##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    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 1-31951
 eFunds Corporation
  Delaware
    
    39-1506286(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)Gainey Center II8501 N. Scottsdale Road, Suite 300Scottsdale, Arizona
    
    85253(Address of principal executive offices)
    
    (Zip Code)
  þ o
 þ o o
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 1A. RISK FACTORSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITSSIGNATURESIndex to ExhibitsEX-10.1EX-10.2EX-10.3EX-10.4EX-10.5Ex-31.1Ex-31.2Ex-32.1    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 March 31,
    
    
    December 31,(dollars in thousands)
    
    2006
    
    
    2005(revised)Current assets:Cash and cash equivalents
    
    $
    89,072
    
    
    $
    85,987Restricted cash
    
    
    27,068
    
    
    
    28,183Settlement assets
    
    
    10,921
    
    
    
    28,438Accounts receivable  net
    
    
    89,732
    
    
    
    96,115Deferred income taxes
    
    
    18,435
    
    
    
    27,422Prepaid expenses and other current assets
    
    
    22,964
    
    
    
    18,341Total current assets
    
    
    258,192
    
    
    
    284,486Property and equipment  net
    
    
    62,057
    
    
    
    63,721Intangible assets  net
    
    
    408,001
    
    
    
    398,337Other non-current assets
    
    
    18,344
    
    
    
    17,638Total non-current assets
    
    
    488,402
    
    
    
    479,696Total assets
    
    $
    746,594
    
    
    $
    764,182Current liabilities:Accounts payable
    
    $
    21,260
    
    
    $
    23,902Settlement liabilities
    
    
    11,293
    
    
    
    28,519Accrued liabilities
    
    
    26,562
    
    
    
    56,011Acquisition
holdbacks and earn-outs
    
    
    30,083
    
    
    
    25,052Deferred revenue and gains
    
    
    26,555
    
    
    
    23,978Long-term debt due within one year
    
    
    4,935
    
    
    
    5,030Total current liabilities
    
    
    120,688
    
    
    
    162,492Long-term deferred gains
    
    
    25,247
    
    
    
    27,637Long-term debt
    
    
    106,055
    
    
    
    106,973Other long-term liabilities
    
    
    22,142
    
    
    
    15,481Total liabilities
    
    
    274,132
    
    
    
    312,583Commitments and contingencies (Notes 6, 10 & 11)Stockholders equity:Preferred stock $.01 par value; 100,000,000 shares authorized; no shares
issued and outstanding
    
    
    
    
    
    
    Common stock $.01 par value (250,000,000 shares authorized; 51,057,800
shares issued and 46,466,557 shares outstanding March 31, 2006 and
50,529,045 shares issued and 45,937,802 shares outstanding at December
31, 2005)
    
    
    511
    
    
    
    505Additional paid-in capital
    
    
    508,649
    
    
    
    498,939Treasury stock at cost (4,591,243 shares)
    
    
    (100,000
    )
    
    
    (100,000
    )Retained earnings
    
    
    61,804
    
    
    
    51,144Accumulated other comprehensive income
    
    
    1,498
    
    
    
    1,011Stockholders equity
    
    
    472,462
    
    
    
    451,599Total liabilities and stockholders equity
    
    $
    746,594
    
    
    $
    764,182
  1




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##### Table of Contents



EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2006
    
    
    2005(revised)Net revenue
    
    $
    139,738
    
    
    $
    114,238Operating expenses:Processing, communication and service costs
    
    
    35,293
    
    
    
    28,903Employee costs
    
    
    59,078
    
    
    
    51,012Depreciation and amortization
    
    
    11,778
    
    
    
    8,147Other operating costs
    
    
    18,420
    
    
    
    11,153Total operating expenses
    
    
    124,569
    
    
    
    99,215Income from operations
    
    
    15,169
    
    
    
    15,023Interest expense
    
    
    (1,576
    )
    
    
    (121
    )Other income  net
    
    
    807
    
    
    
    1,596Income before income taxes
    
    
    14,400
    
    
    
    16,498Provision for income taxes
    
    
    (3,740
    )
    
    
    (4,608
    )Net income
    
    $
    10,660
    
    
    $
    11,890Weighted average shares outstanding
    
    
    46,145
    
    
    
    49,302Weighted average shares and potential dilutive shares outstanding
    
    
    47,026
    
    
    
    50,964Net income per share  basic
    
    $
    0.23
    
    
    $
    0.24Net income per share  diluted
    
    $
    0.23
    
    
    $
    0.23
  2




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##### Table of Contents



EFUNDS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months EndedMarch 31,(in thousands)
    
    2006
    
    
    2005(revised)Cash flows from operating activities:Net income
    
    $
    10,660
    
    
    $
    11,890Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation
    
    
    4,380
    
    
    
    3,576Amortization
    
    
    7,398
    
    
    
    4,571Stock-based compensation
    
    
    2,594
    
    
    
    2,194Excess tax benefits from share-based compensation
    
    
    (912
    )
    
    
    (538
    )Deferred income taxes
    
    
    10,828
    
    
    
    4,722Other  net
    
    
    28
    
    
    
    79Changes in assets and liabilities, net of effects
from acquisitions and dispositions:Restricted cash
    
    
    (240
    )
    
    
    73Accounts receivable
    
    
    6,082
    
    
    
    1,111Accounts payable
    
    
    (2,885
    )
    
    
    (3,877
    )Deferred revenue and gains
    
    
    138
    
    
    
    5,115Income taxes receivable/payable
    
    
    (17,096
    )
    
    
    (34,274
    )Other assets and liabilities
    
    
    (17,156
    )
    
    
    (14,697
    )Net cash provided by (used in) operating activities
    
    
    3,819
    
    
    
    (20,055
    )Cash flows from investing activities:Capital expenditures
    
    
    (8,481
    )
    
    
    (6,653
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    (18,863
    )Proceeds from dispositions
    
    
    2,000
    
    
    
    Purchase of short-term investments
    
    
    
    
    
    
    (22,100
    )Proceeds from sale of short-term investments
    
    
    
    
    
    
    7,880Other  net
    
    
    (815
    )
    
    
    (236
    )Net cash used in investing activities
    
    
    (7,296
    )
    
    
    (39,972
    )Cash flows from financing activities:Purchase of common stock
    
    
    
    
    
    
    (18,965
    )Issuance of common stock
    
    
    6,637
    
    
    
    4,842Excess tax benefits from share-based compensation
    
    
    912
    
    
    
    538Payments on long-term debt
    
    
    (1,010
    )
    
    
    (424
    )Other
    
    
    23
    
    
    
    Net cash provided by (used in) financing activities
    
    
    6,562
    
    
    
    (14,009
    )Net increase (decrease) in cash and cash equivalents
    
    
    3,085
    
    
    
    (74,036
    )Cash and cash equivalents at beginning of period
    
    
    85,987
    
    
    
    274,477Cash and cash equivalents at end of period
    
    $
    89,072
    
    
    $
    200,441Supplemental disclosures:Cash paid for income taxes
    
    $
    9,947
    
    
    $
    32,640Cash paid for interest
    
    $
    2,828
    
    
    $
    128Noncash investing and financing activities:Purchase of common stock
    
    $
    
    
    
    $
    24,788Purchase of assets under capital lease obligations
    
    $
    20
    
    
    $
    424
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EFUNDS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
    
    
    Electronic Payments
    
    Risk Management
    
    Global Outsourcing
   Share Based Payments
  Stock incentive plans
   4




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Deluxe Option Conversion Plan
  Employee stock purchase plan
  Adoption of SFAS No. 123R
 Share Based Payments Accounting for Stock-Based Compensation Accounting for Stock
Issued to Employees.
   5




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December 31, 2005(in thousands)
    
    
    
    
    
    Share-basedSelected Balance Sheet Data:
    
    As Reported
    
    
    Compensation
    
    
    As RevisedLong-term deferred income tax liability
    
    $
    10,521
    
    
    $
    (5,805
    )
    
    $
    4,716Additional paid-in capital
    
    
    465,304
    
    
    
    33,635
    
    
    
    498,939Retained earnings
    
    
    78,974
    
    
    
    (27,830
    )
    
    
    51,144
 Three Months Ended March 31, 2005(in thousands, except per share data)
    
    
    
    
    
    Share-basedSelected Income Statement Data:
    
    As Reported
    
    
    Compensation
    
    
    As RevisedNet income
    
    $
    13,164
    
    
    $
    (1,274
    )
    
    $
    11,890Basic earnings per share
    
    
    0.27
    
    
    
    (0.03
    )
    
    
    0.24Diluted earnings per share
    
    
    0.26
    
    
    
    (0.03
    )
    
    
    0.23
 Three Months Ended March 31, 2005(in thousands)
    
    
    
    
    
    Share-basedSelected Business Segment Operating Income Data:
    
    As Reported
    
    

Compensation
(Pre-tax)
    
    
    As RevisedIncome (loss) from operations:Electronic payments
    
    $
    2,912
    
    
    $
    (407
    )
    
    $
    2,505Risk management
    
    
    12,892
    
    
    
    (367
    )
    
    
    12,525Global outsourcing
    
    
    5,893
    
    
    
    (405
    )
    
    
    5,488Corporate
    
    
    (4,906
    )
    
    
    (589
    )
    
    
    (5,495
    )Income from operations
    
    $
    16,791
    
    
    
    (1,768
    )
    
    $
    15,023
  Three Months EndedMarch 31,2006
    
    
    2005Expected volatility
    
    
    35.0
    %
    
    
    33.2
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    4.2
    %Expected term1
    
    5 years
    
    7 years
 
 1
    
    The expected term assumption represents the estimated term of the options from grant date. For the three month
periods ended March 31, 2006 and 2005, the expected life of the options from vest date would be approximately 3
years and 5 years, respectively.   Wtd. Avg.ExerciseShares
    
    
    PriceOptions
outstanding at January 1, 2006
    
    
    3,828,498
    
    
    $
    15.53Options granted
    
    
    891,816
    
    
    
    24.64Options exercised
    
    
    (426,759
    )
    
    
    13.27Options forfeited and cancelled
    
    
    (110,189
    )
    
    
    19.31Options outstanding at March 31, 2006
    
    
    4,183,366
    
    
    
    17.61Options exercisable
    
    
    1,957,827
    
    
    
    13.44
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Ranges of
    
    Options
    
    Wtd. Avg.
    
    Wtd. Avg.
    
    Options
    
    Wtd. Avg.Exercise Prices
    
    Outstanding
    
    Remaining Life
    
    Exercise Price
    
    Exercisable
    
    Exercise Price$6.19-$12.87
    
    
    766,357
    
    
    
    6.4
    
    
    $
    8.95
    
    
    
    731,299
    
    
    $
    9.00$12.88-$13.78
    
    
    507,929
    
    
    
    3.6
    
    
    
    13.42
    
    
    
    500,639
    
    
    
    13.43$13.79-$23.95
    
    
    2,549,064
    
    
    
    8.7
    
    
    
    19.72
    
    
    
    725,889
    
    
    
    17.93$23.96-$27.00
    
    
    360,016
    
    
    
    9.9
    
    
    
    26.97
    
    
    
    
    
    
    
    4,183,366
    
    
    
    7.8
    
    
    
    17.61
    
    
    
    1,957,827
    
    
    
    13.44
  Wtd. Avg.Shares
    
    Grant Date Fair ValueNonvested at January 1, 2006
    
    
    291,609
    
    
    $
    19.18Granted
    
    
    
    
    
    
    Vested
    
    
    (74,302
    )
    
    
    18.78Cancelled
    
    
    (12,447
    )
    
    
    20.29Nonvested at March 31, 2006
    
    
    204,860
    
    
    
    19.26
  Recent accounting pronouncements
 No. 123R-3 Transition Election Relating to
Accounting for the Tax Effects of Share-Based Payment Awards
      Electronic
    
    
    Risk(in thousands)
    
    Payments
    
    
    Management
    
    
    Global Outsourcing
    
    
    Other
    
    
    TotalBalance as of December 31, 2005
    
    $
    189,760
    
    
    $
    33,762
    
    
    $
    33,201
    
    
    $
    10,462
    
    
    $
    267,185Goodwill acquired
    
    
    6,005
    
    
    
    3,323
    
    
    
    1,497
    
    
    
    
    
    
    
    10,825Balance as of March 31, 2006
    
    $
    195,765
    
    
    $
    37,085
    
    
    $
    34,698
    
    
    $
    10,462
    
    
    $
    278,010
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##### Table of Contents



Wtd. Avg.
    
    
    March 31, 2006
    
    
    December 31, 2005Amort. Period
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Gross Carrying
    
    
    Accumulated(dollars in thousands)
    
    In Years
    
    
    Amounts
    
    
    Amortization
    
    
    Net
    
    
    Amounts
    
    
    Amortization
    
    
    NetSoftware-internal use
    
    
    4
    
    
    $
    119,488
    
    
    $
    (81,405
    )
    
    $
    38,083
    
    
    $
    116,351
    
    
    $
    (78,944
    )
    
    $
    37,407Software-licensing
and resale
    
    
    4
    
    
    
    66,213
    
    
    
    (46,388
    )
    
    
    19,825
    
    
    
    64,325
    
    
    
    (45,218
    )
    
    
    19,107Acquired contracts
and other
    
    
    8
    
    
    
    102,630
    
    
    
    (30,547
    )
    
    
    72,083
    
    
    
    102,757
    
    
    
    (28,119
    )
    
    
    74,638$
    288,331
    
    
    $
    (158,340
    )
    
    $
    129,991
    
    
    $
    283,433
    
    
    $
    (152,281
    )
    
    $
    131,152
   Restructuring charges
  Lease-RelatedSeverance
    
    
    Costs &(in thousands)
    
    Related
    
    
    Other
    
    
    TotalBalance at December 31, 2005
    
    $
    918
    
    
    $
    1,146
    
    
    $
    2,064Cash payments
    
    
    (150
    )
    
    
    (142
    )
    
    
    (292
    )Balance at March 31, 2006
    
    $
    768
    
    
    $
    1,004
    
    
    $
    1,772
 Acquisition exit activities
  Lease-RelatedSeverance
    
    
    Costs &(in thousands)
    
    Related
    
    
    Other
    
    
    TotalBalance at December 31, 2005
    
    $
    
    
    
    $
    2,444
    
    
    $
    2,444Severance accrual
    
    
    1,343
    
    
    
    3,641
    
    
    
    4,984Cash payments
    
    
    (85
    )
    
    
    (117
    )
    
    
    (202
    )Balance at March 31, 2006
    
    $
    1,258
    
    
    $
    5,968
    
    
    $
    7,226
   March 31,
    
    
    December 31,(in thousands)
    
    2006
    
    
    20055.39% Senior Notes due 2012
    
    $
    100,000
    
    
    $
    100,000Capital leases and other
    
    
    10,990
    
    
    
    12,003Less capital lease and other amounts due within one year
    
    
    (4,935
    )
    
    
    (5,030
    )Total
    
    $
    106,055
    
    
    $
    106,973
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##### Table of Contents



Three Months EndedMarch 31,(in thousands, except per share amounts)
    
    2006
    
    
    2005(revised)Net income per share  basicNet income
    
    $
    10,660
    
    
    $
    11,890Weighted average shares outstanding
    
    
    46,145
    
    
    
    49,302Net income per share  basic
    
    $
    0.23
    
    
    $
    0.24Net income per share  dilutedNet income
    
    $
    10,660
    
    
    $
    11,890Weighted average shares outstanding
    
    
    46,145
    
    
    
    49,302Dilutive impact of options
    
    
    881
    
    
    
    1,662Weighted average shares and potential dilutive shares outstanding
    
    
    47,026
    
    
    
    50,964Net income per share  diluted
    
    $
    0.23
    
    
    $
    0.23
  9




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Three Months Ended March 31,(in thousands)
    
    2006
    
    
    2005Net revenue:
    
    
    
    
    
    (revised)Electronic payments
    
    $
    77,069
    
    
    $
    50,771Risk management
    
    
    42,730
    
    
    
    37,606Global outsourcing
    
    
    19,939
    
    
    
    25,861Total net revenue
    
    
    139,738
    
    
    
    114,238Operating expenses before overhead:Electronic payments
    
    
    70,862
    
    
    
    44,415Risk management
    
    
    22,668
    
    
    
    22,353Global outsourcing
    
    
    16,841
    
    
    
    17,719Total operating expenses before overhead
    
    
    110,371
    
    
    
    84,487Allocated overhead:Electronic payments
    
    
    3,890
    
    
    
    3,851Risk management
    
    
    2,690
    
    
    
    2,728Global outsourcing
    
    
    2,256
    
    
    
    2,654Corporate
    
    
    5,362
    
    
    
    5,495Total allocated overhead
    
    
    14,198
    
    
    
    14,728Income (loss) from operations:Electronic payments
    
    
    2,317
    
    
    
    2,505Risk management
    
    
    17,372
    
    
    
    12,525Global outsourcing
    
    
    842
    
    
    
    5,488Corporate
    
    
    (5,362
    )
    
    
    (5,495
    )Income from operations
    
    $
    15,169
    
    
    $
    15,023
  10




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Three Months EndedMarch 31,(in thousands)
    
    2006
    
    
    2005Depreciation and amortization:Electronic payments
    
    $
    7,375
    
    
    $
    3,606Risk management
    
    
    2,374
    
    
    
    2,931Global outsourcing
    
    
    1,702
    
    
    
    1,303Corporate
    
    
    327
    
    
    
    307Total depreciation and amortization
    
    $
    11,778
    
    
    $
    8,147
  Three Months EndedMarch 31,(in thousands)
    
    2006
    
    
    2005United States
    
    $
    123,554
    
    
    $
    102,043EMEA
    
    
    9,804
    
    
    
    8,876India
    
    
    2,649
    
    
    
    767Canada
    
    
    2,802
    
    
    
    1,498Latin America
    
    
    793
    
    
    
    899Asia
    
    
    136
    
    
    
    155Total consolidated
    
    $
    139,738
    
    
    $
    114,238
  March 31,
    
    
    December 31,(in thousands)
    
    2006
    
    
    2005United States
    
    $
    45,241
    
    
    $
    46,706India
    
    
    15,526
    
    
    
    15,650Canada
    
    
    578
    
    
    
    581United Kingdom and other
    
    
    712
    
    
    
    784Total consolidated
    
    $
    62,057
    
    
    $
    63,721
  Contractual cash obligations
  Payments Due by December 31,(in thousands)
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLong-term debt
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000Capital lease obligations
    
    
    10,990
    
    
    
    4,011
    
    
    
    4,400
    
    
    
    2,455
    
    
    
    124
    
    
    
    
    
    
    
    Operating lease obligations1
    
    
    86,523
    
    
    
    11,365
    
    
    
    16,987
    
    
    
    13,880
    
    
    
    9,621
    
    
    
    7,348
    
    
    
    27,322Vendor obligations
    
    
    69,238
    
    
    
    21,716
    
    
    
    23,119
    
    
    
    14,907
    
    
    
    3,538
    
    
    
    3,405
    
    
    
    2,553Total
    
    $
    266,751
    
    
    $
    37,092
    
    
    $
    44,506
    
    
    $
    31,242
    
    
    $
    13,283
    
    
    $
    10,753
    
    
    $
    129,875
 
 1
    
    Future minimum lease payments for non-cancelable operating
leases are presented net of minimum sublease rentals of $2.5 million
due in the future under non-cancelable subleases.  11




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##### Table of Contents



Future commercial commitments
  Commitment Expiration by Period1(in thousands)
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLetters of credit and other
    
    $
    687
    
    
    $
    667
    
    
    $
    14
    
    
    $
    6
    
    
    $
    
    
    
    $
    
    
    
    $
    Performance bonds
    
    
    11,867
    
    
    
    1,362
    
    
    
    10,360
    
    
    
    130
    
    
    
    15
    
    
    
    
    
    
    
    Total commitments
    
    $
    12,554
    
    
    $
    2,029
    
    
    $
    10,374
    
    
    $
    136
    
    
    $
    15
    
    
    $
    
    
    
    $
    
 
 1
    
    Represents commercial commitment expirations during the last nine months of 2006 and
the respective years ending December 31, 2007 through 2010 and thereafter.  Acquisition Holdbacks
  Other commitments
    12




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##### Table of Contents



Other contingencies
         13




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    Our Business
    
    
    Electronic Payments;
    
    Risk Management; and
    
    Global Outsourcing.
  14




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##### Table of Contents



Electronic Payments
   Risk Management
  
    
    determine the likelihood and manage the investigation and risk of account fraud and
identity manipulation; and
    
    assess the overall risks involved in opening new accounts or accepting payment
transactions.
 ®
 Global Outsourcing
  15




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##### Table of Contents



Key Events During the Three Months Ended March 31, 2006
 
    
    We adopted Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payments(SFAS No. 123R), using the modified retrospective methodology.
    
    Negotiations to extend our contract with a significant BPO customer for whom we
performed inbound telemarketing services were discontinued. The wind-down of our
relationship with this customer is expected to be complete by the end of the second
quarter.
 Trends
  
    
    prepaid solution products are experiencing the highest growth rate of any payment card
product and this trend is expected to continue over the next several years, although we
expect to see some moderation in growth levels seen in this industry in future periods;
    
    increased fraud and regulatory requirements are driving sustained growth in the need for
risk management products;
    
    there continues to be a migration from the use of traditional paper checks and cash to
electronic payments;
    
    larger financial institutions are developing increasing expectations regarding the
ability of their payment technology providers to deliver complex, comprehensive solutions
addressing all forms of electronic payment types across multiple geographies; and
    
    there has been an increase in regulatory and legislative activity regarding notice
requirements associated with incidents involving the misappropriation of consumer data
causing participants in the financial service and other industries to devote additional
efforts to maintain the security of their data files.
 Risks and Challenges
  
    
    Changes in India tax laws or in the interpretation or enforcement of those laws could
adversely affect our results of operations.
    
    If the security of our databases is compromised, our reputation could suffer and
customers may not be willing to use our products and services.
    
    Estimates of future financial results are inherently unreliable.
    
    Our ability to expand through acquisitions involves risks and may not be successful.
    
    Consolidation in the industries we serve may adversely affect our ability to sell our products and services.
    
    We are unable to predict the results of the purported class action lawsuit filed in Florida.
    
    We may be unable to protect our intellectual property rights or others may claim that we
are infringing on their intellectual property.
    
    We face intense competition in all areas of our business, and if we do not compete
effectively, our business will be harmed.
    
    If we experience system failures, the products and services we provide to our customers
could be delayed or interrupted, which could harm our business and reputation and result in
the loss of customers.
    
    Legislation or regulation could impair our ability to collect and use data, increase our
operating costs or otherwise harm our business.
    
    We may experience software defects, development delays and installation difficulties,
which could harm our business and reputation and expose us to potential liability.
    
    There are a number of risks associated with our international sales and operations that
could harm our business.
    
    We face termination and compliance risks with respect to our government contracts.
 16




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##### Table of Contents




    
    Provisions in our charter documents and Delaware law may delay or prevent a change in
control of our Company that you may consider favorable.
   Three Months Ended March 311,(dollars in millions)
    
    2006
    
    
    2005
    
    
    % Change(revised)Net revenue
    
    $
    139.7
    
    
    $
    114.2
    
    
    
    22
    %Operating expenses:Processing, communication and service costs
    
    
    35.3
    
    
    
    28.9
    
    
    
    22Employee costs
    
    
    59.1
    
    
    
    51.0
    
    
    
    16Depreciation and amortization
    
    
    11.8
    
    
    
    8.1
    
    
    
    46Other operating costs
    
    
    18.4
    
    
    
    11.2
    
    
    
    64Total operating expenses
    
    
    124.6
    
    
    
    99.2
    
    
    
    26Income from operations
    
    
    15.2
    
    
    
    15.0
    
    
    
    1Interest expense
    
    
    (1.6
    )
    
    
    (0.1
    )
    
    
    *Other income  net
    
    
    0.8
    
    
    
    1.6
    
    
    
    (50
    )Income before income taxes
    
    
    14.4
    
    
    
    16.5
    
    
    
    (13
    )Provision for income taxes
    
    
    (3.7
    )
    
    
    (4.6
    )
    
    
    20Net income
    
    $
    10.7
    
    
    $
    11.9
    
    
    
    (10
    )
 
 *
    
    Represents an increase or decrease in excess of 100%.1
    
    Amounts may not sum due to rounding. Net Revenue
  Three Months Ended March 31,1(dollars in millions)
    
    2006
    
    
    2005
    
    
    % ChangeElectronic PaymentsEFT processing
    
    $
    36.3
    
    
    $
    29.1
    
    
    
    25
    %Prepaid solutions
    
    
    21.8
    
    
    
    
    
    
    
    *Government services (EBT)
    
    
    10.2
    
    
    
    13.3
    
    
    
    (23
    )Software sales
    
    
    8.8
    
    
    
    8.4
    
    
    
    577.1
    
    
    
    50.8
    
    
    
    52Risk ManagementFinancial institution products
    
    
    38.0
    
    
    
    32.7
    
    
    
    16Retail products
    
    
    4.7
    
    
    
    4.9
    
    
    
    (4
    )42.7
    
    
    
    37.6
    
    
    
    14Global OutsourcingBPO
    
    
    15.7
    
    
    
    16.6
    
    
    
    (5
    )IT services
    
    
    4.2
    
    
    
    9.3
    
    
    
    (55
    )19.9
    
    
    
    25.9
    
    
    
    (23
    )Total net revenue
    
    $
    139.7
    
    
    $
    114.2
    
    
    
    22
 
 *
    
    Represents an increase or decrease in excess of 100%.1
    
    Amounts may not sum due to rounding. Electronic Payments
  17




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##### Table of Contents



Risk Management
  Global Outsourcing
   Business Segment Operating Income
  Three Months Ended March 31,(dollars in millions)
    
    2006
    
    
    2005
    
    
    % Change(revised)Operating income (loss)Electronic payments
    
    $
    2.3
    
    
    $
    2.5
    
    
    
    (8
    )%Risk management
    
    
    17.4
    
    
    
    12.5
    
    
    
    39Global outsourcing
    
    
    0.8
    
    
    
    5.5
    
    
    
    (85
    )Corporate
    
    
    (5.4
    )
    
    
    (5.5
    )
    
    
    2Total
operating income1
    
    $
    15.2
    
    
    $
    15.0
    
    
    
    1
 
 1
    
    Amounts may not sum due to rounding. Electronic Payments
  18




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##### Table of Contents



Risk Management
  Global Outsourcing
  Corporate
  Operating Expenses
  Three Months Ended March 31,(dollars in millions)
    
    2006
    
    
    2005
    
    
    % Change(revised)Operating expenses:Processing, communication and service costs
    
    $
    35.3
    
    
    $
    28.9
    
    
    
    22
    %Employee costs
    
    
    59.1
    
    
    
    51.0
    
    
    
    16Depreciation and amortization
    
    
    11.8
    
    
    
    8.1
    
    
    
    46Other operating costs
    
    
    18.4
    
    
    
    11.2
    
    
    
    64Total operating expenses1
    
    $
    124.6
    
    
    $
    99.2
    
    
    
    26
 
 1
    
    Amounts may not sum due to rounding. Processing, communication and service costs
   Employee costs
  19




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##### Table of Contents



Depreciation and amortization
  Other operating costs
  Interest expense
  Other income  net
  Provision for income taxes
    Overview
  March 31,
    
    December 31,(dollars in millions)
    
    2006
    
    2005
    
    % Change(revised)Cash and cash equivalents
    
    $
    89.1
    
    
    $
    86.0
    
    
    
    4
    %Long-term debt due within one year
    
    
    4.9
    
    
    
    5.0
    
    
    
    (2
    )Long-term debt
    
    
    106.1
    
    
    
    107.0
    
    
    
    (1
    )Stockholders equity
    
    
    472.5
    
    
    
    451.6
    
    
    
    5Net working capital
    
    
    137.5
    
    
    
    122.0
    
    
    
    13
 Cash Resources
  20




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##### Table of Contents



Sources and Uses of Cash
  Summary of Cash
Flows1For the Three MonthsEnded March 31,(in millions)
    
    2006
    
    
    2005(revised)Cash provided by (used in) operating activities
    
    $
    3.8
    
    
    $
    (20.1
    )Cash used in investing activities
    
    
    (7.3
    )
    
    
    (40.0
    )Cash provided by (used in) financing activities
    
    
    6.6
    
    
    
    (14.0
    )Net increase (decrease) in cash and cash equivalents
    
    $
    3.1
    
    
    $
    (74.0
    )
 1
     Operating Activities
   Investing Activities
  Financing Activities
  21




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##### Table of Contents



Long-term Debt
    Contractual Obligations and Commitments
  Payments Due by Period2Nine months
    
    
    Three Years
    
    
    Three YearsEnded
    
    
    Ended
    
    
    EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(in millions)
    
    Total
    
    
    2006
    
    
    2009
    
    
    2012
    
    
    ThereafterLong-term debt
    
    $
    100.0
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    100.0Capital lease obligations
    
    
    11.0
    
    
    
    4.0
    
    
    
    7.0
    
    
    
    
    
    
    
    Operating lease
obligations1
    
    
    86.5
    
    
    
    11.3
    
    
    
    40.5
    
    
    
    19.9
    
    
    
    14.8Vendor obligations
    
    
    69.2
    
    
    
    21.7
    
    
    
    41.6
    
    
    
    5.9
    
    
    
    Total
    
    $
    266.8
    
    
    $
    37.1
    
    
    $
    89.0
    
    
    $
    25.8
    
    
    $
    114.8
 
 1
    
    Future minimum lease payments for non-cancelable operating
leases are presented net of minimum sublease rentals of $2.5 million
due in the future under non-cancelable subleases.2
    
    Amounts may not sum due to rounding.  22




---



##### Table of Contents



Commitment Expiration by Period1(in millions)
    
    Total
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    ThereafterLetters of credit and other
    
    $
    0.7
    
    
    $
    0.7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Performance bonds
    
    
    11.9
    
    
    
    1.4
    
    
    
    10.4
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    Total commitments
    
    $
    12.6
    
    
    $
    2.1
    
    
    $
    10.4
    
    
    $
    0.1
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 1
    
    Represents commercial commitment expirations during the last nine months of 2006 and
the respective years ending December 31, 2007 through 2010 and thereafter.    FORWARD-LOOKING STATEMENTS 
   
    
    An effective tax rate of approximately 35 percent for the balance of 2006;
    
    Cash outlays for capital expenditures and product development activities will be
somewhat higher than the $29.4 million seen in 2005.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  23




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
     24




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##### Table of Contents



ITEM 5. OTHER INFORMATION
 CAUTIONARY STATEMENTS.
  25




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##### Table of Contents



ITEM 6. EXHIBITS
  ExhibitNo.
    
    Description
    
    Method of filing3.1
    
    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 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)
    
    *10.1
    
    Schedule identifying Change in Control Agreements omitted
pursuant to Instruction 2 to Item 601 of Regulation S-K
    
    Filed herewith10.2
    
    eFunds Corporation Non-Employee Directors Deferred
Compensation Program (as amended February 17, 2006)
    
    Filed herewith10.3
    
    Release, dated February 22, 2006, by and between Michelle
J. Langstaff and the Company
    
    Filed herewith10.4
    
    Option Agreement, dated February 16, 2006, by and between
the Company and Paul F. Walsh
    
    Filed herewith10.5
    
    Amendment, dated March 2006, to that certain option
agreement, dated February 16, 2006, by and between the
Company and John B. (Jack) Benton
    
    Filed herewith31.1
    
    Section 302 Certification by Mr. Paul F. Walsh
    
    Filed herewith31.2
    
    Section 302 Certification by Mr. George W. Gresham
    
    Filed herewith32.1
    
    Section 906 Certification by Mr. Paul F. Walsh and Mr.
George W. Gresham
    
    Filed herewith
 
 *
    
    Incorporated by reference 26




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##### Table of Contents



SIGNATURES
  eFunds Corporation(Registrant)Date: May 9, 2006
    
    /s/ Paul F. Walsh

Paul F. WalshChief Executive Officer and Chairman(Principal Executive Officer)Date: May 9, 2006
    
    /s/ George W. Gresham

George W. GreshamChief Financial Officer(Principal Financial and Accounting Officer)
 27




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##### Table of Contents



Index to Exhibits
 ExhibitNo.
    
    Description
    
    Page Number10.1
    
    Schedule identifying Change in Control Agreements
omitted pursuant to Instruction 2 to Item 601 of
Regulation S-K10.2
    
    eFunds Corporation Non-Employee Directors
Deferred Compensation Program (as amended
February 17, 2006)10.3
    
    Release, dated February 22, 2006, by and between
Michelle J. Langstaff and the Company10.4
    
    Option Agreement, dated February 16, 2006, by and
between the Company and Paul F. Walsh10.5
    
    Amendment, dated March 2006, to that certain
option agreement, dated February 16, 2006, by and
between the Company and John B. (Jack) Benton31.1
    
    Section 302 Certification by Mr. Paul F. Walsh31.2
    
    Section 302 Certification by Mr. George W. Gresham32.1
    
    Section 906 Certification by Mr. Paul F. Walsh
and Mr. George W. Gresham
 28