##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-Q

|           |  |                                                                                        
|---------- |  | ---------------------------------------------------------------------------------------
|(Mark One)
|          
|          
|          
|          
|(XBOX)     |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended June 30, 2002
OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|(BOX) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from ____ to ____
Commission File Number 0-30791

eFunds Corporation
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 39-1506286                          
|                                                              
|                                                              
|                                                              
|                                                              
|(State or other jurisdiction of
incorporation or organization) |  | (IRS Employer Identification Number)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   (CHECKBOX)   No   (BOX)

The number of shares outstanding of the registrants common stock, par value $.01 per share, at August 7, 2002 was 46,629,409.



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TABLE OF CONTENTS



|                                           |                                                                                                |  |  |  |  |  |  | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION             
|CONSOLIDATED BALANCE SHEETS               
|                                           | ITEM 1. FINANCIAL STATEMENTS                                                                  
|CONSOLIDATED STATEMENTS OF OPERATIONS     
|CONSOLIDATED STATEMENTS OF CASH FLOWS     
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                           | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
|                                           | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION               
|                                           | ITEM 1. LEGAL PROCEEDINGS                                                                     
|                                           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|                                           | ITEM 5. OTHER INFORMATION                                                                     
|                                           | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                                
|EX-2.2                                    
|EX-2.3                                    
|EX-10.2                                   
|EX-10.3                                   
|EX-10.4                                   
|Exhibit 10.5                              
|EX-10.6                                   
|EX-10.7                                   
|EX-10.8                                   
|EX-99.1                                   
|EX-99.2                                   



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##### Table of Contents






PART I- FINANCIAL INFORMATION




eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS




ITEM 1. FINANCIAL STATEMENTS

|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |         |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                                                                                                                                            |                                                                                                 |                           |                                            |         | (unaudited) |         |              |         |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         | June 30,    |         | December 31,
|(dollars in thousands)                                                                                                                                      |                                                                                                 | 2002                      |                                            | 2001   
|                                                                                                                                                            |                                                                                                 |                           |                                            |        
|Current assets:                                                                                                                                             |                                                                                                 |                           |                                            |         |             |         |              |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Cash and cash equivalents                                                                       |                           | $                                          | 100,922 |             |         | $            | 101,871 |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Deposits subject to compensating balance arrangement                                            |                           |                                            | 2,448   |             |         |              | 2,448   |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Restricted custodial cash                                                                       |                           |                                            | 4,676   |             |         |              | 1,124   |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accounts receivable  net                                                                       |                           |                                            | 75,402  |             |         |              | 79,444  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Deferred income taxes                                                                           |                           |                                            | 10,947  |             |         |              | 10,844  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Prepaid expenses and other current assets                                                       |                           |                                            | 16,143  |             |         |              | 14,444  |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 | Total current assets      |                                            |         | 210,538     |         |              |         | 210,175 |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|Property and equipment  net                                                                                                                                |                                                                                                 |                           | 69,492                                     |         |             |         | 75,638       |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Long-term investments                                                                                                                                       |                                                                                                 |                           | 3,989                                      |         |             |         | 2,747        |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Intangibles:                                                                                                                                                |                                                                                                 |                           |                                            |         |             |         |              |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Goodwill                                                                                        |                           |                                            | 102,029 |             |         |              | 87,151  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Other intangible assets  net                                                                   |                           |                                            | 63,829  |             |         |              | 60,432  |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 |                           | Total intangibles  net                    |         |             | 165,858 |              |         |         | 147,583 | 
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            | Other non-current assets                                                                        |                           |                                            | 4,632   |             |         |              | 5,161   |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 | Total non-current assets  |                                            |         | 243,971     |         |              |         | 231,129 |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 |                           | Total assets                               |         | $           | 454,509 |              |         | $       | 441,304 | 
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|Current liabilities:                                                                                                                                        |                                                                                                 |                           |                                            |         |             |         |              |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accounts payable                                                                                |                           | $                                          | 31,214  |             |         | $            | 25,511  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accrued liabilities                                                                             |                           |                                            | 34,736  |             |         |              | 35,643  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accrued contract losses                                                                         |                           |                                            | 11,631  |             |         |              | 14,777  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Deferred revenue                                                                                |                           |                                            | 12,488  |             |         |              | 12,831  |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Long-term debt due within one year                                                              |                           |                                            | 2,316   |             |         |              | 2,781   |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 | Total current liabilities |                                            |         | 92,385      |         |              |         | 91,543  |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|Long-term debt                                                                                                                                              |                                                                                                 |                           | 1,659                                      |         |             |         | 2,529        |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Deferred income taxes                                                                                                                                       |                                                                                                 |                           | 7,286                                      |         |             |         | 7,313        |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|Other long-term liabilities                                                                                                                                 |                                                                                                 |                           | 2,017                                      |         |             |         | 2,713        |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            | Total liabilities                                                                               |                           |                                            | 103,347 |             |         |              | 104,098 |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|Commitments and contingencies (Notes 4, 7 and 11)                                                                                                           |                                                                                                 |                           |                                            |         |             |         |              |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|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: 46,629,000 shares at June 30, 2002 and 46,380,000
at December 31, 2001 |                                                                                                 |                           | 466                                        |         |             |         | 464          |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Additional paid-in capital                                                                      |                           |                                            | 407,387 |             |         |              | 404,993 |        
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accumulated deficit                                                                             |                           |                                            | (54,165 | )           |         |              | (65,941 | )      
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                           
|                                                                                                                                                            | Accumulated other comprehensive loss                                                            |                           |                                            | (2,526  | )           |         |              | (2,310  | )      
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 | Stockholders equity      |                                            |         | 351,162     |         |              |         | 337,206 |        
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        
|                                                                                                                                                            |                                                                                                 |                           | Total liabilities and stockholders equity |         | $           | 454,509 |              |         | $       | 441,304 | 
|                                                                                                                                                            |                                                                                                 |                           |                                            |         |             |         |              |         |        

See Notes to Consolidated Financial Statements

1



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##### Table of Contents






eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |         |         | 
|---------------------------------------- | ----------------------------------------------------------------- | ------------------------ | ------- | --------------------------- | ------- | ------------------------- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                         |                                                                   |                          |         | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                         |                                                                   |                          |         |                             |         |                          
|(in thousands, except per share amounts) |                                                                   | 2002                     |         | 2001                        |         | 2002                      |         | 2001  
|                                         |                                                                   |                          |         |                             |         |                           |         |       
|Net revenue                              |                                                                   | $                        | 132,971 |                             |         | $                         | 132,835 |        |         | $ | 266,468 |         |         | $ | 263,455 |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Operating expenses:                      |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                        
|                                        
|                                        
|                                        
|                                         | Processing, communication, and service costs                      |                          |         | 53,393                      |         |                           |         | 48,124 |         |   |         | 104,656 |         |   |         | 96,818  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Employee costs                                                    |                          |         | 45,699                      |         |                           |         | 53,909 |         |   |         | 96,717  |         |   |         | 105,580 |        
|                                        
|                                        
|                                        
|                                        
|                                         | Depreciation and amortization                                     |                          |         | 9,701                       |         |                           |         | 10,285 |         |   |         | 19,243  |         |   |         | 20,074  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Other operating costs                                             |                          |         | 9,001                       |         |                           |         | 8,994  |         |   |         | 19,193  |         |   |         | 20,220  |        
|                                        
|                                        
|                                        
|                                        
|                                         | Restructuring and other charges                                   |                          |         | 10,446                      |         |                           |         |       |         |   |         | 10,446  |         |   |         | 3,200   |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         |                                                                   | Total operating expenses |         |                             | 128,240 |                           |         |        | 121,312 |   |         |         | 250,255 |   |         |         | 245,892 | 
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Income from operations                   |                                                                   |                          | 4,731   |                             |         |                           | 11,523  |        |         |   | 16,213  |         |         |   | 17,563  |        
|                                        
|                                        
|                                        
|                                        
|Other income  net                       |                                                                   |                          | 203     |                             |         |                           | 270     |        |         |   | 605     |         |         |   | 815     |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Income before income taxes               |                                                                   |                          | 4,934   |                             |         |                           | 11,793  |        |         |   | 16,818  |         |         |   | 18,378  |        
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                                                                   |                          | (1,005  | )                           |         |                           | (4,055  | )      |         |   | (5,046  | )       |         |   | (6,557  | )      
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Net income                               |                                                                   | $                        | 3,929   |                             |         | $                         | 7,738   |        |         | $ | 11,772  |         |         | $ | 11,821  |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         | Weighted average shares outstanding                               |                          |         | 46,578                      |         |                           |         | 45,790 |         |   |         | 46,526  |         |   |         | 45,647  |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|                                         | Weighted average shares and potential dilutive shares outstanding |                          |         | 47,027                      |         |                           |         | 48,216 |         |   |         | 47,394  |         |   |         | 47,341  |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Net income per share  basic             |                                                                   | $                        | 0.08    |                             |         | $                         | 0.17    |        |         | $ | 0.25    |         |         | $ | 0.26    |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        
|Net income per share  diluted           |                                                                   | $                        | 0.08    |                             |         | $                         | 0.16    |        |         | $ | 0.25    |         |         | $ | 0.25    |        
|                                         |                                                                   |                          |         |                             |         |                           |         |        |         |   |         |         |         |   |         |        

See Notes to Consolidated Financial Statements

2



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##### Table of Contents






eFUNDS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |        |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---------------------------- | ----------------------------------------- | ----- | ---------------- | ------- | ------- | ------ | ------- | ------- | -
|                                                     |                                                                                   |                                                                       |                              |                                           |       | Six Months Ended
|                                                     |                                                                                   |                                                                       |                              |                                           |       | June 30,        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                 
|(in thousands)                                       |                                                                                   | 2002                                                                  |                              | 2001                                     
|                                                     |                                                                                   |                                                                       |                              |                                          
|Cash flows from operating activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                        |                                                                       | $                            | 11,772                                    |       |                  | $       | 11,821  |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                                       |                              |                                           |       |                  |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Depreciation                                                          |                              |                                           | 9,574 |                  |         |         | 9,133  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Amortization of intangibles                                           |                              |                                           | 9,669 |                  |         |         | 10,941 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Loss on impairment or disposal of property, equipment and intangibles |                              |                                           | 3,153 |                  |         |         | 148    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Equity earnings in investee                                           |                              |                                           |      |                  |         |         | (139   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Deferred income taxes                                                 |                              |                                           | (130  | )                |         |         | 26     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   | Changes in assets and liabilities:                                    |                              |                                           |       |                  |         |         |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Restricted custodial cash    |                                           |       | (3,552           | )       |         |        | 4,469   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accounts receivable          |                                           |       | 4,042            |         |         |        | (21,550 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accounts payable             |                                           |       | 5,703            |         |         |        | (4,793  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Accrued contract losses      |                                           |       | (3,146           | )       |         |        | (2,419  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       | Other assets and liabilities |                                           |       | (4,941           | )       |         |        | 62      |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|                                                     |                                                                                   |                                                                       |                              | Net cash provided by operating activities |       |                  | 32,144  |         |        |         | 7,699   |  
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|Cash flows from investing activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                                              |                                                                       |                              | (11,596                                   | )     |                  |         | (14,308 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                      |                                                                       |                              | (22,300                                   | )     |                  |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other                                                                             |                                                                       |                              | 26                                        |       |                  |         | (1,119  | )     
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|                                                     |                                                                                   |                                                                       |                              | Net cash used in investing activities     |       |                  | (33,870 | )       |        |         | (15,427 | )
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|Cash flows from financing activities:                |                                                                                   |                                                                       |                              |                                           |       |                  |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments on line of credit                                                      |                                                                       |                              |                                          |       |                  |         | (5,303  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Payments on long-term debt                                                        |                                                                       |                              | (1,619                                    | )     |                  |         | (1,168  | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Release of loan guarantee collateral                                              |                                                                       |                              |                                          |       |                  |         | 8,500   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock                                                          |                                                                       |                              | 2,396                                     |       |                  |         | 7,288   |       
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                   |                                                                       |                              | Net cash provided by financing activities |       |                  | 777     |         |        |         | 9,317   |  
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|Net (decrease) increase in cash and cash equivalents |                                                                                   |                                                                       | (949                         | )                                         |       |                  | 1,589   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                   |                                                                       | 101,871                      |                                           |       |                  | 78,731  |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       
|Cash and cash equivalents at end of period           |                                                                                   | $                                                                     | 100,922                      |                                           |       | $                | 80,320  |        
|                                                     |                                                                                   |                                                                       |                              |                                           |       |                  |         |         |       

See Notes to Consolidated Financial Statements

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##### Table of Contents






eFUNDS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1  The Company:

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

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

Note 2  Consolidation and Basis of Presentation:

The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany accounts
and transactions have been eliminated. Investments in unconsolidated
affiliated companies, included in Long-term investments, are accounted for
under the cost method as of June 30, 2002. The consolidated financial
statements should be read in conjunction with the Companys 2001 Annual Report
on Form 10-K as filed with the Securities and Exchange Commission. In the
opinion of management, the accompanying financial information includes all
adjustments necessary to present fairly the financial position, results of
operations and cash flows for the interim periods presented. The results of
operations and cash flows for the interim periods presented are not necessarily
indicative of the results of any future period.

Recent Pronouncement

In June 2002, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
(SFAS) No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. This
statement requires the recording of costs associated with exit or disposal
activities at their fair values only once a liability exists and it eliminates
the definition and requirements for recognition of exit costs in
Emerging Issues Task Force (EITF) No. 94-3,
Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). Under EITF No. 94-3, a liability for an exit cost was generally recognized at
the date of an entitys commitment to an exit plan, which may have been before
an actual liability arose. The provisions of SFAS 146 are effective for exit
or disposal activities that are initiated after December 31, 2002. The Company
is assessing what impact, if any, this statement will have on its consolidated balance
sheet and statement of operations.

Note 3  Accounting Change:

In January 2002, the EITF issued EITF No. 01-14,
Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred (formerly EITF

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##### Table of Contents



Abstracts, Topic No. D-103). This EITF requires that reimbursements received
for out-of-pocket expenses should be classified as revenue and is effective for
financial reporting periods beginning after December 15, 2001. These
reimbursements were previously classified as a reduction to operating expenses.
EITF No. 01-14 requires that financial statements for prior periods presented
be reclassified to comply with these provisions.

The Company typically incurs telecommunications, network customer fees, travel,
maintenance and repair, and other transaction costs that are billed to and
reimbursed by customers. Adoption of EITF No. 01-14 results in an equal
increase to both revenue and operating expenses, with no resultant impact on
the Companys financial position or income from operations. The effect of the
reclassifications made by the Company pursuant to EITF No. 01-14 was to
increase net revenue and operating expenses by $7.5 million and $6.8 million
for the three months ended June 30, 2002 and 2001, respectively, and $14.6
million and $12.9 million for the six months ended June 30, 2002 and 2001,
respectively.

Note 4  Acquisitions:

On January 31, 2002, the Company purchased substantially all of the ATM-related
assets of Hanco Systems, Inc. (Hanco), an independent ATM deployment and
management company. Hanco managed a network of approximately 2,500 ATMs in 30
states. Effective May 1, 2002, the Company purchased Samsar ATM Company, Inc.
(Samsar), a Seattle-based provider of ATM services which managed an ATM
network of more than 1,000 ATMs in the northwest United States. Also,
effective June 1, 2002, the Company purchased Evergreen Teller Services, Inc.
(Evergreen), a California-based provider of ATM services for more than 1,600
ATMs located throughout California and the northwest United States. The
operating results of Hanco, Samsar and Evergreen have been included in the
Companys consolidated financial statements since the date of each purchase.
The Company currently manages a network of approximately 14,100 ATM machines.

The total purchase price of these acquisitions was approximately $24.1 million
of which approximately $22.3 million was paid in cash. Payment of
approximately $1.8 million of the purchase price is subject to satisfaction of
certain post-closing conditions. The purchase price was allocated to the
assets and liabilities of the acquired companies and the unallocated portion of
the purchase price was recorded as goodwill. The following table summarizes
the estimated fair value of assets acquired and liabilities assumed at the date
of each acquisition. Of the $7.1 million of intangible assets, $6.7 million
was assigned to customer contracts and $0.4 million was assigned to non-compete
agreements.

|                       |                       |   |        |        | 
|---------------------- | --------------------- | - | ------ | ------ | 
|(in thousands)         |                       |   |        |       
|                      
|                      
|                      
|                      
|Current assets         |                       | $ | 1,617  |       
|                      
|                      
|                      
|                      
|Property and equipment |                       |   | 367    |       
|                      
|                      
|                      
|                      
|Intangible assets      |                       |   | 7,114  |       
|                      
|                      
|                      
|                      
|Goodwill               |                       |   | 14,878 |       
|                      
|                      
|                      
|                      
|Other assets           |                       |   | 100    |       
|                       |                       |   |        |       
|                       | Total assets acquired |   |        | 24,076 | 
|                       |                       |   |        |       
|Current liabilities    |                       |   | 1,734  |       
|                       |                       |   |        |       
|                       | Net assets acquired   |   | $      | 22,342 | 
|                       |                       |   |        |       

In March 2000, the Company paid cash of $20.0 million for an approximate 24%
interest in Access Cash International L.L.C., a Delaware limited liability
company (ACI). ACI was the second largest independent provider of ATM services
in the United States. ACI provided turnkey ATM deployment solutions, including
ATM sales and management activities, as well as branding and advertising
services. The Company accounted for this initial investment under the equity
method of accounting, which requires that an investor record its share of the
losses experienced by a minority owned investee. Accordingly, the Companys
results of operations for the period from January 1, 2001 to September 30, 2001
include its 24% share of the results of operations of ACI. The difference of
$20.0 million between the amount of the

5



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##### Table of Contents



investment and the underlying equity in the net assets of ACI was being
amortized over 15 years and the amortization was included in other income-net.
Effective October 1, 2001, the Company acquired the remaining approximately 76%
equity interest in ACI. The final acquisition was accounted for as a purchase
in accordance with the provisions of SFAS No. 141, Business Combinations. As a result of the
acquisition of the remaining equity interest in ACI, the Company consolidated
ACIs results of operations with its own, as ACI was a wholly-owned subsidiary
from the date of acquisition forward.

The purchase price (Purchase Price) of the remaining 76% of ACI was $44.6
million, of which approximately $40.3 million was paid in cash on or prior to
the closing date of the acquisition. Payment of the balance of approximately
$4.3 million is subject to the satisfaction of certain post-closing conditions.
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 resulted in the recognition of goodwill as
that price exceeded the estimated fair values of identifiable assets and
liabilities and intangible assets with definite useful lives as defined by
generally accepted accounting principles.

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

|                                         |         |                             |         |                           |  |      |         |      |  |   |         |      |  |   |         |      | 
|---------------------------------------- | ------- | --------------------------- | ------- | ------------------------- |  | ---- | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|(unaudited)                              |         | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                         |         |                             |         |                          
|(in thousands, except per share amounts) |         | 2002                        |         | 2001                      |  | 2002 |         | 2001
|                                         |         |                             |         |                           |  |      |         |     
|Revenue                                  |         | $                           | 134,564 |                           |  | $    | 140,538 |      |  | $ | 272,863 |      |  | $ | 277,990 |     
|                                        
|                                        
|                                        
|                                        
|Net income                               |         |                             | 3,986   |                           |  |      | 7,680   |      |  |   | 11,687  |      |  |   | 11,502  |     
|                                        
|                                        
|                                        
|                                        
|Net income per share:                    |         |                             |         |                           |  |      |         |      |  |   |         |      |  |   |         |     
|                                        
|                                        
|                                        
|                                        
|                                         | Basic   |                             |         | 0.09                      |  |      |         | 0.17 |  |   |         | 0.25 |  |   |         | 0.25 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Diluted |                             |         | 0.08                      |  |      |         | 0.16 |  |   |         | 0.25 |  |   |         | 0.24 | 

Note 5  Goodwill and Other Intangible Assets:

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and
Intangible Assets(SFAS 142) which was issued by the Financial Accounting
Standards Board in June 2001. SFAS 142 prohibits the amortization of goodwill
and intangible assets with indefinite useful lives and requires that these
assets be tested for impairment at least annually. The Company has completed
its transitional impairment test for goodwill and intangible assets with
indefinite useful lives and has determined that no impairment exists. The
following table reconciles the net income and earnings per share the Company
reported for the three and six month periods ended June 30, 2001 to exclude
historical goodwill and related tax effects:

|                                                         |         |                |              |                |            |   |        |      | 
|-------------------------------------------------------- | ------- | -------------- | ------------ | -------------- | ---------- | - | ------ | ---- | 
|                                                         |         |                | Three Months |                | Six Months
|(unaudited)                                              |         | Ended June 30, |              | Ended June 30,
|                                                         |         |                |              |               
|(in thousands, except per share amounts)                 |         | 2001           |              | 2001          
|                                                         |         |                |              |               
|Reported net income                                      |         | $              | 7,738        |                |            | $ | 11,821 |     
|                                                        
|                                                        
|                                                        
|                                                        
|Adjustment amount for purchased
goodwill amortization    |         |                | 977          |                |            |   | 1,954  |     
|                                                        
|                                                        
|                                                        
|                                                        
|Adjustment amount for ACI equity
investment amortization |         |                | 220          |                |            |   | 427    |     
|                                                         |         |                |              |                |            |   |        |     
|Adjusted net income                                      |         | $              | 8,935        |                |            | $ | 14,202 |     
|                                                         |         |                |              |                |            |   |        |     
|Reported net income per share:                           |         |                |              |                |            |   |        |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Basic   |                | $            | 0.17           |            |   | $      | 0.26 | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Diluted |                | $            | 0.16           |            |   | $      | 0.25 | 
|                                                        
|                                                        
|                                                        
|                                                        
|Adjusted
net income per share:                           |         |                |              |                |            |   |        |     
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Basic   |                | $            | 0.20           |            |   | $      | 0.31 | 
|                                                        
|                                                        
|                                                        
|                                                        
|                                                         | Diluted |                | $            | 0.19           |            |   | $      | 0.30 | 

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

|                   |  |                     |  |                |        |               |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 
|------------------ |  | ------------------- |  | -------------- | ------ | ------------- | ------- | ----------------- | ------- | ------- | ------- | -------------- | ------ | ----------- | ------ | - | ------ | - | ------- | - | ------- | - | ------- | - | ------ | - | ------ | 
|                   |  |                     |  |                |        | June 30, 2002 |         | December 31, 2001
|                   |  |                     |  |                |        |               |         |                  
|                   |  | Amortization Period |  | Gross Carrying |        | Accumulated   |         |                   |         |         |         | Gross Carrying |        | Accumulated |        |   |        |  
|(in thousands)     |  | In Years            |  | Amounts        |        | Amortization  |         | Net               |         | Amounts |         | Amortization   |        | Net        
|                   |  |                     |  |                |        |               |         |                   |         |         |         |                |        |            
|Software           |  | 3 to 5              |  | $              | 68,702 |               |         | $                 | (35,676 | )       |         | $              | 33,026 |             |        | $ | 65,079 |   |         | $ | (29,427 | ) |         | $ | 35,652 |  
|                  
|                  
|                  
|                  
|Customer
contracts |  | 15 to 25            |  |                | 18,357 |               |         |                   | (654    | )       |         |                | 17,703 |             |        |   | 11,693 |   |         |   | (195    | ) |         |   | 11,498 |  
|                  
|                  
|                  
|                  
|Other              |  | 3 to 5              |  |                | 74,308 |               |         |                   | (61,208 | )       |         |                | 13,100 |             |        |   | 71,768 |   |         |   | (58,486 | ) |         |   | 13,282 |  
|                   |  |                     |  |                |        |               |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 
|                   |  |                     |  |                |        | $             | 161,367 |                   |         | $       | (97,538 | )              |        | $           | 63,829 |   |        | $ | 148,540 |   |         | $ | (88,108 | ) |        | $ | 60,432 | 
|                   |  |                     |  |                |        |               |         |                   |         |         |         |                |        |             |        |   |        |   |         |   |         |   |         |   |        |   |        | 

For the six month periods ended June 30, 2002 and 2001, amortization expense
for intangible assets was $9.7 million and $10.9 million, respectively. The
estimated future annual amortization expense for intangible assets held at June
30, 2002 is $17 million, $13 million, $8 million, $4 million and $2 million for
the years 2003, 2004, 2005, 2006 and 2007, respectively.

Note 6  Accrued Losses, Charges and Allowances:

Accrued Contract Losses

The Company has historically incurred losses related to its government services
business and has established a reserve to provide for expected losses on
existing long-term service contracts. Charges to the Companys loss reserve are
reflected as a reduction in other operating costs in the Companys consolidated
statement of operations and were as follows:

|                           |  |      |        |      |  |   |        |  
|-------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|(in thousands)             |  | 2002 |        | 2001
|                           |  |      |        |     
|Balance, beginning of year |  | $    | 14,777 |      |  | $ | 22,247 |  
|                          
|                          
|                          
|                          
|Charges to loss reserve    |  |      | (1,208 | )    |  |   | (785   | )
|                           |  |      |        |      |  |   |        |  
|Balance at March 31,       |  |      | 13,569 |      |  |   | 21,462 |  
|                          
|                          
|                          
|                          
|Charges to loss reserve    |  |      | (938   | )    |  |   | (634   | )
|                          
|                          
|                          
|                          
|Cash payments              |  |      | (1,000 | )    |  |   | (1,000 | )
|                           |  |      |        |      |  |   |        |  
|Balance at June 30,        |  | $    | 11,631 |      |  | $ | 19,828 |  
|                           |  |      |        |      |  |   |        |  

Deluxe has agreed to indemnify the Company for certain future losses arising
from any litigation, based on the conduct of the government services business
prior to the IPO as well as incremental future losses on contracts of the
government services segment which were in a loss position at April 30, 2000 to
the extent such losses exceed the estimates underlying the Companys $29.2
million loss reserve balance at April 30, 2000. The Company plans to record
any amounts received from Deluxe under the indemnification agreement as a
reduction of expense when, and if, any additional contract or litigation losses
are recognized. Deluxes total indemnification obligations to the Company are
limited to $14.6 million. No such indemnification obligations have arisen
through June 30, 2002.

Restructuring and Asset Impairment Charges

During the quarter ended June 30, 2002, the Company recorded restructuring
charges and asset impairments of $10.4 million, of which $2.0 million related
to its Electronic Payments segment, $4.8 million related to Decision Support
and Risk Management Services, $0.9 million related to Professional Services,
and $2.7 million related to unallocated corporate expense. These charges were
comprised of expected severance benefits totaling $3.4 million, $5.7 million of
lease related costs associated with the consolidation of facilities, and a net
charge of $1.3 million related to software impairment and other charges.
Severance charges resulted from the planned elimination of approximately 270
positions across all business segments primarily related to positions located
in the United States.

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##### Table of Contents



When circumstances warrant, the Company evaluates
for impairment the carrying value of the
capitalized software costs related to the development and delivery of
a product or product line. The Company is in the process of a
strategic business reassessment of the performance and contribution
of existing and potential products. During the second quarter of 2002, certain under-performing
products were identified as impaired and the carrying value of the related
capitalized software and certain fixed assets were reduced through the
impairment charge.

During the first quarter of 2001, restructuring accruals of $3.2 million were
recorded as a result of the planned closure of the Companys operations in
Bothell, Washington. These expenses related entirely to the Decision Support
and Risk Management segment.

The following table summarizes the Companys utilization of restructuring
accruals for the three and six month periods ended June 30, 2002:

|                                 |  |                   |     |                   |  |                   |       |   |  |   |       |    
|-------------------------------- |  | ----------------- | --- | ----------------- |  | ----------------- | ----- | - |  | - | ----- | ---
|(in thousands, except employees) |  | EmployeesAffected |     | Severance-Related |  | Facility
andother
|                                 |  |                   |     |                   |  |                   |       |   |  |   |       |    
|Balance, December 31, 2001       |  |                   | 74  |                   |  | $                 | 1,011 |   |  | $ | 1,397 |    
|                                
|                                
|                                
|                                
|Expense provision                |  |                   |    |                   |  |                   |      |   |  |   |      |    
|                                
|                                
|                                
|                                
|Cash payments                    |  |                   | (31 | )                 |  |                   | (452  | ) |  |   |      |    
|                                 |  |                   |     |                   |  |                   |       |   |  |   |       |    
|Balance, March 31, 2002          |  |                   | 43  |                   |  |                   | 559   |   |  |   | 1,397 |    
|                                
|                                
|                                
|                                
|Expense provision                |  |                   | 271 |                   |  |                   | 3,397 |   |  |   | 4,623 | (1)
|                                
|                                
|                                
|                                
|Cash payments                    |  |                   | (38 | )                 |  |                   | (368  | ) |  |   | (879  | )  
|                                 |  |                   |     |                   |  |                   |       |   |  |   |       |    
|Balance, June 30, 2002           |  |                   | 276 |                   |  | $                 | 3,588 |   |  | $ | 5,141 |    
|                                 |  |                   |     |                   |  |                   |       |   |  |   |       |    



| |  | (1)  Does not include approximately $2.4 million of
non-cash asset impairment charges expensed in this period.
| |  | ---------------------------------------------------------------------------------------------------------------

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for
estimated losses that will likely result from our customers failing
to pay us. We develop our estimate
of the allowance based on our experience with specific customers, our
understanding of their current economic circumstances and our own judgment as
to the likelihood of their ultimate payment. We also consider our collection
experience with the balance of our receivables portfolio and make estimates
regarding collectibility based on trends in aging. The estimates utilized to
calculate our allowance for doubtful accounts were refined during the second
quarter of 2002 following the establishment of our collections and credit
committee and the implementation of enhanced collection processes and systems
to be more reflective of our recent collection history. As a result of this
refinement, we reduced our estimated uncollectible accounts by $2.5 million
during the second quarter of 2002.

Note 7  Long-term Debt and Credit Facilities:

Long-term debt consists principally of capital lease obligations related to
equipment. Long-term debt was as follows:

|                                |       |      |          |       |              |   |        |       | 
|------------------------------- | ----- | ---- | -------- | ----- | ------------ | - | ------ | ----- | 
|                                |       |      | June 30, |       | December 31,
|(in thousands)                  |       | 2002 |          | 2001 
|                                |       |      |          |      
|Capital leases and other debt   |       | $    | 3,975    |       |              | $ | 5,310  |      
|                               
|                               
|                               
|                               
|Less amount due within one year |       |      | (2,316   | )     |              |   | (2,781 | )    
|                                |       |      |          |       |              |   |        |      
|                                | Total |      | $        | 1,659 |              |   | $      | 2,529 | 
|                                |       |      |          |       |              |   |        |      

The capital lease obligations bear interest at rates ranging from 6.1% to 35.9%
and are due through the year 2004.

In September 2001, the Company obtained a revolving credit facility in the
amount of $20.0 million to replace a facility that was due to expire. The
Company did not borrow any funds under this facility through June 30, 2002, and
it was terminated by agreement with the lending bank in August 2002.

8



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##### Table of Contents



Note 8  Net Income Per Share:

Net income per share  basic is computed by dividing net income by the weighted
average number of shares outstanding. Net income per share  diluted is
computed by dividing net income by the weighted average number of shares
outstanding and, if dilutive, the weighted average number of common share
equivalents outstanding. Common share equivalents are shares issuable upon the
exercise of outstanding in the money stock option agreements. The Company uses
the treasury stock method to calculate diluted weighted average shares
outstanding. This method assumes that the Company uses the proceeds received
from the hypothetical exercise of dilutive stock options to repurchase shares
at the average market price per share during the period.

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

|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|---------------------------------------- | ------------------------------------------------------- | ---- | ------------------ | ------ | ---------------- | ---- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                         |                                                         |      | Three Months Ended |        | Six Months Ended
|                                         |                                                         |      | June 30,           |        | June 30,        
|                                         |                                                         |      |                    |        |                 
|(in thousands, except per share amounts) |                                                         | 2002 |                    | 2001   |                  | 2002 |   | 2001  
|                                         |                                                         |      |                    |        |                  |      |   |       
|Net income per share  basic:            |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                                              |      | $                  | 3,929  |                  |      | $ | 7,738  |  |  | $ | 11,772 |  |  | $ | 11,821 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Weighted average shares outstanding                     |      |                    | 46,578 |                  |      |   | 45,790 |  |  |   | 46,526 |  |  |   | 45,647 | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|                                         | Net income per share  basic                            |      | $                  | 0.08   |                  |      | $ | 0.17   |  |  | $ | 0.25   |  |  | $ | 0.26   | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|Net income per share  diluted:          |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |       
|                                        
|                                        
|                                        
|                                        
|                                         | Net income                                              |      | $                  | 3,929  |                  |      | $ | 7,738  |  |  | $ | 11,772 |  |  | $ | 11,821 | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|                                        
|                                        
|                                        
|                                        
|                                         | Weighted average shares outstanding                     |      |                    | 46,578 |                  |      |   | 45,790 |  |  |   | 46,526 |  |  |   | 45,647 | 
|                                        
|                                        
|                                        
|                                        
|                                         | Dilutive impact of stock options                        |      |                    | 449    |                  |      |   | 2,426  |  |  |   | 868    |  |  |   | 1,694  | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|                                         | Weighted average shares and dilutive shares outstanding |      |                    | 47,027 |                  |      |   | 48,216 |  |  |   | 47,394 |  |  |   | 47,341 | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 
|                                         | Net income per share  diluted                          |      | $                  | 0.08   |                  |      | $ | 0.16   |  |  | $ | 0.25   |  |  | $ | 0.25   | 
|                                         |                                                         |      |                    |        |                  |      |   |        |  |  |   |        |  |  |   |        | 

Note 9  Comprehensive Income:

The Companys total comprehensive income for the three month periods ended June
30, 2002 and 2001 was $4.0 million and $7.7 million, respectively, and $11.6
and $11.4 million for the six month periods ended June 30, 2002 and 2001,
respectively. The Companys total comprehensive income consists of net income
and foreign currency translation adjustments.

Note 10  Business Segments:

As a result of restructuring, integration initiatives and its ATM acquisition
strategy, the Company has reorganized its segments to consolidate its
government services business with its previous 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 ACH, POS, EFT and other
processing services across multiple financial networks, and EBT services for
government agencies. The ATM Management Services segment provides of 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 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 Company does not allocate expenses
that benefit all segments and are corporate or

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administrative in nature. These costs include, but are not limited to, legal,
accounting, human resources, risk management, sales and executive expenses.

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

|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |         | 
|----------------------------------------------------------------------- | ------------------------------------ | ---------------------------------------------------------------- | - | --------------------------- | ------- | ------------------------- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                        |                                      |                                                                  |   | Three Months Ended June 30, |         | Six Months Ended June 30,
|                                                                        |                                      |                                                                  |   |                             |         |                          
|(in thousands)                                                          |                                      | 2002                                                             |   | 2001                        |         | 2002                      |   | 2001   
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |        
|Net Revenue:                                                            |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Electronic payments                  |                                                                  | $ | 47,262                      |         |                           | $ | 45,725  |         |  | $ | 93,769  |         |  | $ | 90,922  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | ATM management services              |                                                                  |   | 27,510                      |         |                           |   | 18,324  |         |  |   | 48,150  |         |  |   | 34,904  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Decision support and risk management |                                                                  |   | 34,328                      |         |                           |   | 39,940  |         |  |   | 71,153  |         |  |   | 77,163  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Professional services                |                                                                  |   | 23,871                      |         |                           |   | 28,846  |         |  |   | 53,396  |         |  |   | 60,466  |        
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|                                                                        |                                      | Total net revenue                                                |   |                             | 132,971 |                           |   |         | 132,835 |  |   |         | 266,468 |  |   |         | 263,455 | 
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|Operating Expenses before restructuring and
other charges:              |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Electronic payments                  |                                                                  |   | 31,087                      |         |                           |   | 34,184  |         |  |   | 65,211  |         |  |   | 67,683  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | ATM management services              |                                                                  |   | 25,381                      |         |                           |   | 17,458  |         |  |   | 44,635  |         |  |   | 34,020  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Decision support and risk management |                                                                  |   | 25,243                      |         |                           |   | 26,901  |         |  |   | 54,827  |         |  |   | 54,193  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Professional services                |                                                                  |   | 14,444                      |         |                           |   | 19,472  |         |  |   | 33,323  |         |  |   | 39,694  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Corporate                            |                                                                  |   | 21,639                      |         |                           |   | 23,297  |         |  |   | 41,813  |         |  |   | 47,102  |        
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|                                                                        |                                      | Total operating expenses before restructuring
and other charges  |   |                             | 117,794 |                           |   |         | 121,312 |  |   |         | 239,809 |  |   |         | 242,692 | 
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Restructuring and other charges:                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Electronic payments                  |                                                                  |   | 2,046                       |         |                           |   |        |         |  |   | 2,046   |         |  |   |        |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | ATM management services              |                                                                  |   | 38                          |         |                           |   |        |         |  |   | 38      |         |  |   |        |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Decision support and risk management |                                                                  |   | 4,832                       |         |                           |   |        |         |  |   | 4,832   |         |  |   | 3,200   |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Professional services                |                                                                  |   | 868                         |         |                           |   |        |         |  |   | 868     |         |  |   |        |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Corporate                            |                                                                  |   | 2,662                       |         |                           |   |        |         |  |   | 2,662   |         |  |   |        |        
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|                                                                        |                                      | Total restructuring and other charges                            |   |                             | 10,446  |                           |   |         |        |  |   |         | 10,446  |  |   |         | 3,200   | 
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|Income (loss) from operations including
restructuring and other charges
|                                                                        | Electronic payments                  |                                                                  |   | 14,129                      |         |                           |   | 11,541  |         |  |   | 26,512  |         |  |   | 23,239  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | ATM management services              |                                                                  |   | 2,091                       |         |                           |   | 866     |         |  |   | 3,477   |         |  |   | 884     |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Decision support and risk management |                                                                  |   | 4,253                       |         |                           |   | 13,039  |         |  |   | 11,494  |         |  |   | 19,770  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Professional services                |                                                                  |   | 8,559                       |         |                           |   | 9,374   |         |  |   | 19,205  |         |  |   | 20,772  |        
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|                                                                        | Corporate                            |                                                                  |   | (24,301                     | )       |                           |   | (23,297 | )       |  |   | (44,475 | )       |  |   | (47,102 | )      
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        
|                                                                        |                                      | Income from operations including restructuring
and other charges |   | $                           | 4,731   |                           |   | $       | 11,523  |  |   | $       | 16,213  |  |   | $       | 17,563  | 
|                                                                        |                                      |                                                                  |   |                             |         |                           |   |         |         |  |   |         |         |  |   |         |        

The Company has not disclosed assets by segment as this information is not
reviewed by the chief operating decision maker, is not produced internally and
it is not practical to prepare it.

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

|                        |                    |      |                             |         |                           |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------- | ------------------ | ---- | --------------------------- | ------- | ------------------------- | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                        |                    |      | Net Revenues               
|                        |                    |      |                            
|                        |                    |      | Three months Ended June 30, |         | Six Months Ended June 30,
|                        |                    |      |                             |         |                          
|(in thousands)          |                    | 2002 |                             | 2001    |                           | 2002 |         | 2001   
|                        |                    |      |                             |         |                           |      |         |        
|United States           |                    | $    | 121,937                     |         |                           | $    | 122,772 |         |  | $ | 242,809 |         |  | $ | 242,620 |        
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 2,729                       |         |                           |      | 4,409   |         |  |   | 7,480   |         |  |   | 9,500   |        
|                       
|                       
|                       
|                       
|India                   |                    |      | 5,879                       |         |                           |      | 5,654   |         |  |   | 11,879  |         |  |   | 11,335  |        
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 2,426                       |         |                           |      |        |         |  |   | 4,300   |         |  |   |        |        
|                        |                    |      |                             |         |                           |      |         |         |  |   |         |         |  |   |         |        
|                        | Total consolidated |      | $                           | 132,971 |                           |      | $       | 132,835 |  |   | $       | 266,468 |  |   | $       | 263,455 | 
|                        |                    |      |                             |         |                           |      |         |         |  |   |         |         |  |   |         |        

|                        |                    |      |                            |        |              |   |        |        | 
|----------------------- | ------------------ | ---- | -------------------------- | ------ | ------------ | - | ------ | ------ | 
|                        |                    |      | Property and Equipment-Net
|                        |                    |      |                           
|                        |                    |      | June 30,                   |        | December 31,
|(in thousands)          |                    | 2002 |                            | 2001  
|                        |                    |      |                            |       
|United States           |                    | $    | 58,856                     |        |              | $ | 64,687 |       
|                       
|                       
|                       
|                       
|United Kingdom          |                    |      | 1,594                      |        |              |   | 1,736  |       
|                       
|                       
|                       
|                       
|India                   |                    |      | 8,526                      |        |              |   | 8,950  |       
|                       
|                       
|                       
|                       
|Other foreign countries |                    |      | 516                        |        |              |   | 265    |       
|                        |                    |      |                            |        |              |   |        |       
|                        | Total consolidated |      | $                          | 69,492 |              |   | $      | 75,638 | 
|                        |                    |      |                            |        |              |   |        |       

Note 11  Commitments and Contingencies:

In connection with the Companys government services, collection and ATM
placement activities, the Company posts surety bonds with state agencies
guaranteeing its performance of certain obligations related to the relevant
contracts or state requirements. The aggregate amount of such bonds outstanding
at June 30, 2002 was $8.0 million.

The Company had outstanding letters of credit amounting to $1.0 million at June
30, 2002 which were issued under its previous credit facility. In August 2002,
the Company collateralized these letters of credit with a $1.0 million cash
deposit at the issuing bank in connection with the termination of that
facility.

The Company has guaranteed certain equipment lease payments for Canadian
customers of its ATM management business totaling $2.1 million as of June 30,
2002. Through June 30, 2002, the Company has been required to make payments of
approximately $66,000 pursuant to these guarantees.

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

The Company has approximately $1.5 million in time deposits, denominated in
Indian rupees, primarily for securing letters of credit issued in the ordinary
course of business by its India operations. An Indian bank has also issued an
advance guarantee on behalf of the Company to secure its performance under a
customer contract. The banks guarantee is secured by an additional time
deposit of $0.9 million.

The Company operates a call center in Mumbai, India under a customer contract.
The customer receives credits toward a right to purchase, after December 31,
2002, a minority interest in, or sole ownership of, certain assets used by the
Company in performing call center operations for the customer as well as
transition assistance. The customers right to acquire an ownership right in
the assets is determined by a formula that is driven primarily by the revenue
generated by the contract. As of June 30, 2002, the customer was entitled to
acquire less than a 5% ownership interest.

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On March 8, 2002, the Company received a letter from 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 is cooperating 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.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to those financial statements
included in this Quarterly Report on Form 10-Q and our 2001 Annual Report on
Form 10-K filed with the Securities & Exchange Commission.

Forward-Looking Statements

In addition to historical and pro forma information, this Quarterly Report
contains forward-looking statements as defined in the U.S. Private Securities
Litigation Reform Act of 1995. All forward-looking statements are subject to
various risks and uncertainties that could cause actual results to differ
materially from those described in the statements. Some of the factors that
could cause actual results to differ from those that are presently anticipated
are discussed in Item 5 of this Quarterly Report.

Overview

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

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles that are generally
accepted in the United States. 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:

Revenue recognition  Our net revenues consist of transaction processing and
service fees, decision support fees, software licensing, maintenance and
support fees, government service fees, and information

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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 fees paid by their banks for
interchange services. 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 license fees for standard software 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 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 that we deliver
multiple products and services, the contract fees are allocated between
the products and services provided based upon vendor-specific
objective evidence of the fair value of each of the products and
services provided.
| 
| |  | We also provide professional services consisting of information
technology consulting and business process management services.
Revenue from providing such services is generally recognized under two
methods, depending on the relevant contractual terms. Under the time
and materials method, which is applied to nearly all of our
Professional Services contracts, revenue is based on a fee per hour
basis and is recognized as hours are completed. Under the fixed
contract method, a pre-set fee is agreed upon for a project, and
revenue is recognized proportionately to the percentage completion of
the project. If the information technology consulting services involve
the significant customization of software that has been licensed from
us, the license fee is also recognized proportionately to the
percentage completion of the project.                                                                  
| 
| |  | Software maintenance and support revenue is recognized ratably over
the term of the contract, and/or as the services are provided.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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

Intangible Assets  Our intangible assets consist primarily of goodwill,
capitalized software costs and acquired customer contracts. We capitalize the
cost of software developed or obtained for internal use

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

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

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

The process of evaluating goodwill and other intangible assets, including
capitalized software costs and 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 recorded a write-down of capitalized software
associated with under-performing products in the second quarter of 2002 and our
ongoing product review process may require additional charges of this type in
the third quarter.

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

We maintain an allowance for doubtful accounts for estimated losses resulting
from our customers failing to make required payments. We develop our estimate
of the allowance based on our experience with specific customers, our
understanding of their current economic circumstances and our own judgment as
to the likelihood of their ultimate payment. We also consider our collection
experience with the balance

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of our receivables portfolio and make estimates
regarding collectibility based
on trends in aging. The estimates utilized to calculate our allowance for
doubtful accounts were refined during the second quarter of 2002 following the
establishment of our collections and credit committee and the implementation of
enhanced collection processes and systems to be more reflective of our recent
collection history. As a result of this refinement, we reduced our estimated
uncollectible accounts by $2.5 million during the second quarter of 2002. If
the financial condition of our customers were to deteriorate, thereby impairing
their ability to make payments, an increase in this allowance could be required
in a future period.

Income Taxes  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.

Results of Operations  Three and Six Months ended June 30, 2002 Compared to
Three and Six Months Ended June 30, 2001

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:

|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |      |       |      | 
|-------------------------- | ------------------------------------------- | ------------------ | ------------------------ | ---- | --------------------------- | ---- | ------------------------- | ---- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | ----- | ---- | 
|                           |                                             |                    |                          |      | Three Months Ended June 30, |      | Six Months Ended June 30,
|                           |                                             |                    |                          |      |                             |      |                          
|                           |                                             |                    |                          |      | 2002                        |      | 2001                      |      | 2002  |      | 2001
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |     
|Net revenue                |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                          
|                          
|                          
|                          
|                           | Electronic Payments                         |                    |                          | 35.5 | %                           |      |                           | 34.4 | %     |      |      | 35.2 | %     |      |      | 34.5 | %    
|                          
|                          
|                          
|                          
|                           | ATM Management Services                     |                    |                          | 20.7 |                             |      |                           | 13.8 |       |      |      | 18.1 |       |      |      | 13.2 |      
|                          
|                          
|                          
|                          
|                           | Decision Support and Risk Management        |                    |                          | 25.8 |                             |      |                           | 30.1 |       |      |      | 26.7 |       |      |      | 29.3 |      
|                          
|                          
|                          
|                          
|                           | Professional Services                       |                    |                          | 18.0 |                             |      |                           | 21.7 |       |      |      | 20.0 |       |      |      | 23.0 |      
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                           |                                             | Total net revenues |                          |      | 100.0                       |      |                           |      | 100.0 |      |      |      | 100.0 |      |      |      | 100.0 |     
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Operating expenses         |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                          
|                          
|                          
|                          
|                           | Processing, communication and service costs |                    |                          | 40.1 |                             |      |                           | 36.2 |       |      |      | 39.3 |       |      |      | 36.7 |      
|                          
|                          
|                          
|                          
|                           | Employee costs                              |                    |                          | 34.4 |                             |      |                           | 40.6 |       |      |      | 36.3 |       |      |      | 40.1 |      
|                          
|                          
|                          
|                          
|                           | Depreciation and amortization               |                    |                          | 7.3  |                             |      |                           | 7.7  |       |      |      | 7.2  |       |      |      | 7.6  |      
|                          
|                          
|                          
|                          
|                           | Other operating expenses                    |                    |                          | 6.8  |                             |      |                           | 6.8  |       |      |      | 7.2  |       |      |      | 7.7  |      
|                          
|                          
|                          
|                          
|                           | Restructuring and other charges             |                    |                          | 7.8  |                             |      |                           |     |       |      |      | 3.9  |       |      |      | 1.2  |      
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|                           |                                             |                    | Total operating expenses |      |                             | 96.4 |                           |      |       | 91.3 |      |      |       | 93.9 |      |      |       | 93.3 | 
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Income from operations     |                                             |                    | 3.6                      |      |                             |      | 8.7                       |      |       |      | 6.1  |      |       |      | 6.7  |     
|                          
|                          
|                          
|                          
|Other income-net           |                                             |                    | 0.1                      |      |                             |      | 0.2                       |      |       |      | 0.2  |      |       |      | 0.3  |     
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Income before income taxes |                                             |                    | 3.7                      |      |                             |      | 8.9                       |      |       |      | 6.3  |      |       |      | 7.0  |     
|                          
|                          
|                          
|                          
|Provision for income taxes |                                             |                    | (0.7                     | )    |                             |      | (3.1                      | )    |       |      | (1.9 | )    |       |      | (2.5 | )   
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     
|Net income                 |                                             |                    | 3.0                      | %    |                             |      | 5.8                       | %    |       |      | 4.4  | %    |       |      | 4.5  | %   
|                           |                                             |                    |                          |      |                             |      |                           |      |       |      |      |      |       |      |      |     

16



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##### Table of Contents



Net revenue Net revenue was essentially flat compared to the prior year at
$133.0 million for the second quarter of 2002 and $132.8 million for the second
quarter of 2001. Net revenue increased $3.0 million or 1.1%, to $266.5 million
for the first six months of 2002 from $263.5 million for the first six months
of 2001.

Electronic Paymentsnet revenue increased $1.6 million, or 3.5%, to $47.3
million in the second quarter of 2002 from $45.7 million in the second quarter
of 2001. Net revenue increased $2.9 million, or 3.2% to $93.8 million for the
first six months of 2002 from $90.9 million for the first six months of 2001.
Revenue growth in this segment for the quarter and six months period was driven
by higher EBT case counts and the renewal of certain government contracts at
improved rates.

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 is not renewed. This contract provided us approximately
$6.1 million of revenue in the first six months of 2002 and is currently
scheduled to expire in mid-November 2002. It is possible that we may receive
further extensions of this agreement, 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.

Excluding the impact of EITF 01-14 (see Accounting Change in notes to financial
statements), revenues from ACH, POS, EFT and other processing decreased
slightly due to the expected revenue declines associated with the STAR network.
Processing revenues from this network were approximately $14 million during
the first six months of 2001, as compared to the revenues of approximately $11
million we derived from this relationship in the first half of 2002. We expect
revenues from the STAR network will approximate $5 million in the third quarter
and that we will not realize material revenues from this relationship
thereafter.

Revenue growth in Electronic Payments does not
correlate directly to the growth in transaction volumes as the
revenue growth is impacted by the fixed fee structure under which we
perform processing for Star and the mix of transactions. Summarized below are billable volumes by general type of
transaction, exclusive of ATM Management Services:

|                             |  |                    |     |                  |  |      |     |      |  |  |     |  |  |  |     | 
|---------------------------- |  | ------------------ | --- | ---------------- |  | ---- | --- | ---- |  |  | --- |  |  |  | --- | 
|                             |  | Three Months Ended |     | Six Months Ended
|                             |  | June 30,           |     | June 30,        
|                             |  |                    |     |                 
|(in billions)                |  | 2002               |     | 2001             |  | 2002 |     | 2001
|                             |  |                    |     |                  |  |      |     |     
|Network & Gateway
(EFT, POS) |  |                    | 0.9 |                  |  |      | 0.8 |      |  |  | 1.7 |  |  |  | 1.6 | 
|                            
|                            
|                            
|                            
|Account Verification         |  |                    | 1.2 |                  |  |      | 1.0 |      |  |  | 2.4 |  |  |  | 1.9 | 
|                            
|                            
|                            
|                            
|ACH                          |  |                    | *   |                  |  |      | *   |      |  |  | 0.1 |  |  |  | 0.1 | 



---

|* |  | Less than 0.1 billion
|- |  | ---------------------

ATM Management Servicesrevenue increased $9.2 million, or 50.3%, to $27.5
million in the second quarter of 2002 from $18.3 million in the second quarter
of 2001. Revenue from this segment increased $13.2 million, or 37.8%, to $48.1
million in the first six months of 2002 from $34.9 million in the first six
months of 2001. These increases are primarily due to the acquisition of ATM
networks from Hanco Systems, Inc. (Hanco), Samsar ATM Company, Inc.
(Samsar), and Evergreen Teller Services, Inc. (Evergreen) which combined
contributed $7.5 million in new revenue during the second quarter of 2002 and
$10.7 million in new revenue for the first six months of 2002. Branding and
equipment sales also represented revenue sources for this segment during the
first six months of 2002 which did not exist in the first half of last year.
We currently manage a network of approximately 14,100 ATMs, which
amount reflects some attrition experienced by the Company during the
process of converting purchased machines and verifying the inventory
of acquired networks. We are actively
seeking to acquire the ATM portfolios of other independent ATM deployment and
management companies.

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Decision Support and Risk Managementrevenue decreased $5.6 million, or 14.0%,
to $34.3 million in the second quarter of 2002 from $39.9 million in the second
quarter of the prior year. Revenue decreased $6.0 million, or 7.8%, to $71.2
million in the first six months of 2002 from $77.2 million in the first six
months of 2001. An increase in revenues from our ChexSystemsSM suite of
products was more than offset by a decline in revenues received from sales of
DebitReport during the second quarter of 2002 compared to the same period of
the prior year. We also saw a decline in sales of our SCANSM product over the
comparable periods in the prior year. The increase in revenues from the
ChexSystemsSM service was attributable to our marketing campaign to encourage
financial institutions to prepare for the mandate by the U.S. government for
better customer screening under the USA Patriot Act. The decrease in revenues
from SCANSM products was attributable to customer losses due to bankruptcies
and other attrition and pricing concessions. Revenues from DebitReport
declined $6.0 million to a nominal level in the second quarter of 2002 due to
the absence of the bulk sales to resellers seen in the comparable period of
last year as we transition to a transaction-based fee structure.

Professional Servicesrevenues decreased $5.0 million, or 17.3%, to $23.9
million in the second quarter of 2002 from $28.9 million in the second quarter
of the prior year. Revenue decreased $7.1 million, or 11.7%, to $53.4 million
for the first six months of 2002 from $60.5 million for the first six months of
2001.

Revenue from information technology services provided under our contract with
Deluxe were $10.4 million in the second quarter of 2001 as compared to $10.3
million in the second quarter of 2002. For the six month period, revenues from
Deluxe were $20.6 million in 2002 as compared to $22.9 million in 2001. If
Deluxe fails to spend a minimum of $43 million for software development
services under our agreement with it 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. We currently anticipate that 2002 revenues from
software development activities performed pursuant to this agreement will
approximate $41 million. Revenues from other information technology clients
declined by $2.5 million and $5.8 million in the second quarter and the first
six months of 2002, respectively, as compared to the same periods for the prior
year as a result of our decision in 2001 to cease offering stand-alone
information technology development services.

Software sales in the second quarter of this year declined as compared to the
prior year period. Software revenue for the first six months of each year
remained relatively flat. The following table illustrates our revenue
generated from software sales:

|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 
|---------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                       |  | Three Months Ended |       | Six Months Ended
|                       |  | June 30,           |       | June 30,        
|                       |  |                    |       |                 
|(in thousands)         |  | 2002               |       | 2001             |  | 2002 |       | 2001
|                       |  |                    |       |                  |  |      |       |     
|License fees           |  | $                  | 1,787 |                  |  | $    | 3,490 |      |  | $ | 9,486  |  |  | $ | 6,575  | 
|                      
|                      
|                      
|                      
|Maintenance            |  |                    | 3,309 |                  |  |      | 3,596 |      |  |   | 6,726  |  |  |   | 6,796  | 
|                      
|                      
|                      
|                      
|Software modifications |  |                    | 2,009 |                  |  |      | 2,644 |      |  |   | 3,425  |  |  |   | 5,769  | 
|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 
|                       |  | $                  | 7,105 |                  |  | $    | 9,730 |      |  | $ | 19,637 |  |  | $ | 19,140 | 
|                       |  |                    |       |                  |  |      |       |      |  |   |        |  |  |   |        | 

Business process management (BPM) revenues remained relatively flat in the
second quarter and first six months of 2002 as compared to the same periods for
the prior year at approximately $6 million and $11 million, respectively. A
modest decline in revenue from BPM services for Deluxe was offset by increased
revenues from other BPM customers and by increased call center activities. Our
agreement with Deluxe calls for us to provide Deluxe with accounts receivable,
accounts payable and other general accounting and data entry services.
Deluxes annual minimum spending target for these services ranges from $8.1
million in 2000 to $4.2 million in 2004. The target for 2002 is $6.4 million
and revenues from these services were $1.1 million and $2.3 million in the
second quarter and first six months of this year, respectively.

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##### Table of Contents



Processing, communication and service costs This category includes cost of
processing, telecommunications, computer equipment and promotional services.
These costs increased $5.3 million, or 11.0%, to $53.4 million in the second
quarter of 2002 from $48.1 million in the same period of the prior year, and
$7.9 million, or 8.2%, to $104.7 million in the first six months of 2002 from
$96.8 million in the first six months of 2001. As a percentage of net revenue,
processing, communication and service costs were 40.1% and 39.3% in the second
quarter and first six months of 2002, respectively, compared to 36.2% and 36.7%
for the same periods of 2001. Telecommunications, third party processing
charges and cost of equipment sales have increased along with the increase in
ATM processing and ATM equipment sales. We
provide the processing
for approximately 7,500 of the 12,800 U.S. ATM machines in our network and we
expect to complete the transition of the processing for approximately
2,500 additional U.S. ATMs to our networks by the end of the year. Due to existing contractual
commitments, processing for the approximately 1,300 ATMs we have in Canada will
not likely be transitioned to our networks for a substantial period of time.
Processing for the approximately 2,800 remaining U.S. ATMs, including
the 2,600 ATMs, we acquired from Samsar
and Evergreen in the second quarter of 2002, will be transitioned to
our networks as existing contractual commitments expire or as the
economics associated with accelerated contract cancellations make it
logical to do so. Reimbursable costs, the majority of which related to transaction processing,
that are billed to customers also increased in the second quarter and first six
months of 2002 compared to the same periods of the prior year due to increased
transaction volumes.

Employee costs Expenditures in this category represent employee compensation
and related employee expenses, benefits and travel. These costs decreased $8.2
million, or 15.2%, to $45.7 million in the second quarter of 2002 from $53.9
million in the second quarter of 2001. Employee costs decreased $8.9 million,
or 8.4%, to $96.7 million in the first six months of 2002 from $105.6 million
in the first six months of 2001. As a percentage of net revenue, employee
costs were 34.4%, and 36.3% in the second quarter and first six months of 2002,
respectively, compared to 40.6% and 40.1% for the second quarter and first six
months of 2001, respectively. The primary reason for the decrease in employee
costs is the elimination of performance-based employee compensation for 2002
due to reduced revenue and earnings expectations. Performance-based
compensation expense decreased $7.1 million and $7.7 million for the second
quarter and first six months ended June 30, 2002, respectively, from the same
periods of the prior year.

Although we had approximately 200 more employees in the second quarter of 2002
than we did in the second quarter of 2001, we realized cost savings by
re-deploying certain development responsibilities to our India based operations
and as a result of cost reduction initiatives begun in 2001, such as the
consolidation of our data center operations. Additionally, our travel
expenditures were less in the second quarter and first six months of 2002
compared to the same periods of the prior year. These savings were partially
offset by increased costs for employee health benefits.

Depreciation and amortization These costs represent depreciation of
facilities and equipment, amortization of intangible assets, such as
capitalized software costs and customer contract costs and, prior to
implementation of SFAS 142 in 2002, amortization of goodwill. Depreciation and
amortization decreased $0.6 million, or 5.8%, to $9.7 million in the second
quarter of 2002 from $10.3 million for the second quarter of 2001 and $0.9
million, or 4.5%, to $19.2 million for the first six months of 2002 from $20.1
million in the first six months of 2001. These costs were 7.3 and 7.2 percent
of revenue in the second quarter and first six months of 2002, respectively,
and 7.7 and 7.6 percent of revenue for the same periods of the prior year.
Goodwill amortization of $1.0 million and $2.0 million was recorded in the
second quarter and first six months of 2001, respectively, whereas no such
amortization was recorded in 2002. The decrease in amortization expense was
offset by more depreciation of property and equipment, more amortization of
internally developed software, and amortization of customer contracts recorded
in connection with our acquisitions.

Other operating expenses Expenditures in this category include facility
costs, professional, consulting and temporary services, bad debt, and certain
administrative costs. Other operating expenses remained flat at $9.0 million
for each of the second quarters of 2002 and 2001, and decreased $1.0 million,
or 4.9%,

19



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##### Table of Contents



to $19.2 million for the first six months of 2002 from $20.2 million for the
same period of the prior year. As a percentage of revenue, these expenses were
6.8% in each of the second quarters of 2002 and 2001, and decreased to 7.2% in
the first six months of 2002 from 7.7% for the first six months in 2001. At
the beginning of the quarter, we established a collections and credit committee
and implemented enhanced collection processes and systems, thereby improving
our ability to pursue slow payors and to refine our estimates regarding the
probability that an account may become uncollectible. As a result, during the
second quarter of 2002, we reduced our estimate for uncollectible accounts by
$2.5 million. This cost savings was offset somewhat by increased costs for professional
services surrounding the SEC inquiry, executive search fees, and also by an
increase in facility rental costs due to the expansion of our facilities in
India and in Scottsdale, Arizona.

Restructuring and other charges Restructuring and other charges for the
second quarter of 2002 consist of $3.4 million in severance benefits, $5.7
million for lease-related costs as a result of the consolidation of facilities,
and a net charge of $1.3 million related to software impairment and other
charges. Results for the first six months of 2001 included a restructuring
charge of $3.2 million related to the closure of our Bothell, Washington
facility.

During the second quarter of 2002, we committed to a series of restructuring
actions to lower our cost structure and improve operating efficiencies. We
expect to pay a significant portion of the $3.4 million in severance charges
before the end of 2002. Of the lease related-costs accrued due to the exit of
facilities, approximately $1.1 million relates to equipment and leasehold
improvements, and the remainder of $4.6 million relates to estimated lease
costs for closed facilities (net of any projected savings from sub-leases). We
expect the personnel reductions reflected in the severance charge to positively
impact our cash flow for 2003. The charge for lease costs will not change our
2003 financial position as our rental obligations will continue until the
expiration of the lease or we can sub-let the related property.

Certain under-performing product lines were identified during the second
quarter of 2002. As a result we recorded a charge to reduce the value of the
certain tangible assets and capitalized software associated with these
products. It is likely that we will record additional charges for severance
and software impairment in the third quarter as we continue our strategic
analysis of our various lines of business.

Income from operations Income from operations decreased $6.8 million, or
59.1%, to $4.7 million in the second quarter of 2002 compared to $11.5 million
in the second quarter of 2001, and decreased $1.4 million, or 8.0%, to $16.2
million for the first six months at 2002 from $17.6 million for the first six
months of 2001. As a percentage of net revenue, income from operations was
3.6% and 6.1% for the second quarter and first six months of 2002,
respectively, compared to 8.7% and 6.7% for the same periods of the prior year.
Results for the second quarter of 2002 include restructuring and other charges
of $10.4 million and the results for the first six months of 2001 include
restructuring charges of $3.2 million. Also, in accordance with SFAS 142, we
ceased amortization of goodwill in 2002. Goodwill amortization for the second
quarter and first six months of 2001 was approximately $1.0 million and $2.0
million, respectively.

Excluding the restructuring and other charges in both periods and eliminating
the goodwill amortization for 2001, income from operations increased
approximately $4.9 million, or approximately 69% for the second quarter of 2002
compared to the prior year, and increased $1.5 million, or 7%, for the first
six months of 2002 compared to the prior year. As a percentage of revenue,
income from operations, excluding restructuring and other charges and goodwill
amortization, increased to 9% in the second quarter of 2002 from 5% in the
same period of the prior year and increased to 9% for the first six months of
2002 from 8% for the same period of the prior year. The improvement is
attributable to the elimination of performance-based employee compensation in
2002 and the downward revision of our allowance for

20



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##### Table of Contents



doubtful accounts in the second quarter of 2002. These expense reductions were
offset in part by a change in revenue mix to more recurring but lower margin
product lines.

Other income-net Other income-net was $0.2 million during the second quarter
of 2002 compared to $0.3 million for the same period of the prior year and $0.6
million for the first six months of 2002 compared to $0.8 million for the same
period of the prior year. Interest earned on cash and cash equivalents
decreased $0.1 million to $0.5 million in the second quarter of 2002 as
compared to $0.6 million for the same period of the prior year and decreased by
$1.1 million to $0.8 million for the first six months in 2002 as compared to
$1.9 million for the same period of the prior year. These decreases were due
to reduced interest rates. Additionally, interest expense, equity method
amortization and other expense decreased during both the second quarter and
first six months of 2002.

Provision for income taxesThe provision for income taxes was $1.0 million
and $5.0 million in the second quarter and first six months of 2002,
respectively, compared to $4.1 million and $6.6 million for the same periods of
the prior year, resulting in annualized effective tax rates of 30% for 2002 and
35.7% for 2001. The decrease in our effective tax rate is a result of the
change in the composition of our projected earnings to reflect a higher
proportional share of our projected consolidated income by our Indian
subsidiary. Our Indian software development and business process management
operations qualify for tax incentives associated with businesses that operate
within designated geographic locations within India. Such incentives generally
provide us with exemptions from Indian income tax on certain business income
generated from these operations. As a result of a recent change in Indian tax
law, effective April 1, 2002 and through March 31, 2003, 10% of this previously
tax exempt income will be subject to Indian income tax at the rate of 35%.
The remaining tax incentives phase out through March 2009.

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

|                                                                         |                                      |                                                                  |  |                    |     |                  |  |       |     |      |  |       |     |   |  |       |     |  
|------------------------------------------------------------------------ | ------------------------------------ | ---------------------------------------------------------------- |  | ------------------ | --- | ---------------- |  | ----- | --- | ---- |  | ----- | --- | - |  | ----- | --- | -
|                                                                         |                                      |                                                                  |  | Three Months Ended |     | Six Months Ended
|                                                                         |                                      |                                                                  |  | June 30,           |     | June 30,        
|                                                                         |                                      |                                                                  |  |                    |     |                 
|                                                                         |                                      |                                                                  |  | 2002               |     | 2001             |  | 2002  |     | 2001
|                                                                         |                                      |                                                                  |  |                    |     |                  |  |       |     |     
|Income (loss) from operations
including restructuring and other
charges: |                                      |                                                                  |  |                    |     |                  |  |       |     |      |  |       |     |   |  |      
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Electronic payments                  |                                                                  |  | 29.9               | %   |                  |  | 25.2  | %   |      |  | 28.3  | %   |   |  | 25.6  | %  
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | ATM management services              |                                                                  |  | 7.6                |     |                  |  | 4.7   |     |      |  | 7.2   |     |   |  | 2.5   |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Decision support and risk management |                                                                  |  | 12.4               |     |                  |  | 32.6  |     |      |  | 16.2  |     |   |  | 25.6  |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Professional services                |                                                                  |  | 35.9               |     |                  |  | 32.5  |     |      |  | 36.0  |     |   |  | 34.4  |    
|                                                                        
|                                                                        
|                                                                        
|                                                                        
|                                                                         | Corporate                            |                                                                  |  | (18.3              | )   |                  |  | (17.5 | )   |      |  | (16.7 | )   |   |  | (17.9 | )  
|                                                                         |                                      | Income from operations including
restructuring and other charges |  |                    | 3.6 | %                |  |       | 8.7 | %    |  |       | 6.1 | % |  |       | 6.7 | %

Operating income in the Electronic Payments business segment increased to $14.1
million in the second quarter of 2002 from $11.5 million in the second quarter
of the prior year, and increased to $26.5 million in the first six months of
2002 from $23.2 million in the first six months of 2001. As a percent of net
segment revenues, operating margins were 29.9% and 28.3% for the quarter and
six months ended June 30, 2002, respectively, an increase over the 25.2% and
25.6% we recorded for the same periods of the prior year. During the current
quarter, we recorded $2.0 million in restructuring and other charges in
Electronic Payments related to severance and asset impairments and had $1.2
million less expense for performance-based compensation. This reduction of
expense includes the effect of reversing the accrual for performance-based
compensation we recorded in the first quarter of 2002. The reversal of this
accrual and the absence of any provision for incentive compensation in the
second quarter resulted in our recording $0.9 million less in compensation
expense for the first six months of 2002 than we did for the

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comparable period in the prior year. Due to cost reduction measures
implemented in 2002 and increased revenues from government EBT contracts,
operating margins improved for both the second quarter and first six months of
2002 despite the net increase in expenses from the restructuring and other
charges.

Operating income in the ATM Management Services business segment increased to
$2.1 million in the second quarter of 2002 from $0.9 million in the second
quarter of the prior year, and increased to $3.5 million in the first six
months of 2002 from $0.9 million in the first six months of 2001. As a percent
of net segment revenues, operating margins were 7.6% and 7.2% for the quarter
and six months ended June 30, 2002, an increase over the margins of 4.7% and
2.5% we saw during the same periods last year. Revenues in this segment
increased due primarily to acquisitions. Margin improvements were primarily
driven by efficiency gains through the consolidation of the operations of
acquired businesses, including the transitioning of acquired ATMs to our
internal processing systems. We expect to see further margin improvement in
this business in future periods as our integration efforts proceed.

Operating income in the Decision Support and Risk Management business segment
decreased to $4.3 million in the second quarter of 2002 from $13.0 million in
the second quarter of the prior year, and decreased to $11.5 million in the
first six months of 2002 from $19.8 million in the first six months of 2001.
As a percent of net segment revenues, operating margins were 12.4% and 16.2%
for the quarter and six months ended June 30, 2002, a decrease from the 32.6%
and 25.6% recorded for the same periods of the prior year. During the current
quarter, we recorded $4.8 million in restructuring and other charges in the
Decision Support and Risk Management segment related to severance, lease
expense and asset impairments, and had $1.4 million less expense for
performance-based compensation, (including the effect of reversing
performance-based compensation accruals that existed at the beginning of the
quarter.) We also recorded $1.1 million less expense for performance-based
compensation for the first six months of 2002 than we did in 2001. The loss of
revenue from higher-margin bulk sales of DebitReport, combined with the net
increase in expenses from the restructuring and other charges, resulted in
reduced operating margins for both the second quarter and first six months of
2002.

Operating income in the Professional Services business segment decreased to
$8.6 million in the second quarter of 2002 from $9.4 million in the second
quarter of the prior year, and decreased to $19.2 million in the first six
months of 2002 from $20.8 million in the first six months of 2001. As a
percent of net segment revenues, operating margins were 35.9% and 36.0% for the
quarter and six months ended June 30, 2002, an increase over the 32.5% and
34.4% for the same periods of the prior year. During the current quarter, we
recorded $0.9 million in restructuring and other charges in Professional
Services related primarily to severance, and had $2.9 million less in
performance-based compensation expense due in part to the reversal of
performance-based compensation accruals that existed at the beginning of the
quarter. We also recorded $2.9 million less in such compensation expense for
the first six months of 2002 than we did in 2001 as we do not expect to pay
employee bonuses in 2002. Despite the loss of revenue from IT consulting
services, the net decrease in expenses due to the reduction of
performance-based compensation resulted in an improved margin for both the
second quarter and first six months of 2002.

Corporate expenses include, but are not limited to, legal, accounting, human
resources, risk management, sales and executive expenses. These expenses
increased to $24.3 million in the second quarter of 2002 from $23.3 million in
the second quarter of the prior year, and decreased to $44.5 million in the
first six months of 2002 from $47.1 million in the first six months of 2001.
During the current quarter, we recorded $2.7 million in restructuring and other
charges as corporate expenses which were related to severance, lease expense
acceleration and asset impairments, and had $1.8 million less in
performance-based compensation expense, and $2.6 million less in bad debt
expense. We also recorded $2.8 million less in performance-based compensation
expense for the first six months of 2002 compared to the same period last year.
Exclusive of the restructuring and other charges and reductions in incentive

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compensation and bad debt, corporate expenses increased due to increased
professional service fees related to the SEC inquiry, facility rental costs
from the expansion of our facilities in Scottsdale, Arizona and rising costs
for employee health benefits. The effect of these increases was mitigated by
the discontinuance of goodwill amortization in 2002. Goodwill amortization was
$1 million and $2 million in the second quarter and first six months of 2001,
respectively.

Liquidity, Capital Resources, and Financial Condition

At June 30, 2002, net working capital was $118.2 million, compared to $118.6
million at December 31, 2001. Cash and cash equivalents, including cash in
ATMs of approximately $18 million, totaled $100.9 million at June 30, 2002, a
decrease of $1.0 million from December 31, 2001. This decrease was primarily
the result of acquisition activities. At June 30, 2002, we had $4.7 million of
restricted cash that we temporarily hold in custodial accounts on behalf of
clients and $2.5 million of deposits subject to compensating balance
arrangements.

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

We have terminated our $20 million revolving credit facility. We never
borrowed any money under this facility, although we did use it to issue letters
of credit in the ordinary course of business from time to time. At June 30,
2002 the aggregate value of such outstanding letters of credit amounted to $1.0
million and we have now cash collateralized these letters with a $1.0 million
deposit at the issuing bank.

We have additional outstanding commercial commitments consisting mainly of
guarantees for contract performance, that include letters of credit, bank
guarantees and performance bonds. As of June 30, 2002 and December 31, 2001,
our total obligation under these commercial commitments was $12.0 million and
$11.5 million, respectively, over a five-year term. As of December 31, 2001 our
contractual cash obligations for capital and operating leases and outsourcing
and maintenance obligations totaled $128.3 million through December 31, 2006.
Our contractual cash obligations had not materially changed from this amount at
June 30, 2002.

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

|                                                     |  |                           |         |      |  |   |         |  
|---------------------------------------------------- |  | ------------------------- | ------- | ---- |  | - | ------- | -
|                                                     |  | Summary of Cash Flows    
|                                                     |  | Six Months Ended June 30,
|                                                     |  |                          
|(in thousands)                                       |  | 2002                      |         | 2001
|                                                     |  |                           |         |     
|Cash provided by operating activities                |  | $                         | 32,144  |      |  | $ | 7,699   |  
|                                                    
|                                                    
|                                                    
|                                                    
|Cash used in investing activities                    |  |                           | (33,870 | )    |  |   | (15,427 | )
|                                                    
|                                                    
|                                                    
|                                                    
|Cash provided by financing activities                |  |                           | 777     |      |  |   | 9,317   |  
|                                                     |  |                           |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |  | $                         | (949    | )    |  | $ | 1,589   |  
|                                                     |  |                           |         |      |  |   |         |  

Net cash flows from operating activities provided $32.1 million and $7.7
million for the first six months of 2002 and 2001, respectively. The increase
in operating cash flow compared to the same period last year resulted from
improved collection procedures and more effective management of working capital
accounts. During the six months ended June 30, 2002, accounts receivable
decreased by $4.0 million, whereas accounts receivable increased
by $21.6
million for the same period of the prior year. The increase last year was due
to the growth of our Company and also because billings to Deluxe were shown as
receivables in 2001 as opposed to intercompany balances which were settled at
December 31, 2000.

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Our investing activities used cash of $33.9 million for the six months ended
June 30, 2002, compared to $15.4 million for the same period last year. We
spent $11.6 million to purchase systems and equipment and develop software in
the first six months of 2002, compared to like capital expenditures of $14.3
million in the same period last year. We also completed the acquisitions of
Hanco, Samsar, and Evergreen for $22.3 million in the first six months of 2002.

Financing activities provided $0.8 million and $9.3 million in cash for the six
months ended June 30, 2002 and 2001, respectively. During the six months ended
June 30, 2002, we repaid $1.6 million of long-term debt and received $2.4
million from sales of common stock pursuant to exercise of stock options and
our employee stock purchase plan. During the same period of the prior year, we
used cash to repay debt of $6.5 million, obtained $8.5 million from the release
of a time deposit placed as collateral for that debt and we received $7.3
million from sales of common stock pursuant to exercise of stock options and
the employee stock purchase plan.

Recent Developments

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, STAR licensed our EFT software and contracted for the
long-term maintenance thereof and for professional services to assist in the
migration effort. The licenses to STAR represented our largest software
licensing transactions 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 only minimal revenues from our relationship with STAR
beginning in the fourth quarter of this year.

Including software license and maintenance fees and fees for processing
transactions for STAR and other Concord affiliates, Concord EFS accounted for
approximately $7.9 million of revenues (excluding revenues derived from
reimbursed expenses) during the quarter ended June 30, 2002, as compared to
$8.1 million for the quarter ended June 30, 2001. Concord EFS accounted for
approximately $19.3 million of revenues (excluding revenues derived from
reimbursed expenses) during the first six months of 2002, compared to $18.0
million for the same period in 2001. We currently estimate that the total net
revenues we will recognize from our relationship with Concord EFS in 2002 will
approximate $28 million (excluding revenues derived from reimbursed expenses),
compared to $56.2 million in 2001. Of this amount, approximately $16 million
relates to the provision of transaction processing services to the STAR network
during the transition period ($11 million of which was recognized during the
first six months of 2002 and the balance of which will be recognized in the
third quarter). Approximately $4 million of these 2002 revenues relates to a
software sale also recognized during the first quarter. We do not expect the
remaining revenues from Concord EFS affiliate Primary Payment Systems, Inc. to
be affected by the termination of STARs processing agreement.

Forward Looking Statements

We have previously announced that we are targeting revenues of approximately
$527 million to $542 million for the full year. These amounts include
approximately $28 million of revenue associated with the adoption by the
Company of EITF 01-14. The full year revenue outlook gives effect to our
acquisitions of Hanco, Samsar and Evergreen, but does not include
acquisitions of additional ATM management assets that may occur during the
balance of the year.

The annualized effective tax rate for 2002 is expected to be approximately
30 percent.

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Capital expenditures for 2002 are expected to be $20 million to $25 million.

2002 diluted shares are assumed to be 47.5 million.

Diluted earnings per share for 2002 are currently expected to approximate
$0.65 to $0.80 before restructuring and other charges.

Results for the third quarter are expected to be consistent with the current
expectations for the full year. Over the next several months, we will
continue to focus on efforts to drive our long-term growth and increase our
profitability. This review will likely result in additional restructuring
and asset impairment charges in the third quarter.

Our actual future results could differ materially from those presently
anticipated due to a variety of factors. Some of these factors are
discussed in Part II, Item 5 of this Quarterly Report on Form 10-Q.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the potential for loss due to adverse changes in the
fair value of financial instruments. We operate internationally and are
subject to potentially adverse movements in foreign currency exchange rates and
interest rates. These exposures may change over time as our business evolves
and could have an adverse impact on our financial results. We have not entered
into any derivative instruments or hedging contracts to reduce our exposure to
adverse foreign currency rate or interest rate changes.

Currently, we receive non-U.S. dollar denominated revenues and incur non-U.S.
dollar denominated operating expenses in the United Kingdom, India and Canada.
We also have assets located in these countries. The principal currencies
creating foreign exchange rate risk for us are the British pound, Indian rupee
and Canadian dollar. For the quarter and six months ended June 30, 2002, less
than 10% of our net revenues and operating expenses were denominated in
non-U.S. dollar currencies. We do not believe that our net income for the
quarter and six months ended June 30, 2002 would have been materially affected
if the U.S. dollar had appreciated or depreciated by 10% against the British
pound, the Indian rupee or the Canadian dollar.

Changes in interest rates could impact our anticipated interest income on cash
equivalents and interest expense on variable short-term debt. A 10% adverse
change in interest rates from the interest rates in effect at the end of 2001
would not, however, have a material adverse effect on our net income or
financial condition for 2002.




PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

On March 8, 2002, we received a letter from 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 are cooperating 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.

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

The Company held its annual stockholders meeting on May 30, 2002. 42,516,876
shares were represented at the meeting, constituting 91.3% of the shares
outstanding and eligible to vote. Two items were considered at the meeting and
the results of the voting were as follows:

Proposal 1. To Elect a Nominee to the Board of Directors:

|                |  |     |            |          |  |  |         | 
|--------------- |  | --- | ---------- | -------- |  |  | ------- | 
|Nominee         |  | For |            | Withheld
|                |  |     |            |         
|Janet M. Clarke |  |     | 41,802,504 |          |  |  | 714,372 | 

Proposal 2. To ratify the Selection of Deloitte & Touche LLP as the Companys
Independent Auditors:

|           |  |         |           |         |  |  |        | 
|---------- |  | ------- | --------- | ------- |  |  | ------ | 
|For        |  | Against |           | Abstain
|           |  |         |           |        
|39,927,335 |  |         | 2,554,748 |         |  |  | 34,793 | 

The terms of office of our directors John A. Blanchard III, John J. (Jack)
Boyle III, Sheila A. Penrose and Jack Robinson continued after the meeting.




ITEM 5. OTHER INFORMATION

RISK FACTORS AND CAUTIONARY STATEMENTS.

When used in this Quarterly Report on Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in our press releases,
letters and reports to stockholders and in oral statements made by our
representatives, the words or phrases should result, are expected to,
targeted, will continue, will approximate, is anticipated, estimate,
project or similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are necessarily subject to certain risks and
uncertainties, including those discussed below, that could cause our actual
results to differ materially from our historical experience and our present
expectations or projections. Caution should be taken not to place undue
reliance on any such forward-looking statements, which speak only as of the
date made. The factors listed below could affect our financial performance and
could cause our actual results for future periods to differ from any opinions
or statements expressed with respect thereto. Such differences could be
material and adverse. We will not undertake and specifically decline any
obligation to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances occurring
after the date of such statements or to reflect the occurrence of anticipated
or unanticipated events.

ESTIMATES OF FUTURE FINANCIAL RESULTS ARE INHERENTLY UNRELIABLE.

From time to time, our representatives make public predictions or forecasts
regarding the Companys future results, including estimates regarding future
revenues, expense levels, tax rates, capital expenditures, earnings or earnings
from operations. Any forecast regarding our future performance reflects various
assumptions. These assumptions are subject to significant uncertainties, and,
as a matter of course, many of them will prove to be incorrect. Further, the
achievement of any forecast depends on numerous factors (including those
described in this discussion), many of which are beyond our control. As a
result, there can be no assurance that our performance will be consistent with
any management forecasts or that the variation from such forecasts will not be
material and adverse. Investors are cautioned not to base their entire analysis
of our business and prospects upon isolated predictions, but

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instead are encouraged to utilize the entire available mix of historical and
forward-looking information made available by us, and other information
relating to our Company and its products, when evaluating our prospective
results of operations.

The Company is currently targeting total 2002 revenues of $527 million to $542
million and earnings per diluted share of $0.65 to $0.80, before restructuring
and other charges. Although we believe that these results are attainable, their achievement is not
guaranteed and will require that we succeed in our planned revenue generation
and cost reduction initiatives. If these efforts are not successful, we will
not achieve our revenue and earnings goals. Further, the Company is in the
process of a strategic business assessment of the long-term performance and
contribution of existing and potential products, while simultaneously
undergoing an aggressive expense reduction program. Our revenue and earnings
objectives may have to be adjusted if the reassessment results in product
eliminations.

CONSOLIDATION IN THE INDUSTRIES WE SERVE MAY ADVERSELY AFFECT OUR ABILITY TO
SELL OUR PRODUCTS AND SERVICES.

Mergers, acquisitions and personnel changes at financial institutions and
electronic funds transfer networks may adversely affect our business, financial
condition and results of operations. Currently, the banking and EFT industries
are consolidating, causing the number of financial institutions and ATM
networks to decline. This consolidation could cause us to lose:



| |  | current and potential customers;                                                                                                                                                    
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | market share if the combined entity determines that it is more efficient to
develop in-house products and services similar to ours or use our competitors
product and services; and
| 
| |  | revenue if the combined institution is able to negotiate a greater volume
discount for, or discontinue the use of, our products and services.                                       

For example, one of the larger customers of our electronic payments business,
the STAR network, was purchased by one of our competitors, Concord EFS. We do
not expect to realize material revenues from STAR during the fourth quarter of
2002 or thereafter.

WE ARE UNABLE TO PREDICT THE RESULTS OF THE INQUIRY WE HAVE RECEIVED FROM THE
SEC.

On March 8, 2002, we received a letter from 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 are cooperating
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. It
is also possible that the SEC could require us to revise our previously
reported results of operations. The existence of the

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uncertainty associated with this inquiry could also have a depressing effect on
the market price of our common shares.

OUR ACQUISITION OF ATM MANAGEMENT COMPANIES MAY NOT BE SUCCESSFUL.

Since October 2001, we have been acquiring independent ATM management companies
and we now operate the largest network of off-premise ATMs in North America.
For the six months ended June 30, 2002, this business segment contributed
revenues of $48.1 million, or 18.1% of our total revenues, at an operating
margin of 7.2%.

Our ability to improve the margins of this business will require us to
effectively integrate the operations of acquired businesses into our
organization, efficiently manage the deployment of the ATMs and generate
additional sources of revenue from the installed ATM base and the sale of new
machines. A key component of our integration efforts is the migration of the
processing of the transactions generated at our ATMs from third parties to our
own data centers. We provide the processing for 7,500 of the 12,800
ATMs we have deployed in the United States and we plan to convert
approximately 2,500 of the remaining
machines by the end of 2002. Processing for the approximately 2,800
remaining U.S. ATMs, including the approximately 2,600
ATMs we acquired from Samsar and Evergreen in the second quarter of
2002, will be transitioned to our networks as existing contractual
commitments expire or as the economics associated with accelerated
contract cancellations makes it logical to do so. The process of
conversion also involves a physical count of the ATM machines in our
network and we have seen that the ATM inventories of acquired
networks tend to be smaller than represented. We are reviewing our
contractual options in this regard. All of the
conversions require a degree of
cooperation from existing third-party processors and so no assurance can be
given that we will be successful in our conversion efforts. If we are not successful in
our effort to improve the revenues and profitability of our ATM business, our
future results of operations will be adversely affected. In addition, the
expansion of the installed base of ATMs may require the application of
increased amounts of cash to keep the machines appropriately supplied with cash
for withdrawal by consumers.

Our ability to expand through acquisitions, including through our acquisition
of ACI, Hanco, Samsar, Evergreen and other ATM providers, involves many other
risks, including:



| |  | the operations, technology and personnel of any acquired companies may be
difficult to integrate;           
|- |  | ------------------------------------------------------------------------------------------------------------
| 
| |  | the allocation of management resources to consummate these transactions may
disrupt our day to day business;
| 
| |  | acquired businesses may not achieve anticipated revenues, earnings or cash
flow.                            

In addition, regulations are currently being considered regarding the
application of the Americans with Disabilities Act to ATM networks. Although
any regulations could result in increased opportunities for ATM sales by us,
they could also require us to retire or retrofit portions of the ATM base we
own. It is also possible that existing ATM networks will be exempted from any
future regulations. We are unable at this time to determine whether, and to
what extent, any final regulations will impact our business.

WE FACE INTENSE COMPETITION IN ALL AREAS OF OUR BUSINESS, AND IF WE DO NOT
COMPETE EFFECTIVELY, OUR BUSINESS WILL BE HARMED.

We face intense competition from a number of companies. Further, we expect that
competition will intensify as the movement towards increasing consolidation
within the financial services industry continues. Many of our competitors have
significantly greater financial, technical and marketing resources, greater
name recognition and a larger installed customer base than we do.

In the electronic payment management market, our principal competitors include:



| |  | third party network and credit card processors, including First Data,
Equifax, Total System Services, Electronic Data Systems, Concord EFS and
Alliance Data Systems;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | financial institutions that have developed internal processing capabilities
or services similar to ours, including Bank of America, Metavante and Fifth
Third National Bank;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | electronic data interchange and cash management providers, including Fiserv,
CheckFree, Metavante, EDS and Fundtech;                                                        
| 
| |  | electronic funds transfer software providers, including Transaction Systems
Architects, SLMsoft, Oasis, Mosaic and PaySys; and                                              
| 
| |  | national information database companies and other content providers,
including Equifax, Experian and Trans Union.                                                           

In the market for electronic transaction processing, the principal factors on
which we compete are price and service levels. The future growth of our
revenues in this market is dependent upon securing an increasing volume of
transactions. If we cannot control our transaction processing expenses, we may
not remain price competitive and our revenues will be adversely affected.

In the market for ATM deployment and management services, the primary basis of
competition is price and service levels. Our ability to sell additional
machines and processing contracts in this market is dependant on our ability to
control our costs while maintaining effective levels of customer service. If
we are not successful in these efforts we will not achieve the growth
objectives we have for this business.

Competition for our decision support and risk management products is based
primarily on the quantity and quality of the data available to us for this
purpose and, to a somewhat lesser degree, price. Our competitive position in
these markets could be harmed if our competitors were able to compile different
data sources and analytical capabilities that proved to be more effective than
our products. In addition, competitive pressure on our check verification
business is increasing and may require us to make significant investments to
maintain our customer base and acquire new customers.

Our business process outsourcing and professional services offerings compete
primarily on the basis of the quality of service levels and, to some degree,
price. The future growth of this aspect of our business is dependent on
demonstrating to our current and prospective customers that we are a dependable
and efficient service provider.

In addition to our current competitors, we expect substantial competition from
established and new companies. No assurance can be given that we will be able
to compete effectively against current and future competitors. Increased
competition could result in price reductions, reduced gross margins or loss of
market share.

IF WE EXPERIENCE SYSTEM FAILURES, THE PRODUCTS AND SERVICES WE PROVIDE TO OUR
CUSTOMERS COULD BE DELAYED OR INTERRUPTED, WHICH WOULD HARM OUR BUSINESS AND
REPUTATION AND RESULT IN THE LOSS OF CUSTOMERS.

Our ability to provide reliable service largely depends on the efficient and
uninterrupted operations of our computer and telecommunications network systems
and our data centers. Any significant interruptions could severely harm our
business and reputation and result in a loss of revenue and customers. Our
systems and operations could be exposed to damage or interruption from fire,
natural disaster, unlawful acts, power loss, telecommunications failure,
unauthorized entry and computer viruses. Although we have taken steps to
prevent system failures, we cannot be certain that our measures will be
successful and that

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we will not experience service interruptions. Further, our property and
business interruption insurance may not be adequate to compensate us for all
losses or failures that may occur.

LEGISLATION RELATING TO CONSUMER PRIVACY PROTECTION COULD HARM OUR ABILITY TO
COLLECT AND USE DATA, INCREASE OUR OPERATING COSTS OR OTHERWISE HARM OUR
BUSINESS.

Existing and new laws and regulations relating to consumer privacy protection
could harm our ability to collect and use consumer data, increase our operating
costs or otherwise harm our business. We collect personal data about consumers
for use in our decision support and risk management products. Due to the
increasing public concern over consumer privacy rights, Congress and state
legislatures have adopted and are considering adopting laws and regulations
restricting the purchase, sale and sharing of personal information about
consumers. For example, some states have restricted the sale of motor vehicle
records, including drivers license lists, and some states refuse to disclose
this information at all.

The federal financial modernization law, known as the Gramm-Leach-Bliley Act,
imposes significant new consumer information privacy requirements on any entity
engaged in the business of providing financial services, including entities
that provide services to financial institutions. Federal agencies, such as the
Comptroller of the Currency and the Federal Trade Commission, have issued
regulations to implement these requirements. The Act requires covered companies
to develop and implement policies to protect the security and confidentiality
of consumers nonpublic personal information and to disclose those policies to
consumers before a customer relationship is established and annually
thereafter. In addition, the Act requires covered companies to give an opt-out
notice to consumers before sharing consumer information with third parties. The
opt-out notice requirement in the Act is subject to several exceptions for
credit reporting and fraud prevention purposes. Although we believe these
exceptions apply to our business, government agencies could interpret their
regulations in a manner that could expand the scope of the Act in ways which
could adversely affect our business. In addition, even if the regulations do
not affect us directly, uncertainty over the scope of the regulations could
make financial institutions unwilling or reluctant to share consumer-related
information with us.

The Gramm-Leach-Bliley Act does not prohibit state legislation or regulations
that are more restrictive on our collection and use of data. More restrictive
legislation or regulations have been introduced in the past and could be
introduced in the future in Congress and the states. For example, in the past
legislation has been proposed which would require consumers to opt in to any
plan which would allow their nonpublic personal information to be disclosed. We
are unable to predict whether more restrictive legislation or regulations will
be adopted in the future. Any future legislation or regulations could have a
negative impact on our business.

IF THE SECURITY OF OUR DATABASES IS COMPROMISED, OUR REPUTATION COULD SUFFER
AND CUSTOMERS MAY NOT BE WILLING TO USE OUR PRODUCTS AND SERVICES.

If the security of our databases is compromised, our business could be
materially adversely affected. In our electronic payments business, we collect
personal consumer data, such as names and addresses, social security numbers,
drivers license numbers, checking and savings account numbers and payment
history records. Unauthorized access to our database could result in the theft
or publication of personal confidential information and the deletion or
modification of personal records or otherwise cause interruptions in our
operations. These concerns about security are increased when we transmit
information over the Internet. A security or privacy breach may:



| |  | deter customers from using our products and services;
|- |  | -----------------------------------------------------

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| |  | harm our reputation;                                                           
|- |  | -------------------------------------------------------------------------------
| 
| |  | expose us to liability;                                                        
| 
| |  | increase our operating expenses to remediate problems caused by the breach;
and
| 
| |  | decrease market acceptance of electronic commerce transactions in general.     

WE ARE DEPENDENT ON DELUXE FOR A SIGNIFICANT PORTION OF OUR REVENUE.

During the first six months of 2002, net sales to Deluxe represented 9.1% of
our total revenues before reimbursed expenses. On a year-over-year basis,
however, total revenues from Deluxe declined by 13.6% to $22.9 million during
the first six months of 2002 from $26.5 million during the comparable period in
2001. Although Deluxe has established minimum spending targets of $43 million
per year through March 31, 2005 for software development and maintenance
services it obtains from us, we currently expect that it will purchase
approximately $41 million of software development and maintenance services from
us in 2002. Further efforts at expense reduction 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.

WE MAY EXPERIENCE SOFTWARE DEFECTS, DEVELOPMENT DELAYS AND INSTALLATION
DIFFICULTIES, WHICH WOULD HARM OUR BUSINESS AND REPUTATION AND EXPOSE US TO
POTENTIAL LIABILITY.

Our services and products are based on sophisticated software and computing
systems and we often encounter delays when developing new products and
services. Further, the software underlying our products and services has
occasionally contained and may in the future contain undetected errors or
defects when first introduced or when new versions are released. In addition,
we may experience difficulties in installing or integrating our products and
technologies on platforms used by our customers or in new environments, such as
the Internet. Defects in our software products, errors or delays in the
processing of electronic transactions or other difficulties could result in:



| |  | delay in market acceptance;                
|- |  | -------------------------------------------
| 
| |  | additional development costs;              
| 
| |  | diversion of technical and other resources;
| 
| |  | loss of customers;                         
| 
| |  | negative publicity; or                     
| 
| |  | exposure to liability claims.              

Although we attempt to limit our potential liability for warranty claims
through disclaimers and limitation-of-liability provisions in our license and
client agreements, we cannot be certain that these measures will be successful
in limiting our liability.

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THERE ARE A NUMBER OF RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES AND
OPERATIONS THAT COULD HARM OUR BUSINESS.

Because we currently sell some of our products and services in Europe,
Australia and South and Latin America, our business is subject to risks
associated with doing business internationally. Also, we may not be successful
in selling our services outside of the United States. In the first six months
of 2002, we generated approximately 8.9% of our net sales outside of the United
States. Our future results could be harmed by a variety of factors, including:



| |  | changes in foreign currency exchange rates;                                                                     
|- |  | ----------------------------------------------------------------------------------------------------------------
| 
| |  | changes in a specific countrys or regions political and economic
conditions, particularly in emerging markets;
| 
| |  | potentially unfavorable tax rules;                                                                              
| 
| |  | tariffs, duties and other trade barriers;                                                                       
| 
| |  | reduced protection for intellectual property rights;                                                            
| 
| |  | challenges in managing widespread operations;                                                                   
| 
| |  | changes in foreign laws and regulatory requirements or in foreign policy;
and                                   
| 
| |  | varying business practices in foreign countries.                                                                

CHANGES IN INDIAN TAX LAWS COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.

Our Indian software development and business process management operations
qualify for tax incentives associated with businesses which operate within
designated geographic locations. These incentives generally provide us with
exemptions from Indian tax on certain business income generated from these
operations and phase out through March 2009. We cannot assure you that these
tax benefits will be continued in the future at their current levels or at all.
For example, the Indian tax laws were changed, effective April 1, 2002 through
March 31, 2003, to subject 10% of our previously tax exempt income to a 35%
tax. If our Indian tax benefits are further reduced or eliminated, our taxes
in future periods would increase. Such an increase could reduce our profits.

OUR GOVERNMENT SERVICES BUSINESS HAS HISTORICALLY NOT BEEN PROFITABLE AND
DELUXES INDEMNIFICATION MAY NOT BE ADEQUATE.

In 2000, 1999 and 1998 we incurred loss contract charges that represent
probable future losses from unprofitable long-term service contracts and the
write-off of assets associated with our government services business. The
losses on the long-term service contracts result from the revenues from the
contracts being lower than expected and the expenses to service the contracts
being higher than anticipated. The assets associated with the government
services business were written off because this business has a negative overall
cash flow and its assets have no resale value.

Deluxe has agreed to indemnify us for future losses arising from any litigation
based on the conduct of the business prior to our initial public offering in
June 2000 and future losses on identified loss contracts in excess of estimates
underlying our $29.2 million loss contract reserves as of April 30, 2000. This

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indemnification obligation does not apply to losses contemplated by the
existing reserve and is subject to a $14.6 million limit. In addition, Deluxes
indemnification does not apply to any contract that was not in a loss position
as of April 30, 2000 and so if any of these profitable contracts were to become
unprofitable, no indemnification would be available. Our loss contract reserves
are based on estimates of the future performance of identified contracts, and
the estimated results may not be realized. As a result, we may incur losses
beyond our current reserves and Deluxes indemnification. For example, a
reduction in the number of welfare recipients below our current expectations
could increase our projected future losses. These excess losses would be
recognized in future periods and decrease our earnings for those future
periods.

WE FACE TERMINATION AND COMPLIANCE RISKS WITH RESPECT TO OUR GOVERNMENT
CONTRACTS.

All of our government contracts can be terminated at any time, without cause,
by the contracting governmental entity. We realized 9.7% of our net sales in
the first six months of 2002 pursuant to contracts of this type. If a
government contract is so terminated, we are generally entitled only to receive
compensation for the services provided or costs incurred at the time of
termination and a reasonable profit on the contract work performed prior to the
date of termination. In addition, all of our government contracts require us to
comply with various contract provisions and procurement regulations, and in
some cases, accounting requirements. Violations of some of these provisions
could, if not cured, result in termination of the contract and fines.

There may be a decline in the revenues of the government services segment as
existing contracts expire. Our Medicaid eligibility verification contract with
the state of New York has been extended through mid-November 2002. The
approximate annual revenue from this contract is $11.9 million. New York has
the option to further extend this contract, but there can be no assurance that
New York will exercise any of its additional extension options. If it does
not, the revenues we derive from our government services business will be
reduced.

We have been informed that Citibank has been awarded the EBT contract for the
Western States EBT Alliance (Arizona, Alaska, Colorado, Guam, Hawaii, Idaho and
Washington). We currently act as a subcontractor to Citibank for this alliance
and this relationship generated approximately $4.8 million in revenues
(excluding revenues derived from reimbursed expenses) in 2001. We expect that,
as a result of Citibank being awarded this EBT contract, our role as a
subcontractor will be discontinued. We do not presently anticipate that this
transition will have a material impact on our business in 2002 or 2003 as our
significant contracts for this coalition will not begin to roll-off until 2004.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

Despite our efforts to protect our intellectual property rights, third parties
may infringe or misappropriate our intellectual property rights, or otherwise
independently develop substantially equivalent products and services. The loss
of intellectual property protection or the inability to secure or enforce
intellectual property protection could harm our business and ability to
compete. We rely on a combination of trademark and copyright laws, trade secret
protection and confidentiality and license agreements to protect our
trademarks, software and know-how. We have also applied for patent protection
on some of the features of our newer products. We may be required to spend
significant resources to protect our trade secrets and monitor and police our
intellectual property rights.

Third parties may assert infringement claims against us in the future. In
particular, there has been a substantial increase in the issuance of business
process patents, which may have broad commercial implications. Claims for
infringement of all types of patents are becoming an increasing source of

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litigation. If we become subject to an infringement claim, we may be required
to modify our products, services and technologies or obtain a license to permit
our continued use of those rights. We may not be able to do either of these
things in a timely manner or upon reasonable terms and conditions. Failure to
do so could seriously harm our business and operating results. In addition,
future litigation relating to infringement claims could result in substantial
costs to us and a diversion of management resources. Adverse determinations in
any litigation or proceeding could also subject us to significant liabilities
and could prevent us from using some of our products, services or technologies.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT A
CHANGE IN CONTROL.

Provisions of our certificate of incorporation and bylaws and Delaware law may
delay or prevent a change in control of our Company that you may consider
favorable. These provisions include the following:



| |  | no cumulative voting by stockholders for directors;                                                                                                                                                                             
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a classified board of directors with three-year staggered terms;                                                                                                                                                                
| 
| |  | the ability of our board to set the size of the board of directors, to
create new directorships and to fill vacancies;                                                                                                          
| 
| |  | the ability of our board to issue preferred stock, without stockholder
approval, with rights and preferences that may be superior to our common stock;                                                                          
| 
| |  | the ability of our board to amend the bylaws;                                                                                                                                                                                   
| 
| |  | a prohibition of stockholder action by written consent;                                                                                                                                                                         
| 
| |  | advance notice requirements for stockholder proposals and for nominating
candidates to our board;                                                                                                                               
| 
| |  | restrictions under Delaware law on mergers and other business combinations
between us and any holder of 15% or more of our outstanding common stock;                                                                            
| 
| |  | a requirement that 66-2/3% of our stockholders and 66-2/3% of our directors
approve certain corporate transactions, including mergers and consolidations,
sales of assets or amendments to our certificate of incorporation; and
| 
| |  | we have adopted a stockholder rights plan, which discourages the
unauthorized acquisition of 15% or more of our common stock or an unauthorized
exchange or tender offer.                                                       

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are filed as part of this report:

|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|----------- | ---- | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | --------------
|Exhibit No. |      | Description |                                                                                                                                                                                                                                                                                     | Method of Filing
|            |      |             |                                                                                                                                                                                                                                                                                     |                 
|            | 2.2  |             | Stock Purchase Agreement, effective as of May 1, 2002, by
and between Access Cash International L.L.C. (ACI) and Mohammed
Youssefi.                                                                                                                                               |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 2.3  |             | Stock Purchase Agreement, effective as of June 1, 2002, by
and between ACI and Daniel J. Pina                                                                                                                                                                                       |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 3.1  |             | Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (the S-1) filed by the
Company with the Securities and Exchange Commission (the
Commission) on April 4, 2000, Registration No.
333-33992) |                  | *             
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 3.2  |             | Bylaws (incorporated by reference to Exhibit 3.2 to the S-1)                                                                                                                                                                                                                        |                  | *             
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 4.1  |             | Form of common stock certificate (incorporated by reference
to Exhibit 4.1 to Amendment No. 1 to the S-1 filed by the
Company with the Commission on May 15, 2000 (Amendment No.
1), Registration No. 333-33992)                                                                  |                  | *             
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 4.2  |             | Form of Rights Agreement by and between the Company and
Rights Agent, (incorporated by reference to Exhibit 4.2 to
Amendment No. 1)                                                                                                                                                 |                  | *             
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 4.3  |             | Certificate of Designation of Series A Participating
Preferred Stock (incorporated by reference to Exhibit 4.3
to the Companys Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)                                                                                  |                  | *             
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.2 |             | Change in Control Agreement, dated as of June 3, 2002, by
and between the Company and Michael A. Spilsbury                                                                                                                                                                          |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.3 |             | Employment Offer Letter, dated as of May 14, 2002, by and
between the Company and Michael A. Spilsbury                                                                                                                                                                              |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.4 |             | Executive Transition Assistance Agreement, dated as of June
3, 2002, by and between the Company and Michael A.
Spilsbury                                                                                                                                                            |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.5 |             | Consulting Agreement, dated as of June 20, 2002, by and between the
Company and Thomas S. Liston                                                                                                                                                                                    |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.6 |             | Mutual Release, dated as of May 31, 2002, by and between
the Company and Dr. Nikhil Sinha                                                                                                                                                                                           |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.7 |             | Executive Retention Agreement, dated as of June 17, 2002,
by and between the Company and Jerry K. Lester                                                                                                                                                                            |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 10.8 |             | Mutual Release, dated as of June 28, 2002, by and between
the Company and Paul H. Bristow                                                                                                                                                                                           |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 99.1 |             | Written Statement pursuant to 18 U.S.C. Section 1350, dated
August 14, 2002, by John A. Blanchard III                                                                                                                                                                               |                  | Filed herewith
|           
|           
|           
|           
|            |      |             |                                                                                                                                                                                                                                                                                     |                  |               
|           
|           
|           
|           
|            | 99.2 |             | Written Statement pursuant to 18 U.S.C. Section 1350, dated
August 14, 2002, by Thomas S. Liston                                                                                                                                                                                    |                  | Filed herewith



---

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



|(a) |  | Reports on Form 8-K                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company filed a report on Form 8-K on May 15, 2002. An exhibit to this
report contained the following financial statements:



| |  |  | eFunds Corporation Unaudited Consolidated Quarterly Statement of
Operations Information (2001 Results Adjusted for Segment
Reclassification) for the following reporting periods (the Reporting
Periods): the Quarters ended March 31, June 30, September 30 and
December 31, 2001, the Year ended December 31, 2001 and the Quarter ended
March 31, 2002;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | eFunds Corporation Unaudited Consolidated Statement of Operations
Information (2001 Results Reclassified to Reflect EITF No. 01-14) for
the Reporting Periods; and  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | eFunds Corporation Unaudited Consolidated Statement of Operations
Information (2001 Results adjusted for Reclassified Operating
Expenses) for the Reporting Periods.

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##### Table of Contents






SIGNATURES

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

|                      |  |                                                                                        
|--------------------- |  | ---------------------------------------------------------------------------------------
|                      |  | eFunds Corporation
(Registrant)                                                        
|                     
|                     
|                     
|                     
|                      |  |                                                                                        
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | /s/ J. A. Blanchard III                                                                
|                      |  |                                                                                        
|                      |  | J. A. Blanchard III,
Chief Executive Officer and Chairman
(Principal Executive Officer)
|                     
|                     
|                     
|                     
|                      |  |                                                                                        
|                     
|                     
|                     
|                     
|Date: August 14, 2002 |  | /s/ Thomas S. Liston                                                                   
|                      |  |                                                                                        
|                      |  | Thomas S. Liston
Interim Chief Financial Officer
(Principal Financial Officer)         

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##### Table of Contents



Index to Exhibits

|            |      |             |                                                                                                                                      |             |  |  | 
|----------- | ---- | ----------- | ------------------------------------------------------------------------------------------------------------------------------------ | ----------- |  |  | 
|Exhibit No. |      | Description |                                                                                                                                      | Page Number
|            |      |             |                                                                                                                                      |            
|            | 2.2  |             | Stock Purchase Agreement, effective as of May 1, 2002, by and between Access Cash
International L.L.C. (ACI) and Mohamed Youssefi.
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 2.3  |             | Stock Purchase Agreement, effective as of
June 1, 2002, by and between ACI and Daniel
J. Pina                                       
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.2 |             | Change in Control Agreement, dated as of June
3, 2002, by and between the Company and
Michael A. Spilsbury                          
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.3 |             | Employment Offer Letter, dated as of May 14,
2002, by and between the Company and Michael
A. Spilsbury                              
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.4 |             | Executive Transition Assistance Agreement,
dated as of June 3, 2002, by and between the
Company and Michael A. Spilsbury            
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.5 |             | Consulting Agreement, dated as of June 20, 2002, by and
between the Company and Thomas S. Liston                                    
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.6 |             | Mutual Release, dated as of May 31, 2002, by
and between the Company and Dr. Nikhil Sinha                                           
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.7 |             | Executive Retention Agreement, dated as of
June 17, 2002, by and between the Company and
Jerry K. Lester                            
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 10.8 |             | Mutual Release, dated as of June 28, 2002, by
and between the Company and Paul H. Bristow                                           
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 99.1 |             | Written Statement pursuant to 18 U.S.C.
Section 1350, dated August 14, 2002, by John
A. Blanchard III                               
|           
|           
|           
|           
|            |      |             |                                                                                                                                     
|           
|           
|           
|           
|            | 99.2 |             | Written Statement pursuant to 18 U.S.C.
Section 1350, dated August 14, 2002, by
Thomas S. Liston                                    

38