|                                 | Foreign |       |   | (100                     | )       |      |   | (47    | )      |   |   |        |       
|                                
|                                
|                                
|                                
|                                 | State   |       |   | (3,114                   | )       |      |   | (231   | )      |   |   | (271    | )     
|                                 |         |       |   |                          |         |      |   |        |        |   |   |        
|                                 |         | Total |   |                          | (9,700  | )    |   |        | (4,308 | ) |   |         | 5,256  |  
|                                
|                                
|                                
|                                
|Deferred tax benefit (provision) |         |       |   |                          |         |      |   |        |        |   |   |        
|                                
|                                
|                                
|                                
|                                 | Federal |       |   | (8,389                   | )       |      |   | 1,198  |        |   |   | (10,811 | )     
|                                
|                                
|                                
|                                
|                                 | State   |       |   | 436                      |         |      |   | (189   | )      |   |   | (31     | )     
|                                 |         |       |   |                          |         |      |   |        |        |   |   |        
|                                 |         | Total |   | $                        | (17,653 | )    |   | $      | (3,299 | ) |   | $       | (5,586 | )
|                                 |         |       |   |                          |         |      |   |        |        |   |   |        

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

|                                                               |  |                          |         |      |  |      |        |   |  |   |        |  
|-------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                               |  | Years Ended December 31,
|                                                               |  |                         
|(dollars in thousands)                                         |  | 2001                     |         | 2000 |  | 1999
|                                                               |  |                          |         |      |  |     
|Income tax at Federal statutory rate                           |  | $                        | (17,847 | )    |  | $    | (2,374 | ) |  | $ | 924    |  
|                                                              
|                                                              
|                                                              
|                                                              
|State income taxes net of Federal income tax benefit           |  |                          | (1,676  | )    |  |      | (273   | ) |  |   | (196   | )
|                                                              
|                                                              
|                                                              
|                                                              
|Difference between Federal statutory rate and foreign tax rate |  |                          | 3,556   |      |  |      | 1,713  |   |  |   | (58    | )
|                                                              
|                                                              
|                                                              
|                                                              
|Amortization and write down of intangibles                     |  |                          | (1,570  | )    |  |      | (1,412 | ) |  |   | (1,074 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Change in valuation allowance                                  |  |                          | 2,989   |      |  |      | (826   | ) |  |   | (4,591 | )
|                                                              
|                                                              
|                                                              
|                                                              
|Other                                                          |  |                          | (3,105  | )    |  |      | (127   | ) |  |   | (591   | )
|                                                               |  |                          |         |      |  |      |        |   |  |   |        |  
|Provision for income taxes                                     |  | $                        | (17,653 | )    |  | $    | (3,299 | ) |  | $ | (5,586 | )
|                                                               |  |                          |         |      |  |      |        |   |  |   |        |  

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

|                                     |  |          |         |             |  |          |       |             |  |   |         |   |  |   |     | 
|------------------------------------ |  | -------- | ------- | ----------- |  | -------- | ----- | ----------- |  | - | ------- | - |  | - | --- | 
|                                     |  | 2001     |         | 2000       
|                                     |  |          |         |            
|                                     |  | Deferred |         | Deferred    |  | Deferred |       | Deferred   
|                                     |  | tax      |         | tax         |  | tax      |       | tax        
|                                     |  | assets   |         | liabilities |  | assets   |       | liabilities
|                                     |  |          |         |             |  |          |       |            
|(dollars in thousands)               |  |          |         |             |  |          |       |             |  |   |         |   |  |   |     | 
|                                    
|                                    
|                                    
|                                    
|Net operating loss carryforwards     |  | $        | 11,606  |             |  | $        |      |             |  | $ | 14,625  |   |  | $ |    | 
|                                    
|                                    
|                                    
|                                    
|Reserve for legal proceedings        |  |          | 114     |             |  |          |      |             |  |   | 407     |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Accrued contract losses              |  |          | 5,917   |             |  |          |      |             |  |   | 9,166   |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Restructuring accruals               |  |          | 1,107   |             |  |          |      |             |  |   | 144     |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Property and equipment               |  |          |        |             |  |          | 695   |             |  |   | 10      |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Intangibles                          |  |          |        |             |  |          | 6,618 |             |  |   | 440     |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Employee benefit and incentive plans |  |          | 1,155   |             |  |          |      |             |  |   | 1,257   |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Miscellaneous reserves and accruals  |  |          | 2,067   |             |  |          |      |             |  |   | 1,397   |   |  |   |    | 
|                                    
|                                    
|                                    
|                                    
|Deferred revenue                     |  |          | 2,648   |             |  |          |       |             |  |   | 545     |   |  |   |     | 
|                                    
|                                    
|                                    
|                                    
|All other                            |  |          | 484     |             |  |          |      |             |  |   | 218     |   |  |   | 504 | 
|                                     |  |          |         |             |  |          |       |             |  |   |         |   |  |   |     | 
|Subtotal                             |  |          | 25,098  |             |  |          | 7,313 |             |  |   | 28,209  |   |  |   | 504 | 
|                                    
|                                    
|                                    
|                                    
|Valuation allowance                  |  |          | (11,606 | )           |  |          |      |             |  |   | (14,595 | ) |  |   |    | 
|                                     |  |          |         |             |  |          |       |             |  |   |         |   |  |   |     | 
|Total deferred taxes                 |  | $        | 13,492  |             |  | $        | 7,313 |             |  | $ | 13,614  |   |  | $ | 504 | 
|                                     |  |          |         |             |  |          |       |             |  |   |         |   |  |   |     | 

The valuation allowance relates principally to the uncertainty of realizing
federal, foreign and state net operating loss carryforwards. The valuation
allowance includes approximately $1.5 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 2001 recorded as a reduction
of goodwill was $0.2 million.

36



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##### Table of Contents



At December 31, 2001, net operating loss carryforwards relating to federal,
state and foreign jurisdictions amounted to $10.1 million, $95.8 million and
$10.6 million, respectively. Of these carryforwards $10.6 million of foreign
net operating losses may be carried forward indefinitely. Federal and State net
operating loss carryforwards are subject to expiration as follows:

|                       |       |         |       |        |  |       |        |        |  |   |        |         | 
|---------------------- | ----- | ------- | ----- | ------ |  | ----- | ------ | ------ |  | - | ------ | ------- | 
|(dollars in thousands) |       | Federal |       | State  |  | Total
|                       |       |         |       |        |  |      
|2002-2005              |       | $       |      |        |  | $     | 80     |        |  | $ | 80     |        
|                      
|                      
|                      
|                      
|2006-2010              |       |         |      |        |  |       | 149    |        |  |   | 149    |        
|                      
|                      
|                      
|                      
|2011                   |       |         |      |        |  |       | 5,955  |        |  |   | 5,955  |        
|                      
|                      
|                      
|                      
|2012                   |       |         |      |        |  |       | 5,076  |        |  |   | 5,076  |        
|                      
|                      
|                      
|                      
|2013                   |       |         |      |        |  |       | 20,359 |        |  |   | 20,359 |        
|                      
|                      
|                      
|                      
|2014                   |       |         |      |        |  |       | 31,398 |        |  |   | 31,398 |        
|                      
|                      
|                      
|                      
|2015                   |       |         |      |        |  |       | 31,261 |        |  |   | 31,261 |        
|                      
|                      
|                      
|                      
|2016                   |       |         |      |        |  |       | 31     |        |  |   | 31     |        
|                      
|                      
|                      
|                      
|2017                   |       |         |      |        |  |       | 46     |        |  |   | 46     |        
|                      
|                      
|                      
|                      
|2018                   |       |         | 4,317 |        |  |       | 327    |        |  |   | 4,644  |        
|                      
|                      
|                      
|                      
|2019                   |       |         | 5,620 |        |  |       | 497    |        |  |   | 6,117  |        
|                      
|                      
|                      
|                      
|2020                   |       |         | 165   |        |  |       | 571    |        |  |   | 736    |        
|                       |       |         |       |        |  |       |        |        |  |   |        |        
|                       | Total |         | $     | 10,102 |  |       | $      | 95,750 |  |   | $      | 105,852 | 
|                       |       |         |       |        |  |       |        |        |  |   |        |        

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. Such 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 $5.8
million and $1.8 million in the years ended December 31, 2001 and 2000,
respectively.

NOTE 8: 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 first business day
following each three-month purchase period. The Companys participation in the
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 and $0.7 million in 2000 and 1999, respectively.

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 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). The Companys shareholders approved the ESPP in 2001.

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 (see Note 1), 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 utilizing the criteria described in Emerging Issues Task Force Issue No.
90-9, Changes to Fixed Employee Stock Option Plans as a Result of Equity
Restructuring. To accommodate the conversion, the Company established the
eFunds Corporation Stock Incentive Plan for Deluxe Conversion Awards (the
Conversion Plan).

Under the Conversion Plan, the converted options retain their remaining terms,
vesting and other characteristics as provided in the Deluxe plans except that
options awarded under the 1998 DeluxeSHARES program were modified

37



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##### Table of Contents



to require that vesting prior to January 30, 2001 was conditioned upon the per
share price of the Companys common stock reaching a market price at least
equal to 150% of the per share exercise price of the converted option rather
than 150% of per share exercise price of the original DeluxeSHARES option. The
DeluxeSHARES conversion options became exercisable on January 31, 2001.

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, and 6,264 shares and units at a weighted-average fair value of
$26.19 per share during 1999. All outstanding Deluxe restricted stock units
held by employees of the Company were cancelled in connection with the
Spin-Off. The Company issued 53,514 restricted stock units in 2001 and 10,000
restricted stock 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
$665,000, $328,000 and $164,000 for restricted share and restricted stock unit
awards for the years ended December 31, 2001, 2000 and 1999, respectively. One
member of the Board of Directors elected to receive 1,537 restricted stock
units in lieu of compensation.

Information with respect to stock option activity is as follows:

|                                           |  |                          |           |       |  |           |       |       |  |  |           |           |  |   |        |  
|------------------------------------------ |  | ------------------------ | --------- | ----- |  | --------- | ----- | ----- |  |  | --------- | --------- |  | - | ------ | -
|                                           |  | Years Ended December 31,
|                                           |  |                         
|                                           |  | 2001                     |           | 2000 
|                                           |  |                          |           |      
|                                           |  |                          |           |       |  | Wtd. Avg. |       |       |  |  |           | Wtd. Avg.
|                                           |  |                          |           |       |  | Exercise  |       |       |  |  |           | Exercise 
|                                           |  | Shares                   |           | Price |  | Shares    |       | Price
|                                           |  |                          |           |       |  |           |       |      
|Options outstanding at beginning of year   |  |                          | 5,485,908 |       |  | $         | 13.33 |       |  |  |          |           |  | $ |       |  
|                                          
|                                          
|                                          
|                                          
|Deluxe options converted to eFunds options |  |                          |          |       |  |           |      |       |  |  | 2,918,435 |           |  |   | 13.75  |  
|                                          
|                                          
|                                          
|                                          
|Options granted                            |  |                          | 1,330,174 |       |  |           | 11.51 |       |  |  | 2,772,458 |           |  |   | 12.84  |  
|                                          
|                                          
|                                          
|                                          
|Options exercised                          |  |                          | (732,312  | )     |  |           | 13.43 |       |  |  |          |           |  |   |       |  
|                                          
|                                          
|                                          
|                                          
|Options cancelled                          |  |                          | (412,385  | )     |  |           | 12.57 |       |  |  | (204,985  | )         |  |   | (12.89 | )
|                                           |  |                          |           |       |  |           |       |       |  |  |           |           |  |   |        |  
|Options outstanding at end of year         |  |                          | 5,671,385 |       |  | $         | 12.95 |       |  |  | 5,485,908 |           |  | $ | 13.33  |  
|                                           |  |                          |           |       |  |           |       |       |  |  |           |           |  |   |        |  

For options outstanding and exercisable at December 31, 2001, 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  |             |  |                | 1,679,076 |                |  |             | 8.45 |                |  | $ | 11.01 |  |  |  | 262,083   |  |  | $ | 11.35 | 
|               
|               
|               
|               
|$               | 13.00-$13.88 |             |  |                | 2,467,993 |                |  |             | 8.15 |                |  |   | 13.02 |  |  |  | 1,097,039 |  |  |   | 13.04 | 
|               
|               
|               
|               
|$               | 14.05-$21.33 |             |  |                | 1,524,316 |                |  |             | 6.55 |                |  |   | 14.97 |  |  |  | 1,223,070 |  |  |   | 14.64 | 
|                |              |             |  |                |           |                |  |             |      |                |  |   |       |  |  |  |           |  |  |   |       | 
|                |              |             |  |                | 5,671,385 |                |  |             | 7.81 |                |  | $ | 12.95 |  |  |  | 2,582,192 |  |  | $ | 13.63 | 
|                |              |             |  |                |           |                |  |             |      |                |  |   |       |  |  |  |           |  |  |   |       | 

Pro forma information regarding net income (loss) and net income (loss) per
share has been determined as if the Company had accounted for its employee
stock-based compensation under the fair value method. The fair value of options
was estimated at the date of grant using a Black-Scholes option-pricing model.
The following weighted-average assumptions were used in valuing options issued
in 2001, 2000 and 1999, respectively: risk-free interest rate of 4.6%, 5.0% and
6.7%; dividend yield of 0.0%, 0.0% and 4.6%; and expected volatility of 78.6%,
50.0% and 24.0%, respectively. The weighted-average expected option life was 5
years, 5 years and 9 years for 2001, 2000 and 1999, respectively. The
weighted-average fair value of options granted in 2001, 2000 and 1999 was
$7.74, $6.33 and $8.28, respectively. For purposes of pro forma disclosures,
the estimated fair value of the options was recognized as expense over the
options vesting periods.

38



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##### Table of Contents



The Companys pro forma net income (loss) and net income (loss) per share were
as follows:

|                                                 |              |      |                         |        |  |      |   |       |  |  |   |         |  
|------------------------------------------------ | ------------ | ---- | ----------------------- | ------ |  | ---- | - | ----- |  |  | - | ------- | -
|                                                 |              |      | Year Ended December 31,
|                                                 |              |      |                        
|(dollars in thousands, except per share amounts) |              | 2001 |                         | 2000   |  | 1999
|                                                 |              |      |                         |        |  |     
|Net income (loss):                               |              |      |                         |        |  |      |   |       |  |  |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | As reported  |      | $                       | 33,339 |  |      | $ | 3,483 |  |  | $ | (8,226  | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Pro Forma    |      | $                       | 26,510 |  |      | $ | 640   |  |  | $ | (10,638 | )
|                                                
|                                                
|                                                
|                                                
|Basic and diluted net income (loss) per share:   |              |      |                         |        |  |      |   |       |  |  |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | As reported: |      |                         |        |  |      |   |       |  |  |   |         |  
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic        |      | $                       | 0.72   |  |      | $ | 0.08  |  |  | $ | (0.21   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Diluted      |      | $                       | 0.70   |  |      | $ | 0.08  |  |  | $ | (0.21   | )
|                                                
|                                                
|                                                
|                                                
|Pro Forma:                                       |              |      |                         |        |  |      |   |       |  |  |   |        
|                                                
|                                                
|                                                
|                                                
|                                                 | Basic        |      | $                       | 0.58   |  |      | $ | 0.01  |  |  | $ | (0.27   | )
|                                                
|                                                
|                                                
|                                                
|                                                 | Diluted      |      | $                       | 0.56   |  |      | $ | 0.01  |  |  | $ | (0.27   | )

Profit sharing, defined contribution and 401(k) plans  As part of the Spin-Off
(see Note 1), the Company established a new 401(k) plan effective on January 1,
2001. During 2001, employees could contribute the lesser of $10,500 or 10% of
their eligible wages to the new plan. The Company matched 100% of the first 5%
of wages contributed. The new 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 and profit sharing amounted to $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 $0.4 million in 2001.

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 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 and 1999. Related expense allocated to the Company for
these years was $4.9 million and $3.2 million, respectively. 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 and $4.8
million in 2000 and 1999, respectively. Company contributions to the 401(k)
plan were $2.3 million and $1.5 million in 2000 and 1999, respectively.

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 and 1999, 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 also credit certain amounts specified in the plan related to the
401(k) plan to participants accounts. The plan provides that the Company may
make additional contributions to the participants accounts at its sole
discretion. No such supplemental contributions have been made.

NOTE 9: 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

39



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##### Table of Contents



the rest of the Deluxe plan.

The Company terminated this plan as of the date of the Spin-Off (see Note 1).
Employees and retirees who were eligible for medical benefits as of the
Spin-Off will continue to receive this benefit; however, 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 years ended
December 31, 2000 and 1999 amounted to $0.2 million and $0.2 million,
respectively.

NOTE 10: LEASE AND DEBT COMMITMENTS: Long-term debt was as follows:

|                                |       |      |              |       |  |   |        |       | 
|------------------------------- | ----- | ---- | ------------ | ----- |  | - | ------ | ----- | 
|                                |       |      | December 31,
|                                |       |      |             
|(dollars in thousands)          |       | 2001 |              | 2000 
|                                |       |      |              |      
|Capital leases and other        |       | $    | 5,310        |       |  | $ | 4,344  |      
|                               
|                               
|                               
|                               
|Less amount due within one year |       |      | (2,781       | )     |  |   | (2,100 | )    
|                                |       |      |              |       |  |   |        |      
|                                | Total |      | $            | 2,529 |  |   | $      | 2,244 | 
|                                |       |      |              |       |  |   |        |      

Long-term debt consists principally of capital lease obligations related to
equipment. The capital lease obligations bear interest rates of 6.1% to 35.9%
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, 2006, are $2.8 million in 2002, $1.4 million in 2003, $1.1 million
in 2004, $0 in 2005 and $0 in 2006. The net book value of equipment under
capital leases was $3.5 million at December 31, 2001.

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, 2006, are
$14.5 million in 2002, $11.4 million in 2003, $9.3 million in 2004, $5.6
million in 2005 $4.9 million in 2006 and $18.5 million thereafter. Rental
expense was $13.5 million, $17.5 million and $20.7 million in 2001, 2000 and
1999, respectively.

In September 2001, the Company obtained a new revolving credit facility in the
amount of $20.0 million to replace a facility that was maturing. 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 increased from $16.0 million to $19.0 million. This letter of
credit had originally been issued under the prior credit facility. The Company
did not borrow any funds under this facility through December 31, 2001. Loans
under this facility will bear interest at the applicable prime rate or the
LIBOR rate plus a margin determined by reference to the Companys leverage
ratio, as defined in the loan documents. The facility is guaranteed by certain
of the Companys subsidiaries and requires the Company to comply with certain
financial and non-financial covenants. The Company is currently in compliance
with all of these requirements. This facility has a term of one year.

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.

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. 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 subsequently
requested that the amount available for borrowing under the facility be reduced
to $1.5 million. The Company now uses the facility primarily for the purpose of
securing letters of credit issued in the ordinary course of business. At
December 31, 2001, the aggregate value of outstanding letters of credit
amounted to $1.3 million. This facility matures on September 30, 2002. 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%. The Company did
not borrow against this credit facility during the remainder of 2001. As of
December 31, 2000, $5.3 million was outstanding at an interest rate of 15.4%.
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 down on this
line during 1999 was $2.7 million at a weighted average interest rate of 15.8%.

40



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NOTE 11: BUSINESS SEGMENT INFORMATION:

Business Segments  2002 Changes

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 includes automated clearinghouse
(ACH), point of sale (POS), electronic funds transfer (EFT) and other
processing services across multiple financial networks, 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 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 dependent
upon activity-based drivers most appropriate for the cost group such as work
volumes, which includes transactions, calls, customers, or other applicable
drivers including square footage, revenue dollars and headcount. 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.

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

|                                                                                               |                                      |                                                                                                     |   |            |         | 
|---------------------------------------------------------------------------------------------- | ------------------------------------ | --------------------------------------------------------------------------------------------------- | - | ---------- | ------- | 
|                                                                                               |                                      |                                                                                                     |   | Year Ended
|(in thousands)                                                                                 |                                      | December 31, 2001                                                                                  
|                                                                                               |                                      |                                                                                                    
|Net Revenue:                                                                                   |                                      |                                                                                                     |   |           
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Electronic payments                  |                                                                                                     | $ | 185,645    |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | ATM management services              |                                                                                                     |   | 73,922     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Decision support and risk management |                                                                                                     |   | 137,868    |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Professional services                |                                                                                                     |   | 139,724    |        
|                                                                                               |                                      |                                                                                                     |   |           
|                                                                                               |                                      | Total net revenue                                                                                   |   |            | 537,159 | 
|                                                                                               |                                      |                                                                                                     |   |           
|Operating
Expenses before restructuring charges and reversal of provision for
contract losses: |                                      |                                                                                                     |   |           
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Electronic payments                  |                                                                                                     |   | 141,362    |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | ATM management services              |                                                                                                     |   | 70,662     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Decision support and risk management |                                                                                                     |   | 107,632    |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Professional services                |                                                                                                     |   | 75,764     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Corporate                            |                                                                                                     |   | 90,218     |        
|                                                                                               |                                      |                                                                                                     |   |           
|                                                                                               |                                      | Total operating expenses before
restructuring charges and reversal of provision for contract losses |   |            | 485,638 | 
|                                                                                               |                                      |                                                                                                     |   |           
|Restructuring
charges and reversal of provision for contract losses:                           |                                      |                                                                                                     |   |           
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Electronic payments                  |                                                                                                     |   | (2,500     | )       | 
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | ATM management services              |                                                                                                     |   |           |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Decision support and risk management |                                                                                                     |   | 3,200      |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Professional services                |                                                                                                     |   |           |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Corporate                            |                                                                                                     |   |           |        
|                                                                                               |                                      |                                                                                                     |   |           
|                                                                                               |                                      | Total
restructuring charges and reversal of provision for contract losses                           |   |            | 700     | 
|                                                                                               |                                      |                                                                                                     |   |           
|Income (loss) from operations                                                                  |                                      |                                                                                                     |   |           
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Electronic payments                  |                                                                                                     |   | 46,783     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | ATM management services              |                                                                                                     |   | 3,260      |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Decision support and risk management |                                                                                                     |   | 27,036     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Professional services                |                                                                                                     |   | 63,960     |        
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                               | Corporate                            |                                                                                                     |   | (90,218    | )      
|                                                                                               |                                      |                                                                                                     |   |           
|                                                                                               |                                      | Income from operations                                                                              |   | $          | 50,821  | 
|                                                                                               |                                      |                                                                                                     |   |           

The Company has not disclosed comparable segment data for periods prior to 2001
when the Company was a subsidiary of Deluxe as this information was not
produced internally and it is not practicable to prepare.

During 2001 the Company organized its business units into two operating
segments based on the nature of each segments customers. These segments are
payment systems and services and government services. The payment systems and
services segment provides 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 provides online EBT services under
entitlement programs on behalf of state and local governments and Medicaid
eligibility verification services.

The Companys segments operate primarily in the United States. The payment
systems and services segment also has international operations. Concord EFS
accounted for approximately 11.0% of the Companys total net revenue (before
reimbursed expenses) during the year ended December 31, 2001 and Deluxe
accounted for approximately 14.2% of the Companys total net revenue (before
reimbursed expenses) during the year ended December 31, 2000.

The accounting policies of the segments are the same as those described in Note
2. In evaluating segment performance, management focuses on operating income.
The operating income measurement utilized by management excludes special
charges (e.g., restructuring charges, asset impairment charges, certain
one-time charges that management believes are not reflective of on-going
operations, etc.). Net special items in 2001 resulted from a charge of $0.7
million consisting of a special charge of $3.2 million related to the closure
of the Companys Bothell, Washington operations and a net special credit of
$2.5 million related to a reduction in the loss contract reserve. The special
charge for the Bothell closure is recorded in the payment systems and services
segment. The net special credit of $2.5 million is recorded in the government
services segment. Special charges in 2000 were $15.8

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million, $6.1 million of which was included in the payment systems and services
segment and related primarily to costs incurred in connection with the Spin-Off
from Deluxe and $9.7 million of which was included in the government services
segment and related to a charge taken for loss contracts. In 1999, special
charges of $8.7 million related primarily to loss contracts within the
government services business.

Prior to the acquisition of the remaining 50% interest in eFunds India in 1999
(see Note 4), the results of this business were recorded under the equity
method of accounting. As such, the Company recorded its 50% ownership of the
joint ventures results of operations prior to the acquisition
in other expense,
in the consolidated statements of operations. To be consistent with management
reporting, the entire results of the joint venture for the pre-acquisition
periods are reflected in the business segment information as if the business
had been a consolidated entity.

Segment information is as follows:

|                                             |  |                              |         |            |  |              |        |  |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------- | ---------- |  | ------------ | ------ |  |  | - | ------- | -
|                                             |  | Year Ended December 31, 2001
|                                             |  |                             
|                                             |  | Payment                      |         |            |  |              |        |  |  |  
|                                             |  | systems and                  |         | Government |  | Total       
|(dollars in thousands)                       |  | services                     |         | services   |  | Consolidated
|                                             |  |                              |         |            |  |             
|Total net revenue                            |  | $                            | 487,087 |            |  | $            | 50,072 |  |  | $ | 537,159 |  
|                                            
|                                            
|                                            
|                                            
|Gross margin excluding net special items     |  |                              | 182,019 |            |  |              | 17,573 |  |  |   | 199,592 |  
|                                            
|                                            
|                                            
|                                            
|Operating income excluding net special items |  |                              | 37,244  |            |  |              | 14,277 |  |  |   | 51,521  |  
|                                            
|                                            
|                                            
|                                            
|Net special items                            |  |                              | (3,200  | )          |  |              | 2,500  |  |  |   | (700    | )
|                                            
|                                            
|                                            
|                                            
|Gross margin including net special items     |  |                              | 178,819 |            |  |              | 20,073 |  |  |   | 198,892 |  
|                                            
|                                            
|                                            
|                                            
|Operating income including net special items |  |                              | 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 
|(dollars 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 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Gross margin excluding special charges            |                   |          | 149,670                      |          |            |              | 14,462 |        |  |   | 164,132 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Operating income excluding special charges        |                   |          | 14,559                       |          |            |              | 9,594  |        |  |   | 24,153  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Special charges                                   |                   |          | (6,077                       | )        |            |              | (9,700 | )      |  |   | (15,777 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|Gross margin including special charges            |                   |          | 143,593                      |          |            |              | 4,762  |        |  |   | 148,355 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Operating income (loss) including special charges |                   |          | 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  |        

|                                                  |                   |          |                              |          |            |              |         |        |  |   |         |         | 
|------------------------------------------------- | ----------------- | -------- | ---------------------------- | -------- | ---------- | ------------ | ------- | ------ |  | - | ------- | ------- | 
|                                                  |                   |          | Year Ended December 31, 1999
|                                                  |                   |          |                             
|                                                  |                   |          | Payment                      |          |            |              |         |        |  |   |        
|                                                  |                   |          | systems and                  |          | Government |              | Total  
|(dollars in thousands)                            |                   | services |                              | services |            | Consolidated
|                                                  |                   |          |                              |          |            |             
|Net revenue from unaffiliated external customers  |                   | $        | 263,856                      |          |            | $            | 53,078  |        |  | $ | 316,934 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Net revenue from Deluxe                           |                   |          | 9,758                        |          |            |              |        |        |  |   | 9,758   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Total net revenue |          |                              | 273,614  |            |              |         | 53,078 |  |   |         | 326,692 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Gross margin excluding special charges            |                   |          | 108,757                      |          |            |              | 9,478   |        |  |   | 118,235 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Operating income excluding special charges        |                   |          | 7,033                        |          |            |              | 3,454   |        |  |   | 10,487  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Special charges                                   |                   |          | (2,713                       | )        |            |              | (10,096 | )      |  |   | (12,809 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|Gross margin including special charges            |                   |          | 106,044                      |          |            |              | (618    | )      |  |   | 105,426 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Operating income (loss) including special charges |                   |          | 4,320                        |          |            |              | (6,642  | )      |  |   | (2,322  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|Depreciation and amortization expense             |                   |          | 22,644                       |          |            |              |        |        |  |   | 22,644  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Segment assets                                    |                   |          | 246,861                      |          |            |              | 34,410  |        |  |   | 281,271 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Capital purchases                                 |                   |          | 37,441                       |          |            |              | 929     |        |  |   | 38,370  |        

43



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

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 2001
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(dollars in thousands)               |  | services                     |         | services   |  | Total
|                                     |  |                              |         |            |  |      
|Transaction processing               |  | $                            | 209,496 |            |  | $     | 50,072 |  |  | $ | 259,568 | 
|                                    
|                                    
|                                    
|                                    
|Risk management and decision support |  |                              | 137,866 |            |  |       |       |  |  |   | 137,866 | 
|                                    
|                                    
|                                    
|                                    
|Professional services                |  |                              | 139,725 |            |  |       |       |  |  |   | 139,725 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|Total net revenue                    |  | $                            | 487,087 |            |  | $     | 50,072 |  |  | $ | 537,159 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 2000
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(dollars 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 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|------------------------------------ |  | ---------------------------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------- | 
|                                     |  | Year Ended December 31, 1999
|                                     |  |                             
|                                     |  | Payment                      |         |            |  |       |        |  |  |  
|                                     |  | systems and                  |         | Government |  |       |        | 
|(dollars in thousands)               |  | services                     |         | services   |  | Total
|                                     |  |                              |         |            |  |      
|Transaction processing               |  | $                            | 116,438 |            |  | $     | 53,078 |  |  | $ | 169,516 | 
|                                    
|                                    
|                                    
|                                    
|Risk management and decision support |  |                              | 107,897 |            |  |       |       |  |  |   | 107,897 | 
|                                    
|                                    
|                                    
|                                    
|Professional services                |  |                              | 49,279  |            |  |       |       |  |  |   | 49,279  | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 
|Total net revenue                    |  | $                            | 273,614 |            |  | $     | 53,078 |  |  | $ | 326,692 | 
|                                     |  |                              |         |            |  |       |        |  |  |   |         | 

Segment information reconciles to consolidated amounts as follows:

|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |         |  
|---------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------------------------- | ------- | ----------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                     |                                                                                  |                                                          |         | Year Ended December 31,
|                                                     |                                                                                  |                                                          |         |                        
|(dollars in thousands)                               |                                                                                  | 2001                                                     |         | 2000                    |         | 1999
|                                                     |                                                                                  |                                                          |         |                         |         |     
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |         |  
|Total net revenue:                                   |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Total segment net revenue                                                        |                                                          | $       | 537,159                 |         |      | $       | 439,299 |         |   | $       | 326,692 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Professional services pre-acquisition elimination                                |                                                          |         |                        |         |      |         |        |         |   |         | (4,325  | )      
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|                                                     |                                                                                  | Total consolidated net revenue                           |         | $                       | 537,159 |      |         | $       | 439,299 |   |         | $       | 322,367 |  
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|Operating income (loss) including net special items: |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Total segment operating loss                                                     |                                                          | $       | 50,821                  |         |      | $       | 8,376   |         |   | $       | (2,322  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Professional services pre-acquisition elimination                                |                                                          |         |                        |         |      |         |        |         |   |         | 1,234   |        
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|                                                     |                                                                                  | Total consolidated operating income (loss)               |         | $                       | 50,821  |      |         | $       | 8,376   |   |         | $       | (1,088  | )
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|Depreciation and amortization expense:               |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Total segment depreciation and amortization expense                              |                                                          | $       | 39,952                  |         |      | $       | 31,069  |         |   | $       | 22,644  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Professional services pre-acquisition elimination                                |                                                          |         |                        |         |      |         |        |         |   |         | (143    | )      
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|                                                     |                                                                                  | Total consolidated depreciation and amortization expense |         | $                       | 39,952  |      |         | $       | 31,069  |   |         | $       | 22,501  |  
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|Total assets:                                        |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Total segment assets                                 |                                                                                  | $                                                        | 442,916 |                         |         | $    | 389,132 |         |         | $ | 281,271 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Income tax receivable and long-term deferred tax asset
not allocated to segments |                                                          |         |                        |         |      |         |        |         |   |         | 8,658   |        
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|                                                     |                                                                                  | Total consolidated assets                                |         | $                       | 442,916 |      |         | $       | 389,132 |   |         | $       | 289,929 |  
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|Capital purchases:                                   |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Total segment capital purchases                                                  |                                                          | $       | 30,902                  |         |      | $       | 41,893  |         |   | $       | 38,370  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Professional services pre-acquisition elimination                                |                                                          |         |                        |         |      |         |        |         |   |         | (145    | )      
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        
|                                                     |                                                                                  | Total consolidated capital purchases                     |         | $                       | 30,902  |      |         | $       | 41,893  |   |         | $       | 38,225  |  
|                                                     |                                                                                  |                                                          |         |                         |         |      |         |         |         |   |         |         |        

44



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##### Table of Contents



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,          
|                        |                    |      |                         |         |                       
|(dollars in thousands)  |                    | 2001 |                         | 2000    |                        | 1999 |         | 2001    |  | 2000
|                        |                    |      |                         |         |                        |      |         |         |  |     
|United States           |                    | $    | 495,928                 |         |                        | $    | 413,090 |         |  | $    | 301,960 |         |  | $ | 64,687 |        |  | $ | 69,806 |       
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 15,318                  |         |                        |      | 16,219  |         |  |      | 17,468  |         |  |   | 1,736  |        |  |   | 1,849  |       
|                       
|                       
|                       
|                       
|India                   |                    |      | 23,765                  |         |                        |      | 9,990   |         |  |      | 2,939   |         |  |   | 8,950  |        |  |   | 5,673  |       
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 2,148                   |         |                        |      |        |         |  |      |        |         |  |   | 265    |        |  |   | 27     |       
|                        |                    |      |                         |         |                        |      |         |         |  |      |         |         |  |   |        |        |  |   |        |       
|                        | Total consolidated |      | $                       | 537,159 |                        |      | $       | 439,299 |  |      | $       | 322,367 |  |   | $      | 75,638 |  |   | $      | 77,355 | 
|                        |                    |      |                         |         |                        |      |         |         |  |      |         |         |  |   |        |        |  |   |        |       

NOTE 12: 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
the Companys financial position, results of operations, or cash flows.

On March 8, 2002, the Company received a letter from a Staff Accountant at the
Central Regional Office of the Securities and Exchange Commission (the SEC)
stating that the SEC is conducting an inquiry of the Company and requesting the
Companys voluntary assistance in connection with the provision of certain
documents relating to the Companys 2001 financial results and certain
transactions between the Company and ACI, among other things. The letter from
the SEC states that the inquiry is non-public and that it should not be
construed as an indication that the SEC believes any violation of law has
occurred. The Company intends to cooperate fully with the SEC in resolving this
matter. The Company may, however, be the subject of additional inquiries or
become subject to a fine or other liabilities.

During 1997, a judgment was entered against the Company in the U.S. District
Court for the Western District of Pennsylvania. The case was brought against
the Company by Mellon Bank (Mellon) in connection with a potential bid to
provide electronic benefit transfer services for the Southern Alliance of
States. In January 1999, the United States Court of Appeals for the Third
Circuit affirmed the judgment of the district court and the Company paid $32.2
million to Mellon in February 1999. The portion of the reserve established by
the Company in 1997 and remaining after the payment of this judgment ($2.1
million) was reversed and is reflected in legal proceedings in the 1999
consolidated statement of operations.

NOTE 13: COMMITMENTS AND CONTINGENCIES: In connection with the Companys EBT
and collection activities, the Company posts surety bonds with state agencies
guaranteeing its performance of certain obligations related to contracts or
state requirements. The aggregate amount of such bonds outstanding at December
31, 2001 was $7.8 million.

An Indian bank has issued an advance guarantee on behalf of the Company to
secure its performance under a customer contract. The guarantee is secured by a
time deposit of $0.9 million, which is refundable in March 2002.

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 up to 49% or sole ownership of certain assets used by the Company in
performing call center operations for the customer. 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. The call center operation
generated revenue of $16.5 million in 2001.

NOTE 14: SUBSEQUENT EVENT: On January 31, 2002, the Company purchased
substantially all the U.S. ATM-related assets of Hanco Systems, Inc., an
independent ATM deployment and management company. The purchase price paid by
the Company was $11.4 million plus an additional amount for the outstanding
accounts receivable on the date of closing plus the assumption of certain
liabilities. The transaction will be accounted for as a business combination
under SFAS No. 141.

45



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##### Table of Contents



NOTE 15: RESTATEMENT OF FINANCIAL STATEMENTS

Restatement

Subsequent to the issuance of the Companys consolidated financial
statements for the year ended December 31, 2001 and in response
to questions raised in connection with an internal audit of certain
significant vendor contracts, the
Company conducted an
investigation of certain significant transactions reflected in the
Companys financial statements during 2000 and 2001. As a result of
this investigation, the
Companys management determined that the historical accounting
treatment that had been afforded to (i) certain data purchase agreements with Experian Information Systems
(Experian) and Acxiom Corporation (Acxiom), (ii) certain tax contingencies
related to the Companys India based operations, (iii) certain software licenses sold by the Companys
subsidiary in the United Kingdom and, (iv) tax benefits associated with stock option
exercises in 2001, should be revised. The revisions are discussed below:



| |  | Experian:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 2000, the Company and Experian executed a Data Purchase Agreement
(the 2000 Agreement), which expired June 30, 2001. The Company recognized
$3 million of revenue from a data file sale related to the 2000 Agreement in
the second quarter of 2000, and minimum royalties of $1.5 million and $0.5
million were recorded as revenue in the first and second quarters of 2001,
respectively. In June 2001, the Company and Experian executed a new Data
Purchase Agreement (the 2001 Agreement), which expires in March 2003. The
Company recognized $3 million of revenues from a data file sale related to
the 2001 Agreement in the second quarter of 2001. In July 2001, the Company
also entered into a Data Access/Use Agreement with Experian. The Company
recorded revenue of $0.2 million in the third quarter of 2001 related to the
Data Access/Use Agreement.                                                                                                                                                                                                                                          
|
| |  | Management has subsequently determined that the 2001 Agreement and the Data
Access/Use Agreement should be viewed as interrelated and in substance one
agreement that became effective in July 2001. Management has also
determined that sufficient objective evidence of fair value does not exist
to support separate accounting for the various elements of the 2000 and 2001
Agreements. As a result, management determined that these transactions
should be treated as service arrangements for which revenue should be
recognized ratably over the service periods and that revenue recognition
should not commence until the last essential element of the arrangements was
delivered, which was October 2000 for the 2000 Agreement and August 2001 for
the 2001 Agreement. This treatment results in recognition of the $5 million
of total fees related to the 2000 Agreement ratably over the remaining term
of that agreement, commencing October 2000, and recognition of the $3.2
million of total fees related to the 2001 Agreement ratably over the
remaining term of that agreement, commencing August 2001.
|
| |  | Acxiom:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | During the period from March 2001 through June 2001, the Company and Acxiom
negotiated and executed agreements (Vendor Agreements) related to three
primary arrangements under which the Company purchased outsourcing and
data-related services from Acxiom that were being provided over terms
extending through March 2006. Also in June 2001, the Company and Acxiom
executed a Data Purchase Agreement under which the Company sold data files
to Acxiom. Under the terms of the Vendor Agreements, the Company was
recognizing the cost of the services as they were billed by Acxiom, and the
Company recognized $3 million in revenue from the data file sale under the
Data Purchase Agreement in the second quarter of 2001.                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Management has subsequently determined that the Vendor Agreements and the
Data Purchase Agreement should be viewed as economically interrelated and
treated as a single agreement between the parties, and that the $3 million
received from Acxiom under the Data Purchase Agreement should be
treated as a reduction of expense associated with the Vendor Agreements
over the remaining term of those agreements rather than as an item of
revenue. Management also determined that the expenses related to the Vendor
Agreements and one other service contract, which contain fixed prices over
their terms, should be recorded on a ratable basis over the term of the
related service periods.                                                                                                                                                                                                                                                                                                                                                                                                                          

46



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##### Table of Contents





| |  | Income Taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Management has determined that
the liabilities associated with certain tax contingencies related to the
Companys India based operations were underestimated, resulting in an
understatement of income tax expense for federal income tax purposes of
$0.8 million and $0.2 million in 2001 and 2000, respectively.                                                                                                                                                                              
|
| |  | United Kingdom  Software Licenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Management also determined that $1.0 million in software licenses sold by
the Companys subsidiary in the United Kingdom during 2001 had been
incorrectly recognized as revenue prior to obtaining a signed license
agreement which resulted in an overstatement of revenues by $0.2
million and $0.8 million in the first and second quarters of 2001,
respectively, and an understatement of revenues of $0.9 million and $0.1 million, respectively,
in the third and fourth quarters of 2001.
|
| |  | In addition, one other
miscellaneous adjustment was made to recognize $0.3 million of revenue
ratably in the second and third quarters of 2000 that had previously been
recognized in the first quarter of 2000.                                                                                                                                                                                                                                                                                 
|
| |  | Exercise of stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Management also determined that the Company had not accounted for $2.2
million in tax benefits associated with the exercise of certain stock
options in 2001, which should have been recognized as an increase in
additional paid-in capital and a reduction in income taxes payable. This
adjustment did not affect the Statement of Operations for any period
presented.                                                                                                                       

As a result, the accompanying consolidated financial statements for the years
ended December 31, 2001 and 2000 have been restated from the amounts previously
reported to revise the accounting for these transactions. During
2002, the Companys 2001 segment data was restated to reflect
changes in the Companys segments. See Note 11.

Adoption of EITF Issue No. 01-14

In addition, the accompanying
financial statements for the years ended December 31, 2001, 2000
and 1999 have been restated to give
retroactive effect to the adoption of Emerging Issues Task Force (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 Issue 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. The Company typically
incurs telecommunications, network customer fees, travel, maintenance and
repair, and other transaction costs that are billed to and reimbursed by
customers. These reimbursements were previously classified as a reduction to
cost of revenue. EITF Issue No. 01-14 requires that financial statements for
prior periods presented be reclassified to comply with these provisions.

Adoption of EITF Issue No. 01-14 resulted in an equal increase to both revenue and
cost of revenue, with no effect on the Companys financial
position or net income. The effect of the reclassifications made by the Company
pursuant to EITF Issue No. 01-14 was to increase net revenue and cost of
revenue by $27.7 million, $22.7 million and $20.0 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

A summary of the significant effects of the restatement on the accompanying
financial statements is as follows:

|                           |                             |          |               |             |      |          |         |             |               |   |         |         |  |   |         |         | 
|-------------------------- | --------------------------- | -------- | ------------- | ----------- | ---- | -------- | ------- | ----------- | ------------- | - | ------- | ------- |  | - | ------- | ------- | 
|                           |                             |          | 2001          |             | 2000
|                           |                             |          |               |             |     
|                           |                             |          | As Previously |             |      |          |         |             | As Previously |   |         |         | 
|(In thousands)             |                             | Reported |               | As Restated |      | Reported |         | As Restated
|                           |                             |          |               |             |      |          |         |            
|At December 31,            |                             |          |               |             |      |          |         |             |               |   |         |         |  |   |         |        
|                          
|                          
|                          
|                          
|Accounts receivable  net  |                             | $        | 79,444        |             |      | $        | 78,488  |             |               | $ | 57,825  |         |  | $ | 57,825  |        
|                          
|                          
|                          
|                          
|Deferred income taxes      |                             |          | 10,844        |             |      |          | 13,492  |             |               |   | 13,069  |         |  |   | 13,614  |        
|                          
|                          
|                          
|                          
|Total current assets       |                             |          | 210,175       |             |      |          | 211,787 |             |               |   | 170,523 |         |  |   | 171,068 |        
|                          
|                          
|                          
|                          
|Total assets               |                             |          | 441,304       |             |      |          | 442,916 |             |               |   | 388,587 |         |  |   | 389,132 |        
|                          
|                          
|                          
|                          
|Deferred revenue           |                             |          | 12,831        |             |      |          | 14,377  |             |               |   | 2,211   |         |  |   | 3,545   |        
|                          
|                          
|                          
|                          
|Accrued liabilities other  |                             |          | 10,797        |             |      |          | 12,936  |             |               |   | 14,014  |         |  |   | 14,180  |        
|                          
|                          
|                          
|                          
|Total current liabilities  |                             |          | 91,543        |             |      |          | 94,011  |             |               |   | 98,469  |         |  |   | 100,169 |        
|                          
|                          
|                          
|                          
|                           | Other long-term liabilities |          |               | 2,713       |      |          |         | 4,748       |               |   |         | 50      |  |   |         | 50      | 
|                          
|                          
|                          
|                          
|                           | Additional paid-in capital  |          |               | 404,993     |      |          |         | 407,210     |               |   |         | 391,699 |  |   |         | 391,699 | 
|                          
|                          
|                          
|                          
|Total stockholders equity |                             |          | 337,206       |             |      |          | 334,315 |             |               |   | 287,320 |         |  |   | 286,165 |        

47



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##### Table of Contents



For the year ended December 31, 2001



---

|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  
|------------------------------------- |  | ------------- | ------- | --- |  | --- | ------ | - |  | - | ------ | ----------- |  | - | ------- | -
|                                      |  | As Previously |         |     |  |     |        |   |  |   |        |             |  |  
|                                      |  | Reported      |         |     |  |     |        |   |  |   |        | As Restated
|(In thousands, except per share data) |  | (1)           |         | (2) |  | (3) |        |  
|                                      |  |               |         |     |  |     |        |  
|Net revenue                           |  | $             | 513,637 |     |  | $   | (4,168 | ) |  | $ | 27,690 |             |  | $ | 537,159 |  
|                                     
|                                     
|                                     
|                                     
|Total cost of revenue                 |  |               | 306,889 |     |  |     | 488    |   |  |   | 27,690 |             |  |   | 335,067 |  
|                                     
|                                     
|                                     
|                                     
|Gross margin                          |  |               | 206,748 |     |  |     | (4,656 | ) |  |   |        |             |  |   | 202,092 |  
|                                     
|                                     
|                                     
|                                     
|Income from operations                |  |               | 56,077  |     |  |     | (5,256 | ) |  |   |        |             |  |   | 50,821  |  
|                                     
|                                     
|                                     
|                                     
|Provision for income taxes            |  |               | (18,956 | )   |  |     | 1,303  |   |  |   |        |             |  |   | (17,653 | )
|                                     
|                                     
|                                     
|                                     
|Net income                            |  |               | 37,292  |     |  |     | (3,953 | ) |  |   |        |             |  |   | 33,339  |  
|                                     
|                                     
|                                     
|                                     
|Net income per share  basic          |  | $             | 0.81    |     |  |     |        |   |  |   |        |             |  | $ | 0.72    |  
|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  
|Net income per share  diluted        |  | $             | 0.79    |     |  |     |        |   |  |   |        |             |  | $ | 0.70    |  
|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  

For the year ended December 31, 2000



---

|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  
|------------------------------------- |  | ------------- | ------- | --- |  | --- | ------ | - |  | - | ------ | ----------- |  | - | ------- | -
|                                      |  | As Previously |         |     |  |     |        |   |  |   |        |             |  |  
|                                      |  | Reported      |         |     |  |     |        |   |  |   |        | As Restated
|(In thousands, except per share data) |  | (1)           |         | (2) |  | (3) |        |  
|                                      |  |               |         |     |  |     |        |  
|Net revenue                           |  | $             | 417,894 |     |  | $   | (1,334 | ) |  | $ | 22,739 |             |  | $ | 439,299 |  
|                                     
|                                     
|                                     
|                                     
|Total cost of revenue                 |  |               | 261,962 |     |  |     | 166    |   |  |   | 22,739 |             |  |   | 284,867 |  
|                                     
|                                     
|                                     
|                                     
|Gross margin                          |  |               | 155,932 |     |  |     | (1,500 | ) |  |   |        |             |  |   | 154,432 |  
|                                     
|                                     
|                                     
|                                     
|Income from operations                |  |               | 9,876   |     |  |     | (1,500 | ) |  |   |        |             |  |   | 8,376   |  
|                                     
|                                     
|                                     
|                                     
|Provision for income taxes            |  |               | (3,644  | )   |  |     | 345    |   |  |   |        |             |  |   | (3,299  | )
|                                     
|                                     
|                                     
|                                     
|Net income                            |  |               | 4,638   |     |  |     | (1,155 | ) |  |   |        |             |  |   | 3,483   |  
|                                     
|                                     
|                                     
|                                     
|Net income per share  basic          |  | $             | 0.11    |     |  |     |        |   |  |   |        |             |  | $ | 0.08    |  
|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  
|Net income per share  diluted        |  | $             | 0.11    |     |  |     |        |   |  |   |        |             |  | $ | 0.08    |  
|                                      |  |               |         |     |  |     |        |   |  |   |        |             |  |   |         |  



---

|(1) |  | As reported in the Companys Form 10-K for the year ended
December 31, 2001.
|--- |  | ----------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Effects of restatements outlined above.                                     
|   
|   
|   
|   
|(3) |  | Effects of the EITF Issue No. 01-14 outlined above.                         

In October and
November 2002, the
staff of the Securities and Exchange Commission requested additional
information from us related to, among other things, certain of the
matters that are the subject of this restatement.

48



---



##### Table of Contents



EFUNDS CORPORATION
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)

|                                                |                      |          |                         |         |  |              |         |             |  |   |         |      |  |   |         |      | 
|----------------------------------------------- | -------------------- | -------- | ----------------------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                                |                      |          | 2001 Quarters Ended,(2)
|                                                |                      |          |                        
|                                                |                      |          | As Restated (1)        
|(dollars in thousands except per share amounts) |                      | March 31 |                         | June 30 |  | September 30 |         | December 31
|                                                |                      |          |                         |         |  |              |         |            
|Net revenue                                     |                      | $        | 130,555                 |         |  | $            | 127,204 |             |  | $ | 141,275 |      |  | $ | 138,125 |     
|                                               
|                                               
|                                               
|                                               
|Cost of revenue                                 |                      |          | 85,938                  |         |  |              | 84,282  |             |  |   | 81,836  | (3)  |  |   | 83,011  |     
|                                               
|                                               
|                                               
|                                               
|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 | 

|                                                |                      |          |                            |         |  |              |         |             |  |   |         |      |  |   |         |      | 
|----------------------------------------------- | -------------------- | -------- | -------------------------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                                |                      |          | 2001 Quarters Ended,(2)   
|                                                |                      |          |                           
|                                                |                      |          | As
Previously Reported (1)
|(dollars in thousands except per share amounts) |                      | March 31 |                            | June 30 |  | September 30 |         | December 31
|                                                |                      |          |                            |         |  |              |         |            
|Net revenue                                     |                      | $        | 124,498                    |         |  | $            | 126,057 |             |  | $ | 132,978 |      |  | $ | 130,104 |     
|                                               
|                                               
|                                               
|                                               
|Cost of revenue                                 |                      |          | 79,650                     |         |  |              | 77,532  |             |  |   | 74,046  | (3)  |  |   | 75,661  |     
|                                               
|                                               
|                                               
|                                               
|Net income                                      |                      |          | 4,083                      |         |  |              | 7,738   |             |  |   | 13,645  |      |  |   | 11,826  |     
|                                               
|                                               
|                                               
|                                               
|Per share of common stock:                      |                      |          |                            |         |  |              |         |             |  |   |         |      |  |   |         |     
|                                               
|                                               
|                                               
|                                               
|                                                | Net income  basic   |          | $                          | 0.09    |  |              | $       | 0.17        |  |   | $       | 0.30 |  |   | $       | 0.26 | 
|                                               
|                                               
|                                               
|                                               
|                                                | Net income  diluted |          | $                          | 0.09    |  |              | $       | 0.16        |  |   | $       | 0.28 |  |   | $       | 0.25 | 



---

|(1) |  | See Note 15 to the consolidated financial statements.                                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The sum of quarterly earnings per share may not equal annual
earnings per share, due to rounding.                                                          
|   
|   
|   
|   
|(3) |  | Includes a net credit of $2.5 million to reduce the reserve for
additional expected future losses on existing contracts of the
government services segment.

|                                                |                                       |          |                         |         |  |              |         |             |   |   |         |      |  |   |         |      | 
|----------------------------------------------- | ------------------------------------- | -------- | ----------------------- | ------- |  | ------------ | ------- | ----------- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                                |                                       |          | 2000 Quarters Ended,(2)
|                                                |                                       |          |                        
|                                                |                                       |          | As Restated (1)        
|(dollars in thousands except per share amounts) |                                       | March 31 |                         | June 30 |  | September 30 |         | December 31
|                                                |                                       |          |                         |         |  |              |         |            
|Net revenue                                     |                                       | $        | 105,302                 |         |  | $            | 103,710 |             |   | $ | 109,914 |      |  | $ | 120,373 |     
|                                               
|                                               
|                                               
|                                               
|Cost of revenue                                 |                                       |          | 64,102                  |         |  |              | 74,701  | (3)         |   |   | 69,267  |      |  |   | 76,797  |     
|                                               
|                                               
|                                               
|                                               
|Net income (loss)                               |                                       |          | 1,026                   |         |  |              | (6,362  | )           |   |   | 3,963   |      |  |   | 4,856   |     
|                                               
|                                               
|                                               
|                                               
|Per share of common stock:                      |                                       |          |                         |         |  |              |         |             |   |   |         |      |  |   |         |     
|                                               
|                                               
|                                               
|                                               
|                                                | Net income (loss)  basic and diluted |          | $                       | 0.03    |  |              | $       | (0.16       | ) |   | $       | 0.09 |  |   | $       | 0.11 | 

|                                                |                                       |          |                            |         |  |              |         |             |   |   |         |      |  |   |         |      | 
|----------------------------------------------- | ------------------------------------- | -------- | -------------------------- | ------- |  | ------------ | ------- | ----------- | - | - | ------- | ---- |  | - | ------- | ---- | 
|                                                |                                       |          | 2000 Quarters Ended,(2)   
|                                                |                                       |          |                           
|                                                |                                       |          | As
Previously Reported (1)
|(dollars in thousands except per share amounts) |                                       | March 31 |                            | June 30 |  | September 30 |         | December 31
|                                                |                                       |          |                            |         |  |              |         |            
|Net revenue                                     |                                       | $        | 100,255                    |         |  | $            | 100,970 |             |   | $ | 104,003 |      |  | $ | 112,666 |     
|                                               
|                                               
|                                               
|                                               
|Cost of revenue                                 |                                       |          | 58,757                     |         |  |              | 69,139  | (3)         |   |   | 63,475  |      |  |   | 70,591  |     
|                                               
|                                               
|                                               
|                                               
|Net income (loss)                               |                                       |          | 1,216                      |         |  |              | (4,566  | )           |   |   | 3,887   |      |  |   | 4,101   |     
|                                               
|                                               
|                                               
|                                               
|Per share of common stock:                      |                                       |          |                            |         |  |              |         |             |   |   |         |      |  |   |         |     
|                                               
|                                               
|                                               
|                                               
|                                                | Net income (loss)  basic and diluted |          | $                          | 0.03    |  |              | $       | (0.11       | ) |   | $       | 0.09 |  |   | $       | 0.09 | 



---

|(1) |  | See Note 15 to the consolidated financial statements.                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The sum of quarterly earnings per share may not equal annual
earnings per share, due to rounding.                                           
|   
|   
|   
|   
|(3) |  | Includes a charge of $9.7 million to reserve for additional
expected future losses on existing contracts of the government
services segment.

49



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##### Table of Contents






PART IV




ITEM 14. 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                                                                                             |  | 18                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Consolidated Balance Sheets at December 31, 2001 and 2000                                                                |  | 19                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Consolidated Statements of Operations for each of the three years in the
period ended December 31, 2001                  |  | 20                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Consolidated Statements of Comprehensive Income (loss) for each of the
three years in the period ended December 31, 2001 |  | 21                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Consolidated Statements of Stockholders Equity                                                                          |  | 22                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2001                  |  | 23                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Notes to Consolidated Financial Statements                                                                               |  | 24-48              
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Supplemental Financial Information (Unaudited):                                                                          |  |                    
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|Summarized Quarterly Financial Data                                                                                      |  | 49                 
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|                                                                                                                        
|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
| | --- |  | -------------------

The Company filed a report on Form 8-K/A on November 13, 2001 related to
its acquisition of ACI in October 2001. The report on Form 8-K/A contained the
following financial statements:



| |  | Unaudited Consolidated Balance Sheets of ACI and Subsidiary at June 30, 2001
and 2000                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Unaudited Consolidated Statements on Income of ACI and Subsidiary for the
Six-Month periods ended June 30, 2001 and 2000                          
|
| |  | Unaudited Consolidated Cash Flows of ACI and Subsidiary for the Six-Month
periods ended June 30, 2001 and 2000                                    
|
| |  | Audited Consolidated Balance Sheet of ACI and Subsidiary at December 31, 2000                                                                     
|
| |  | Audited Consolidated Statement of Members Equity of ACI and Subsidiary for
the period March 1, 2000 (Date of Formation) through December 31, 2000
|
| |  | Audited Consolidated Statement of Cash Flows of ACI and Subsidiary for the
period March 1, 2000 (Date of Formation) through December 31, 2000     
|
| |  | Audited Consolidated Balance Sheet of Access Cash International, Inc. (ACI)
and Subsidiary at December 31, 1999                                 
|
| |  | Audited Consolidated Statement of Income of ACI and Subsidiary for the Year
Ended December 31, 1999                                               
|
| |  | Audited Consolidated Statement of Cash Flows of ACI and Subsidiary for the
Year Ended December 31, 1999                                           
|
| |  | Unaudited Pro Forma Consolidated Balance Sheet of the Company and
Subsidiaries at June 30, 2001                                                   
|
| |  | Unaudited Pro Forma Consolidated Statement of Operations of the Company and
Subsidiaries for the Year                                             

50



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##### Table of Contents



Ended December 31, 2000 and the Six-Months ended June 30, 2001

The following exhibits are filed as part of this amended annual report:

|               |  |                                                                                                                          |  |                 
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ----------------
|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                              |  | METHOD OF FILING
|               |  |                                                                                                                          |  |                 
|23.1           |  | Consent of Deloitte & Touche L.L.P. (incorporated by reference to page F-1
of this Amended Annual Report on Form 10-K/A) |  | *               
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|23.2           |  | Consent of Arthur Andersen & Associates                                                                                  |  | Filed herewith  
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|99.1           |  | Independent Auditors Report of Arthur Andersen & Associates                                                             |  | Filed herewith  
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|99.2           |  | Certification by Thomas S. Liston                                                                                        |  | Filed herewith  
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|99.3           |  | Certification by Paul F. Walsh                                                                                           |  | Filed herewith  
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|99.4           |  | Written Statement by Paul F. Walsh                                                                                       |  | Filed herewith  
|              
|              
|              
|              
|               |  |                                                                                                                          |  |                 
|              
|              
|              
|              
|99.5           |  | Written Statement by Thomas S. Liston                                                                                    |  | Filed herewith  



---

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

51



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##### Table of Contents



Note to recipients of Form 10-K/A: 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: November 29, 2002 |  | By:                |  | /S/ PAUL F. WALSH

Paul F. Walsh
Chairman of the Board of Directors and
Chief Executive Officer

52



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##### Table of Contents



INDEPENDENT AUDITORS CONSENT AND REPORT

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 February 25, 2002 (March 8, 2002 as to the second
paragraph of Note 12; November 27, 2002, as to the effects of the restatement
discussed in Note 15), which expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement described in Note 15,
appearing in the Annual Report on Form 10-K/A of eFunds Corporation for the
year ended December 31, 2001.

Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of eFunds Corporation, attached
as page F-2 to this Annual Report on Form 10-K/A. This financial
statement schedule is the responsibility of the Companys management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ Deloitte & Touche LLP
Phoenix, Arizona
November 27, 2002

F-1



---



##### Table of Contents



eFUNDS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999

|                                |  |      |      |           |  |              |       |            |  |               |       |        |  |   |   |           |  |   |        |   |  |   |       | 
|------------------------------- |  | ---- | ---- | --------- |  | ------------ | ----- | ---------- |  | ------------- | ----- | ------ |  | - | - | --------- |  | - | ------ | - |  | - | ----- | 
|(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 |  |      | 2001 |           |  | $            | 5,296 |            |  | $             | 1,755 |        |  | $ |  |           |  | $ | (2,260 | ) |  | $ | 4,791 | 
|                               
|                               
|                               
|                               
|                                |  |      | 2000 |           |  |              | 4,513 |            |  |               | 3,278 |        |  |   |  |           |  |   | (2,495 | ) |  |   | 5,296 | 
|                               
|                               
|                               
|                               
|                                |  |      | 1999 |           |  |              | 2,122 |            |  |               | 2,918 |        |  |   |  |           |  |   | (527   | ) |  |   | 4,513 | 

(1)  Deductions from the reserve represent write-offs and collections of amounts
for which specific reserves had been previously established.

F-2



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                              |  | 
|------- |  | ------------------------------------------------------------ |  | 
|EXHIBIT |  |                                                              |  | 
|NUMBER  |  | DESCRIPTION OF EXHIBIT                                       |  | 
|        |  |                                                              | 
|23.2    |  | Consent of Arthur Andersen & Associates                      |  | 
|       
|       
|       
|       
|        |  |                                                              |  | 
|       
|       
|       
|       
|99.1    |  | Independent Auditors Report of Arthur Andersen & Associates |  | 
|       
|       
|       
|       
|        |  |                                                             
|       
|       
|       
|       
|99.2    |  | Certification by Thomas S. Liston                            |  | 
|       
|       
|       
|       
|        |  |                                                              |  | 
|       
|       
|       
|       
|99.3    |  | Certification by Paul F. Walsh                               |  | 
|       
|       
|       
|       
|        |  |                                                              |  | 
|       
|       
|       
|       
|99.4    |  | Written Statement by Paul F. Walsh                           |  | 
|       
|       
|       
|       
|        |  |                                                              |  | 
|       
|       
|       
|       
|99.5    |  | Written Statement by Thomas S. Liston                        |  | 

55