TABLE OF CONTENTS




|                                        |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                      
|PART I                                 
|                                        | Item 1. Business                                                                             
|                                        | Item 2. Properties                                                                           
|                                        | Item 3. Legal Proceedings                                                                    
|                                        | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                
|                                        | Item 5. Market for the Registrants Common Equity and Related Shareholder Matters            
|                                        | Item 6. Selected Financial Data                                                              
|                                        | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                        | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                           
|                                        | Item 8. Financial Statements and Supplementary Data                                          
|                                        | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                               
|                                        | Item 10. Directors and Executive Officers of the Registrant                                  
|                                        | Item 11. Executive Compensation                                                              
|                                        | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                        | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                
|                                        | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES                             
|                                        | REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS                                            
|                                        | Consolidated Balance Sheets                                                                  
|PART IV ITEM 14: EXHIBIT INDEX         
|EX-21.1 Subsidiaries of the Company    
|EX-23.1 Consent of Independent Auditors
|EX-24.1 Power of Attorney              



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##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K

|                                             |  |                                                                                           |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | 
|[X]                                          |  | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
	OF THE SECURITIES EXCHANGE ACT OF 1934     |  | 
|For the fiscal year ended December 31,
	2001
|OR                                          
|[  ]                                         |  | 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 1-11905


NATIONAL PROCESSING, INC.

(Exact name of Registrant as specified in its
charter)


|                                                                                  |  |                                                  
|--------------------------------------------------------------------------------- |  | -------------------------------------------------
|Ohio
	(State or other jurisdiction
	of incorporation or organization)             |  | 61-1303983
	(I.R.S. Employer
	Identification No.)
|                                                                                 
|1231 Durrett Lane
	Louisville, Kentucky
	(Address of principal executive offices) |  | 40213-2008
	(Zip Code)                           

Registrants telephone number, including
area code: (502) 315-2000

SECURITIES REGISTERED PURSUANT TO SECTION
12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION
12(g) OF THE ACT:

National Processing, Inc. Common Stock, No Par
Value

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.
Yesü  No

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

The aggregate market value of the voting stock
held by non-affiliates of the Registrant as of January 31,
2002 was $221,416,453. The market value calculation was
determined using the closing sale price of the Registrants
common stock on January 31, 2002, as reported on the New
York Stock Exchange.

The number of shares outstanding of the
Registrants Common Stock as of January 31, 2002 was
51,836,506.

Documents Incorporated by Reference:

Portions of the Registrants Proxy
Statement (to be dated approximately March 6, 2002) are
incorporated by reference into Item 10, Directors and
Executive Officers of the Registrant; Item 11, Executive
Compensation; Item 12, Security Ownership of Certain
Beneficial Owners and Management; and Item 13, Certain
Relationships and Related Transactions, of Part III.



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##### Table of Contents






TABLE OF CONTENTS

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                        |  | Page
|         |  |                                                                                        |  |     
|Part I   |  |                                                                                        |  |     
|        
|Item 1.  |  | Business                                                                               |  |      | 3  | 
|        
|Item 2.  |  | Properties                                                                             |  |      | 7  | 
|        
|Item 3.  |  | Legal Proceedings                                                                      |  |      | 7  | 
|        
|Item 4.  |  | Submission of Matters to a Vote of Security
	Holders                                   |  |      | 7  | 
|PART II  |  |                                                                                        |  |     
|        
|Item 5.  |  | Market for Registrants Common Equity and
	Related Shareholder Matters                 |  |      | 8  | 
|        
|Item 6.  |  | Selected Financial Data                                                                |  |      | 9  | 
|        
|Item 7.  |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |      | 10 | 
|        
|Item 7A. |  | Quantitative and Qualitative Disclosure About
	Market Risk                             |  |      | 17 | 
|        
|Item 8.  |  | Financial Statements and Supplementary Data                                            |  |      | 17 | 
|        
|Item 9.  |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |      | 17 | 
|PART III |  |                                                                                        |  |     
|        
|Item 10. |  | Directors and Executive Officers of the Registrant                                     |  |      | 17 | 
|        
|Item 11. |  | Executive Compensation                                                                 |  |      | 18 | 
|        
|Item 12. |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |      | 18 | 
|        
|Item 13. |  | Certain Relationships and Related Transactions                                         |  |      | 18 | 
|PART IV  |  |                                                                                        |  |     
|        
|Item 14. |  | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K                       |  |      | 19 | 
|         |  | Signatures                                                                             |  |      | 20 | 

2



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PART I




Item 1.  Business

National Processing, Inc. (the
Company or Registrant), through its
wholly-owned operating subsidiaries, which are collectively
referred to as National Processing Company (NPC),
operates two business segments, Merchant Card Services and
Payment Services, which are focused on electronic payment
settlement services. In 2001, the Companys total dollar
volume settled was over $230 billion.

Merchant Card Services authorizes, processes, and
performs financial settlement and reporting of card
transactions, including credit, debit, stored value, and
electronic benefits transfer (EBT). Merchant Card
Services provides services to virtually every industry that
accepts cards for payment settlement and currently provides
services to over 600,000 merchant locations primarily in the
United States. Merchant Card Services represented 85% of the
Companys revenue in 2001.

Payment Services was formerly an operating unit
within the Companys Corporate Outsourcing Solutions
segment. This segment was renamed Payment Services in 2001 after
the sale of the Business Process Outsourcing (BPO)
unit. Payment Services provides financial settlement and
reporting solutions to large and mid-size corporate customers in
the travel service and healthcare industries. Payment Services
settles 100% of domestic airline tickets sold through travel
agencies in the United States. Payment Services also settles
commission payments for car rental companies, cruise line
operators, and hotels. Payment Services represented 6% of the
Companys revenue in 2001.

During 2001, the Company divested its BPO
business and exited its Denver collections business, which
collectively represented 9% of the Companys revenue in
2001.

The Company is an Ohio corporation that is 86%
owned by National City Corporation, a financial holding company
headquartered in Cleveland, Ohio (National City).
The Company maintains operations, employees, and contracts
substantially independent of National Citys other
operating subsidiaries. The Company and National City are
parties to agreements pursuant to which National City and its
subsidiaries provide the Company, and the Company provides
National City and its subsidiaries, certain administrative
support, operations, and processing services. The Company is
also a party to a tax-sharing agreement and a registration
rights agreement with National City.

See Segment Reporting, Note N to the Consolidated
Financial Statements, for additional financial disclosures of
the Companys operating segments and foreign operations.

Industry Overview

Merchant
Card Services

The merchant card processing industry provides
retailers and other merchants with card-based payment
authorization, capture, settlement and reporting, exception
processing, and other related services. The industry has enjoyed
significant growth over the last ten years due to wider merchant
acceptance of card-based payment products and increased consumer
usage of card-based payment services.

NPC provides a diversified product mix to meet a
wide range of customer needs, including:



| |   |                                                 
| | - | ------------------------------------------------
| |  | Processing of all credit card types             
|
| |  | Authorization and settlement accounting         
|
| |  | Merchant reporting                              
|
| |  | Chargeback prevention and handling              
|
| |  | Point of Sale (POS) hardware and software       
|
| |  | On-line and off-line debit card acquiring       
|
| |  | Electronic Benefits Transfer (EBT)              
|
| |  | Customized reporting formats and data management

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| |   |                     
| | - | --------------------
| |  | Call-center services
|
| |  | E-commerce solutions

NPC provides services to a wide array of
customers in virtually every industry, including retailers,
supermarkets, quick service and full service restaurants,
petroleum and convenience stores, airlines, hospitality, and
e-commerce. NPC is the second largest provider of merchant card
processing services in the United States. In 2001, NPC processed
3.5 billion transactions, including approximately one out
of every five Visa® and MasterCard ® transactions in
the United States. NPC currently services over 600,000 merchant
locations nationwide.

The merchant card processing market can generally
be divided into two markets: 1) national merchants and 2)
regional merchants, including smaller mom and pop
merchants. Since 1997, NPC has deployed a dual strategy focused
on growing both markets. On December 31, 1999, the Company
increased its market share of regional merchants by acquiring a
merchant contract portfolio from Heartland Payment Systems LLC.
The Company further expanded its market share of regional
merchants by acquiring the merchant services business units from
several National City banking subsidiaries on January 8,
2001 and a 70% ownership interest in ABN AMRO Merchant Services,
LLC (AAMS) on June 28, 2001. In 2001, 56% of
merchant card processing revenue was from regional merchants.

Merchant Card Services revenue was
$402.0 million, which represented 85% of the Companys
revenue in 2001. Total transaction volume increased by 24% to
3.5 billion in 2001. Total dollar settlement volume
increased by 23% to $156 billion in 2001.

Merchant Card Services uses various sales and
marketing channels for both its national and regional customers.
The Company employs approximately 300 commission only sales
representatives who focus on direct marketing channels. In
addition, the Company sells its services through approximately
650 third-party relationships such as independent sales offices
and community banks who, in most cases, represent NPC
exclusively.

The merchant card processing market is extremely
competitive, which results in pricing pressure and creates the
need for continuous improvement in technology both to satisfy
customer demands and to reduce operating costs. The increased
costs to meet merchant requirements for improved service and
satisfy the demand for additional technology-driven applications
combined with the scale-driven nature of the industry have made
it difficult for small-scale transaction processors to remain
competitive and has led to consolidation in the industry. NPC
competes in this industry by focusing on lowering the
merchants total cost of card acceptance, which
includes minimizing interchange and processing fees assessed by
third parties.

According to published industry sources, the six
largest card processors handle over 70% of the transaction and
dollar volume in the United States. The remaining market is
highly fragmented among smaller merchant service providers. As a
result, the transaction processing industry will likely continue
to undergo consolidation.

Payment
Services

Payment Services was formerly an operating unit
within the Companys Corporate Outsourcing Solutions
segment. This segment was renamed Payment Services in 2001 after
the sale of the BPO unit. Payment Services provides financial
settlement and reporting solutions to large and mid-size
corporate customers in the travel service and healthcare
industries. Payment Services revenue was $30.1 million,
which represented 6% of the Companys revenue in 2001.
Payment Services settled $75 billion of payments in 2001.

In the travel service industry, Payment Services
provides financial settlement and reporting to airlines, hotels,
travel agents, cruise lines, and car rental companies. Through
an exclusive long-term cost-plus contract with the
Airlines Reporting Corporation (ARC), Payment
Services provides payment settlement services for all airline
tickets sold by travel agents in the United States. In addition,
NPC provides an industry-wide global payment system for
consolidating and processing business-to-business commission
payments for

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virtually all United States based car rental
companies as well as for the hotel and cruise line industries.
During 2001, these services were performed in both the
Companys Mexican and United States locations.


In the healthcare industry, Payment Services uses
AcceleratedPaySM, a healthcare settlement solution,
to provide financial settlement and reporting to healthcare
organizations such as insurance companies, managed care
organizations, and self-insured organizations. These services
are performed in the Companys United States locations.

Competition for the Payment Services segment
varies based on the individual product lines. The Company
currently has an exclusive long-term contract with ARC to
provide payment settlement for all airline tickets sold by
travel agents in the United States. The other Payment Services
product lines experience competition in the marketplace. NPC
competes in this industry by focusing on price, quality, and
customer service.

Divested
Business Units and Related Charges

In 2001, the Company divested its BPO business
and exited its Denver collections business which were components
of the former Corporate Outsourcing Solutions segment. Revenue
from these divested businesses was $41.2 million, which
represented 9% of the Companys revenue in 2001. The sale
of the BPO business unit to Affiliated Computer Services
(ACS) was completed on August 29, 2001, for
$43.0 million in cash ($41.3 million after transaction
related expenses). The Company recorded charges of
$3.9 million ($4.6 million after-tax, or $0.09 per
diluted share) related to the BPO divestiture. These charges
consisted of a loss of $3.3 million ($4.2 million
after-tax, or $0.08 per diluted share) on the sale of the
business and a $0.6 million charge ($0.4 million after-tax,
or $0.01 per diluted share) for severance costs related to
fourth quarter organizational restructuring actions taken to
reduce support costs associated with the BPO unit.

In 2000, the Company recorded charges of
$8.6 million ($5.6 million after-tax, or $0.11 per
diluted share) related to these business units. These charges
consisted of $7.1 million ($4.6 million after-tax, or
$0.09 per diluted share) to write-off goodwill and fixed assets
for the Denver collections business and $1.5 million
($1.0 million after-tax, or $0.02 per diluted share) for
site consolidation initiatives in the BPO unit.

In 1999, the Company recorded charges of
$71.7 million ($71.7 million after-tax, or $1.42 per
diluted share) related to divested business units. These charges
consisted of $69.5 million ($69.9 million after-tax,
or $1.38 per diluted share) for impairment and associated
expenses related to the sale of the Freight, Payables,
Remittance, and Check Acceptance business lines and a
$2.2 million ($1.8 million after-tax, or $0.04 per
diluted share) restructuring charge related to the closure of a
BPO facility. The Freight, Payables, Remittance, and Check
Acceptance business lines were sold in the first half of 1999
for $62.6 million in cash.

Regulation

As a result of National Citys ownership in
the Company and as long as National City has a controlling
interest, the Company is subject to banking laws, regulations,
and orders (collectively, the Banking Laws). For
example, the Company is subject to the supervision and
examination by the Board of Governors of the Federal Reserve
System (FRB), one of the principal regulatory bodies
having jurisdiction over National City.

The FRB reviews acquisitions and new businesses
to be engaged in by the Company, and the FRBs written
approval is required for the Company to consummate an
acquisition. Pursuant to the Bank Holding Company Act, the
Company shall not engage in any activity, or own, control, or
have the power to vote more than 5% of any class of voting
security of any company engaged in any activity (i) for
which the Bank Holding Company Act requires a bank holding
company to receive prior approval from the FRB without such
approval having been obtained, or (ii) that would cause the
Company or any affiliate of the Company to violate any
regulation, administrative order, or court order made pursuant
to the Bank Holding Company Act. If at any time it is determined
that any activity conducted by the Company or any subsidiary
does not comply with the requirements of the Bank Holding
Company Act, the Company is required to take all reasonable
steps to cease such activity, or to divest any ownership or
control position. If National City is unable to obtain the

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necessary consent or approval for any business
activity substantially different from those business activities
the Company currently conducts, then the Company may not engage
in any of those new business activities or proceed with the
contemplated acquisition of a business that would engage in such
new activities. The Company does not believe, however, that
either the Banking Laws or the Bank Holding Company Act will
impede the manner in which the Company conducts its business or
its product and service offerings, although there can be no
assurance that the Banking Laws or Bank Holding Company Act will
not have such an effect.


The Company is also subject to various other
federal, state, local, and foreign laws, orders and regulations
applicable to the Companys operations in the jurisdictions
where it conducts business. Where applicable, regulators and
other persons are authorized to seek remedies against entities
such as the Company for violations of such laws.

Through National City Bank of Kentucky,
(NCBK), which serves as a member bank for the
Company, the Company is registered with VISA® and
MasterCard ® as a certified processor and member service
provider. As a result, the Company must adhere to the standards
of the VISA® and MasterCard ® credit card associations
or risk suspension or termination of its designation and/or
status. There can be no assurance that (i) VISA® and
MasterCard ® will maintain the Companys
registrations; (ii) the current VISA® and MasterCard
® rules allowing the Company and other non-bank transaction
processors to market and provide transaction processing services
will remain in effect; or (iii) VISA® and MasterCard ®
will continue to interpret their rules as they have done in the
past, which may have an impact on the Companys business
operations. NCBK is a wholly-owned subsidiary of National City.

Sponsorship Agreement

The Company and NCBK are parties to a sponsorship
agreement (the Sponsorship Agreement) whereby the
Company acts as NCBKs sole agent for the purposes of
providing electronic data authorization and capture, reporting,
settlement, and clearing services for merchants who participate
in Visa® and MasterCard ® programs. The Company, along
with other nonbank processors, must be sponsored by a financial
institution that is a member of the Visa® and MasterCard
® associations. NCBK, being a member of such associations,
acts as the Companys sole sponsor under the terms of the
Sponsorship agreement.

The Company retains full responsibility for
performance of Merchant Card Services, except for certain
obligations or responsibilities of NCBK pursuant to the
Sponsorship Agreement. The Sponsorship Agreement provides that
the Company will comply with (1) all Visa® and
MasterCard ® bylaws, manuals and operating regulations and
other written materials as they from time to time are amended
which bind or apply to NCBK as a member of Visa® and
MasterCard ® with respect to Merchant Card Services or to
the Company as a third party processor, (2) all agreements
between merchants and NCBK with respect to Merchant Card
Services, and (3) all applicable federal or state laws and
regulations. Under the Sponsorship Agreement, the Company will
receive all fees, discounts and other amounts payable by
merchants for Merchant Card Services and will bear the expenses
of maintaining facilities necessary to provide such services.
Certain indemnification provisions are also contained in the
Sponsorship Agreement, under which the Company will indemnify
NCBK against losses, claims or other amounts arising out of the
Companys failure to perform in accordance with the terms
of the Sponsorship Agreement due to negligence of the Company.

The Company mitigates its contingent liability
risk by instructing NCBK to withhold certain settlement funds
due to merchants based on contractual terms. As of
December 31, 2001, NCBK had $64.7 million of customer
deposits and withheld settlement funds.

Employees

As of December 31, 2001, the Company and its
subsidiaries had approximately 2,000 full-time and part-time
employees.

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Seasonality

The Company experiences seasonality in certain
businesses and typically realizes higher revenue in the third
and fourth calendar quarters and lower revenue in the first
calendar quarter, reflecting increased transaction volume in the
summer and holiday months. Accounts receivable is generally
highest in the fourth quarter as December is typically the
highest volume month due to holiday sales. As a result, cash
balances are typically lower in the fourth quarter.




Item 2.  Properties

The Company leases its main processing facility
in Louisville, Kentucky, consisting of approximately 224,000
square feet, from National City Bank of Kentucky. (See
Transactions with Affiliates, Note F to Consolidated Financial
Statements). The Companys lease for the Louisville
processing facility expires on February 28, 2019. The
Companys other U.S. facilities have varying lease
expiration terms and range in size from 2,000 square feet to
16,000 square feet. The Company also has 32 marketing and sales
offices, which have varying lease expiration terms and range in
size from 200 square feet to 2,600 square feet and are located
throughout the United States. The Company owns one processing
facility in Juarez, Mexico, consisting of 50,000 square feet.
All properties leased and owned by the Company are in good
repair and suitable condition for the purposes for which they
are used. The Company periodically reviews its overall facility
needs in order to add or delete capacity.




Item 3.  Legal
Proceedings

Various legal actions arising in the ordinary
course of business are pending against the Company. None of the
litigation pending against the Company, individually or
collectively, in the opinion of management, is expected to have
a material adverse effect on the Companys financial
condition, results of operations, or liquidity.




Item 4.  Submission of Matters
to a Vote of Security Holders

None.

7



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PART II




Item 5.  Market for the
Registrants Common Equity and Related Shareholder
Matters

The Companys common stock is traded on the
New York Stock Exchange under the symbol NAP. The quarterly high
and low trade price and the final days closing price of
the Companys common stock for each of the quarterly
periods in 2001 and 2000 were as follows:

|                             |  |      |        |     |  |       |        |  |  |   |        | 
|---------------------------- |  | ---- | ------ | --- |  | ----- | ------ |  |  | - | ------ | 
|                             |  | High |        | Low |  | Close
|                             |  |      |        |     |  |      
|Year Ended December 31, 2001 |  |      |        |     |  |       |        |  |  |   |        | 
|First Quarter                |  | $    | 19.510 |     |  | $     | 15.625 |  |  | $ | 18.590 | 
|Second Quarter               |  |      | 28.310 |     |  |       | 17.350 |  |  |   | 28.000 | 
|Third Quarter                |  |      | 35.750 |     |  |       | 20.810 |  |  |   | 28.000 | 
|Fourth Quarter               |  |      | 34.330 |     |  |       | 24.500 |  |  |   | 32.500 | 
|Year Ended December 31, 2000 |  |      |        |     |  |       |        |  |  |   |        | 
|First Quarter                |  | $    | 10.375 |     |  | $     | 7.125  |  |  | $ | 9.500  | 
|Second Quarter               |  |      | 12.500 |     |  |       | 9.250  |  |  |   | 12.500 | 
|Third Quarter                |  |      | 14.375 |     |  |       | 10.750 |  |  |   | 13.938 | 
|Fourth Quarter               |  |      | 20.875 |     |  |       | 13.313 |  |  |   | 17.000 | 

The number of holders of record of the
Companys common stock as of January 31, 2002 was 118.
The Company believes it has significantly more than 118
beneficial holders of its common stock.

The Company has never declared or paid cash
dividends on its common stock and has no plans to pay cash
dividends in the foreseeable future. The declaration and payment
of cash dividends on the Companys common stock is at the
discretion of the Companys Board of Directors, and any
decision to declare a dividend will be based on a number of
factors, including, but not limited to, earnings, financial
condition, borrowing covenants, and other factors deemed
relevant.

The name and address of the Companys common
stock transfer agent and registrar is National City Bank,
Corporate Trust Operations, P.O. Box 92301, Locator 5352,
Cleveland, Ohio, 44139-0900, (800.622.6757).

Investors or analysts requiring further
information should contact:

| |                          
| | -------------------------
| | David E. Fountain        
| | Chief Financial Officer  
| | 1231 Durrett Lane        
| | Louisville, KY 40213-2008
| | (502.315.3311)           

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Item 6. Selected Financial Data

The following data should be read in conjunction
with the Consolidated Financial Statements and related notes
thereto and Managements Discussion and Analysis of
Financial Condition and Results of Operations included in
Item 7.

|                                     |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |  |  |   |       | 
|------------------------------------ |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- |  |  | - | ----- | 
|                                     |  |                                     
|                                     |  | Year Ended December 31,             
|                                     |  |                                     
|                                     |  | 2001                                 |       | 2000 |  | 1999 |       | 1998 |  | 1997
|                                     |  |                                      |       |      |  |      |       |      |  |     
|                                     |  |                                     
|                                     |  | (in millions, except per share data)
|Income Statement Data: (1)           |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |  |  |   |       | 
|Revenue                              |  | $                                    | 473.3 |      |  | $    | 427.3 |      |  | $    | 431.0 |   |  | $ | 483.2 |  |  | $ | 405.7 | 
|Net Income (Loss) (2)                |  |                                      | 52.7  |      |  |      | 43.4  |      |  |      | (37.4 | ) |  |   | 15.3  |  |  |   | 21.1  | 
|Basic Net Income (Loss) Per Share    |  |                                      | 1.03  |      |  |      | 0.85  |      |  |      | (0.74 | ) |  |   | 0.30  |  |  |   | 0.42  | 
|Diluted Net Income (Loss) Per Share  |  |                                      | 1.01  |      |  |      | 0.85  |      |  |      | (0.74 | ) |  |   | 0.30  |  |  |   | 0.42  | 
|Average Shares Outstanding  Basic   |  |                                      | 51.4  |      |  |      | 50.8  |      |  |      | 50.7  |   |  |   | 50.6  |  |  |   | 50.6  | 
|Average Shares Outstanding  Diluted |  |                                      | 52.0  |      |  |      | 51.0  |      |  |      | 50.7  |   |  |   | 50.7  |  |  |   | 50.7  | 
|                                    
|Balance Sheet Data: (1)              |  |                                      |       |      |  |      |       |      |  |      |       |   |  |   |       |  |  |   |       | 
|Working Capital                      |  | $                                    | 198.9 |      |  | $    | 184.2 |      |  | $    | 124.4 |   |  | $ | 72.4  |  |  | $ | 79.3  | 
|Goodwill                             |  |                                      | 91.2  |      |  |      | 79.4  |      |  |      | 88.4  |   |  |   | 171.5 |  |  |   | 170.3 | 
|Total Assets                         |  |                                      | 478.3 |      |  |      | 435.4 |      |  |      | 402.3 |   |  |   | 419.4 |  |  |   | 437.3 | 
|Long-Term Obligations                |  |                                      | 1.9   |      |  |      | 3.2   |      |  |      | 6.0   |   |  |   | 8.7   |  |  |   | 8.1   | 
|Total Liabilities                    |  |                                      | 78.3  |      |  |      | 73.9  |      |  |      | 85.9  |   |  |   | 66.7  |  |  |   | 100.5 | 
|Shareholders Equity                 |  |                                      | 400.0 |      |  |      | 361.6 |      |  |      | 316.4 |   |  |   | 352.7 |  |  |   | 336.8 | 



---



|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | This financial data includes the impact of the
	following acquisitions during the periods presented: on
	February 4, 1997, the Company acquired NTA, Inc., a freight
	payment processing company; on June 18, 1997, the Company
	acquired the operating assets and liabilities of InTraCon, Inc.,
	a freight payment processing company; on June 20, 1997, the
	Company acquired the operating assets and liabilities of MRS
	Jamaica, Inc., a healthcare claim form processing company; on
	September 30, 1997, the Company acquired Caribbean Data
	Services, Ltd., a data processing company; on October 24,
	1997, the Company acquired 79.6% of the outstanding shares of FA
	Holdings, Inc., a debit and credit card processor; (the Company
	acquired the remaining outstanding shares of FA Holdings, Inc.
	on January 2, 1998); on January 15, 1998, the Company
	acquired JBH Travel Audit Inc., a commission audit and
	collections company; on December 31, 1999, the Company
	acquired a regional merchant processing portfolio from Heartland
	Payment Systems LLC; on June 28, 2001, the Company acquired
	a 70% ownership interest in ABN AMRO Merchant Services, LLC.
	Each of these transactions were accounted for as purchases;
	accordingly, the results of operations are included in the
	consolidated statements of operations from the respective
	acquisition dates. On January 8, 2001, the Company
	purchased the merchant services business units from several of
	National Citys banking subsidiaries. This acquisition was
	accounted for as a transaction among entities under common
	control and was recorded at the historical cost bases of
	National City. The results of operations of the National City
	Merchant Services business units have been included in the
	consolidated financial statements since the date of acquisition.
|   
|    |  | Effective April 1, 1999, the Company sold
	its Freight and Payables business lines. Effective June 1,
	1999, the Company sold its Check Acceptance and Remittance
	business lines. Effective August 29, 2000, the Company sold
	its Springfield remittance operation. Effective March 31,
	2001, the Company discontinued its Denver collections business.
	Effective August 29, 2001, the Company sold its Business
	Process Outsourcing business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(2) |  | Included in net income (loss) are certain
	unusual items summarized as follows: for 2001, $3.9 million
	($4.6 million after-tax) of restructuring and divestiture
	expenses; for 2000, $8.6 million ($5.6 million
	after-tax) of impairment and site consolidation expenses; for
	1999, $71.7 million (also $71.7 million after-tax) of
	impairment, restructuring, and related expenses; for 1998,
	$1.4 million ($0.8 million after-tax) of net gains
	related to contract terminations; for 1997, $13.3 million
	($8.1 million after-tax) of impairment, restructuring, and
	related expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

9



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##### Table of Contents








|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of
	Financial Condition and Results of Operations

Components of Revenue and Expenses

Revenue.The
Companys Merchant Card Services revenue is primarily
derived from fees paid by merchants for the authorization,
processing, and settlement of credit and debit card
transactions. Fees are generated either on a per transaction
basis or on a discount basis, which is a percent of
dollar volume processed. Revenue is recorded net of interchange
fees charged by the credit card associations as such costs are
not controlled by the Company. Revenue is also derived from the
sale of equipment used to process card transactions.

Payment Services revenue is generated from a
variety of electronic payment settlement and reporting products.
The majority of Payment Services revenue is earned from an
exclusive long-term contract with the Airlines Reporting
Corporation under which the Company is compensated on a
cost-plus basis.

A portion of total revenue is derived from
earnings on customer cash balances, which are maintained by NCBK
pursuant to contract terms. For the years ended
December 31, 2001, 2000, and 1999, this represented less
than 2% of consolidated revenue.

Expenses.Expenses
include costs of providing services to customers including wages
and personnel costs, assessment fees, authorization fees, data
processing costs, and general and administrative expenses.

Results of Operations

The Companys operating results are
presented below in the manner in which they are viewed by
management. The Company divested certain business units during
2001 and 2000 in order to focus on its core competency of
electronic payment settlement. Accordingly, the segment results
presented below segregate the operating performance for the core
business lines from those that were divested. Certain prior year
amounts have been reclassified to conform with the 2001
presentation.

10



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##### Table of Contents



Year Ended December 31, 2001 Compared to
Year Ended December 31, 2000

|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |     |    | 
|----------------------------------------- | ----------------------- | ----------------------------- | ------ | ------- | ------- | ------ | -- | ------- | --- | ------ | ------ | ------- | ------- |  | -- | --- | --- | - | ------ | ------- | ------ |  | --- | --- | -- | 
|                                          |                         |                               |        |         |         |       
|                                          |                         | 2001                          |        | 2000    |         | Change
|                                          |                         |                               |        |         |         |       
|                                          |                         |                               |        | % of    |         |        |    | % of    |     |       
|                                          |                         | Amount                        |        | Revenue |         | Amount |    | Revenue |     | Amount |        | %      
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |        
|                                          |                         |                              
|                                          |                         | (Dollars in thousands)       
|Revenue:                                  |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          | Merchant Card Services  |                               | $      | 401,972 |         |        |    | 85      |     |        | $      | 317,853 |         |  |    | 74  |     |   | $      | 84,119  |        |  |     | 26  |   
|                                          | Payment Services        |                               |        | 30,113  |         |        |    | 6       |     |        |        | 36,537  |         |  |    | 9   |     |   |        | (6,424  | )      |  |     | (18 | ) 
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Core Revenue            |        |         | 432,085 |        |    |         | 91  |        |        |         | 354,390 |  |    |     | 83  |   |        |         | 77,695 |  |     |     | 22 | 
|                                          | Divested Business Lines |                               |        | 41,165  |         |        |    | 9       |     |        |        | 72,871  |         |  |    | 17  |     |   |        | (31,706 | )      |  |     | (44 | ) 
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Revenue                 |        |         | 473,250 |        |    |         | 100 |        |        |         | 427,261 |  |    |     | 100 |   |        |         | 45,989 |  |     |     | 11 | 
|Expenses:                                 |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          | Merchant Card Services  |                               |        | 325,049 |         |        |    | 81      |     |        |        | 263,485 |         |  |    | 83  |     |   |        | 61,564  |        |  |     | 23  |   
|                                          | Payment Services        |                               |        | 24,353  |         |        |    | 81      |     |        |        | 27,705  |         |  |    | 76  |     |   |        | (3,352  | )      |  |     | (12 | ) 
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Core Operating Expenses |        |         | 349,402 |        |    |         | 81  |        |        |         | 291,190 |  |    |     | 82  |   |        |         | 58,212 |  |     |     | 20 | 
|                                          | Divested Business Lines |                               |        | 41,452  |         |        |    | 101     |     |        |        | 73,900  |         |  |    | 101 |     |   |        | (32,448 | )      |  |     | (44 | ) 
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Operating Expenses      |        |         | 390,854 |        |    |         | 83  |        |        |         | 365,090 |  |    |     | 85  |   |        |         | 25,764 |  |     |     | 7  | 
|Operating Profit (Loss):                  |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          | Merchant Card Services  |                               |        | 76,923  |         |        |    | 19      |     |        |        | 54,368  |         |  |    | 17  |     |   |        | 22,555  |        |  |     | 41  |   
|                                          | Payment Services        |                               |        | 5,760   |         |        |    | 19      |     |        |        | 8,832   |         |  |    | 24  |     |   |        | (3,072  | )      |  |     | (35 | ) 
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Core Operating Profit   |        |         | 82,683  |        |    |         | 19  |        |        |         | 63,200  |  |    |     | 18  |   |        |         | 19,483 |  |     |     | 31 | 
|                                          | Divested Business Lines |                               |        | (287    | )       |        |    | (1      | )   |        |        | (1,029  | )       |  |    | (1  | )   |   |        | 742     |        |  |     | 72  |   
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|                                          |                         | Total Operating Profit        |        |         | 82,396  |        |    |         | 17  |        |        |         | 62,171  |  |    |     | 15  |   |        |         | 20,225 |  |     |     | 33 | 
|Net Interest Income                       |                         |                               | 6,866  |         |         |        | 1  |         |     |        | 8,282  |         |         |  | 2  |     |     |   | (1,416 | )       |        |  | (17 | )  
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|Income Before Taxes and Minority interest |                         |                               | 89,262 |         |         |        | 19 |         |     |        | 70,453 |         |         |  | 16 |     |     |   | 18,809 |         |        |  | 27  |    
|Provision for Income Taxes                |                         |                               | 35,775 |         |         |        | 8  |         |     |        | 27,066 |         |         |  | 6  |     |     |   | 8,709  |         |        |  | 32  |    
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|Income Before Minority Interest           |                         |                               | 53,487 |         |         |        | 11 |         |     |        | 43,387 |         |         |  | 10 |     |     |   | 10,100 |         |        |  | 23  |    
|Minority Interest                         |                         |                               | 827    |         |         |        |   |         |     |        |       |         |         |  |   |     |     |   | 827    |         |        |  | NM  |    
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    
|Net Income                                |                         | $                             | 52,660 |         |         |        | 11 |         |     | $      | 43,387 |         |         |  | 10 |     |     | $ | 9,273  |         |        |  | 21  |    
|                                          |                         |                               |        |         |         |        |    |         |     |        |        |         |         |  |    |     |     |   |        |         |        |  |     |    

NM  Not Meaningful

Merchant
Card Services

Revenue for 2001 increased 26% to
$402.0 million from $317.9 million in 2000. The
Company acquired National Citys merchant business units on
January 8, 2001 and a 70% interest in ABN AMRO Merchant
Services, LLC on June 28, 2001, which contributed
$15.5 million and $17.7 million, respectively, of
incremental revenue in 2001. Organic revenue growth, which
excludes the impact of current year acquisitions, was 16% in
2001.

Transaction volume processed increased by 24% to
3.5 billion in 2001 from 2.8 billion in 2000. Dollar
volume processed increased 23% to $156 billion in 2001 from
$127 billion in 2000. Organic transaction and dollar volume
growth increased 23% and 20%, respectively, in 2001. Organic
transaction and dollar volume increased primarily due to the
addition of new national customers, strong execution in regional
sales channels and continued expansion in new vertical markets.

Expenses increased 23% to $325.0 million in
2001 from $263.5 million in 2000 primarily due to increased
processing volumes. Operating margins as a percentage of revenue
increased to 19% in 2001 from 17% in 2000, primarily due to
economies of scale from increased volume and the National City
and AAMS acquisitions. Due primarily to the factors listed
above, operating profits increased 41% to $76.9 million in
2001 from $54.4 million in 2000.

11



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##### Table of Contents



Payment
Services

Payment Services was formerly an operating unit
within the Companys Corporate Outsourcing Solutions
segment. This segment was renamed Payment Services in 2001 after
the sale of the BPO unit.

Revenue for 2001 decreased 18% to
$30.1 million in 2001 from $36.5 million in 2000.
Revenue decreased primarily due to decreased volume from the
Companys Airlines Reporting Corporation contract, which is
the result of continuing conversion from paper to electronic
reporting in the airline industry.

Expenses were $24.4 million in 2001, down
12% from $27.7 million in 2000 due primarily to decreased
volume and staff reductions. Operating margins as a percentage
of revenue decreased to 19% in 2001 from 24% in 2000. Operating
profits decreased 35% to $5.8 million in 2001 from
$8.8 million in 2000.

Divested
Business Lines and Related Charges

In 2001, the Company divested its BPO business
and exited its Denver collections business which were components
of the former Corporate Outsourcing Solutions segment. Revenue
from these divested businesses was $41.2 million, which
represented 9% of the Companys revenue in 2001. The sale
of the BPO business unit to Affiliated Computer Services was
completed on August 29, 2001, for $43.0 million in
cash ($41.3 million after transaction related expenses).
The Company recorded charges of $3.9 million
($4.6 million after-tax, or $0.09 per diluted share)
related to the BPO divestiture. These charges consisted of a
loss of $3.3 million ($4.2 million after-tax, or $0.08
per diluted share) on the sale of the business and a
$0.6 million charge ($0.4 million after-tax, or $0.01
per diluted share) for severance costs related to fourth quarter
organizational restructuring actions taken to reduce support
costs associated with the BPO unit.

In 2000, the Company recorded charges of
$8.6 million ($5.6 million after-tax, or $0.11 per
diluted share) related to these business units. These charges
consisted of $7.1 million ($4.6 million after-tax, or
$0.09 per diluted share) to write-off goodwill and fixed assets
for the Denver collections business and $1.5 million
($1.0 million after-tax, or $0.02 per diluted share) for
site consolidation initiatives in the BPO unit.

Net
Interest Income

Net interest income decreased 17% to
$6.9 million in 2001 from $8.3 million in 2000 due
primarily to lower average interest rates in 2001.

Provision
for Income Taxes

The overall effective tax rate was 40.1% in 2001
compared to 38.4% in 2000. The increase in the effective tax
rate was due to additional provisions related to the sale of the
BPO unit due to repatriation of previously untaxed earnings for
U.S. tax purposes. The increase in the effective tax rate was
partially offset by differences in state income tax rates
between legal entities within the Company due to recent
acquisition and divestiture activity and a $0.3 million
reduction in the valuation allowance for state net operating
loss carry forwards.

12



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##### Table of Contents



Year Ended December 31, 2000 Compared to
Year Ended December 31, 1999

|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |     |     |  
|-------------------------- | ----------------------- | ----------------------------- | ------ | ------- | ------- | ------ | -- | ------- | --- | ------ | ------- | ------- | ------- | - | -- | --- | --- | - | ------ | -------- | ------- | - | -- | --- | --- | -
|                           |                         |                               |        |         |         |       
|                           |                         | 2000                          |        | 1999    |         | Change
|                           |                         |                               |        |         |         |       
|                           |                         |                               |        | % of    |         |        |    | % of    |     |       
|                           |                         | Amount                        |        | Revenue |         | Amount |    | Revenue |     | Amount |         | %      
|                           |                         |                               |        |         |         |        |    |         |     |        |         |        
|                           |                         |                              
|                           |                         | (Dollars in thousands)       
|Revenue:                   |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           | Merchant Card Services  |                               | $      | 317,853 |         |        |    | 74      |     |        | $       | 264,479 |         |   |    | 61  |     |   | $      | 53,374   |         |   |    | 20  |    
|                           | Payment Services        |                               |        | 36,537  |         |        |    | 9       |     |        |         | 36,803  |         |   |    | 9   |     |   |        | (266     | )       |   |    | (1  | )  
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Core Revenue            |        |         | 354,390 |        |    |         | 83  |        |         |         | 301,282 |   |    |     | 70  |   |        |          | 53,108  |   |    |     | 18  |  
|                           | Divested Business Lines |                               |        | 72,871  |         |        |    | 17      |     |        |         | 129,702 |         |   |    | 30  |     |   |        | (56,831  | )       |   |    | (44 | )  
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Revenue                 |        |         | 427,261 |        |    |         | 100 |        |         |         | 430,984 |   |    |     | 100 |   |        |          | (3,723  | ) |    |     | (1  | )
|Expenses:                  |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           | Merchant Card Services  |                               |        | 263,485 |         |        |    | 83      |     |        |         | 232,182 |         |   |    | 88  |     |   |        | 31,303   |         |   |    | 13  |    
|                           | Payment Services        |                               |        | 27,705  |         |        |    | 76      |     |        |         | 29,841  |         |   |    | 81  |     |   |        | (2,136   | )       |   |    | (7  | )  
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Core Operating Expenses |        |         | 291,190 |        |    |         | 82  |        |         |         | 262,023 |   |    |     | 87  |   |        |          | 29,167  |   |    |     | 11  |  
|                           | Divested Business Lines |                               |        | 73,900  |         |        |    | 101     |     |        |         | 193,155 |         |   |    | 149 |     |   |        | (119,255 | )       |   |    | (62 | )  
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Operating Expenses      |        |         | 365,090 |        |    |         | 85  |        |         |         | 455,178 |   |    |     | 106 |   |        |          | (90,088 | ) |    |     | (20 | )
|Operating Profit (Loss):   |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           | Merchant Card Services  |                               |        | 54,368  |         |        |    | 17      |     |        |         | 32,297  |         |   |    | 12  |     |   |        | 22,071   |         |   |    | 68  |    
|                           | Payment Services        |                               |        | 8,832   |         |        |    | 24      |     |        |         | 6,962   |         |   |    | 19  |     |   |        | 1,870    |         |   |    | 27  |    
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Core Operating Profit   |        |         | 63,200  |        |    |         | 18  |        |         |         | 39,259  |   |    |     | 13  |   |        |          | 23,941  |   |    |     | 61  |  
|                           | Divested Business Lines |                               |        | (1,029  | )       |        |    | (1      | )   |        |         | (63,453 | )       |   |    | (49 | )   |   |        | 62,424   |         |   |    | 98  |    
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|                           |                         | Total Operating Profit (Loss) |        |         | 62,171  |        |    |         | 15  |        |         |         | (24,194 | ) |    |     | (6  | ) |        |          | 86,365  |   |    |     | NM  |  
|Net Interest Income        |                         |                               | 8,282  |         |         |        | 2  |         |     |        | 4,454   |         |         |   | 1  |     |     |   | 3,828  |          |         |   | NM |    
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|Income (Loss) Before Taxes |                         |                               | 70,453 |         |         |        | 16 |         |     |        | (19,740 | )       |         |   | (5 | )   |     |   | 90,193 |          |         |   | NM |    
|Provision for Income Taxes |                         |                               | 27,066 |         |         |        | 6  |         |     |        | 17,678  |         |         |   | 4  |     |     |   | 9,388  |          |         |   | 53 |    
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    
|Net Income (Loss)          |                         | $                             | 43,387 |         |         |        | 10 |         |     | $      | (37,418 | )       |         |   | (9 | )   |     | $ | 80,805 |          |         |   | NM |    
|                           |                         |                               |        |         |         |        |    |         |     |        |         |         |         |   |    |     |     |   |        |          |         |   |    |    

NM  Not Meaningful

Merchant
Card Services

Revenue for 2000 increased 20% to
$317.9 million from $264.5 million in 1999. The
Company acquired Heartland Payment Systems LLC on
December 31, 1999, which contributed $15.1 million of
incremental revenue in 2000. Organic revenue growth, which
excludes the impact of current year acquisitions, was 14% in
2000.

Transaction volume processed increased by 26% to
2.8 billion in 2000 from 2.2 billion in 1999. Dollar
volume processed increased 22% to $127 billion in 2000 from
$104 billion in 1999. Organic transaction and dollar volume
growth increased 24% and 20%, respectively, in 2000. The
addition of new national customers, strong execution in regional
sales channels, and continued expansion in new vertical markets
led to the increase in organic transaction and dollar volume.

Expenses increased 13% to $263.5 million in
2000 from $232.2 million in 1999 primarily due to the
customer base expansion and increased volumes. Operating margins
as a percentage of revenue increased to 17% in 2000 from 12% in
1999, primarily due to increased revenue from higher margin
regional merchants, economies of scale from increased volumes
and cost savings initiatives. Operating expenses for 1999 also
included $0.5 million ($0.3 million after-tax, or
$0.01 per diluted share) for severance and other costs related
to the closure of a processing facility. Operating profit
increased 68% to $54.4 million in 2000 from
$32.3 million in 1999.

13



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##### Table of Contents



Payment
Services

Payment Services was formerly an operating unit
within the Companys Corporate Outsourcing Solutions
segment. This segment was renamed Payment Services in 2001 after
the sale of the BPO unit.

Revenue for 2000 of $36.5 million was down
slightly from $36.8 million in 1999. Revenue declined
primarily due to decreased volume from the Companys
Airlines Reporting Corporation contract, which was the result of
the continuing conversion from paper to electronic reporting in
the airline industry.

Expenses were $27.7 million, down 7% from
$29.8 million due to cost savings initiatives and decreased
volume. Operating margins as a percentage of revenue increased
to 24% from 19% as a result of improved productivity and other
cost saving initiatives. As a result, operating profit increased
27% to $8.8 million in 2000 from $7.0 million in 1999.

Divested
Business Lines and Related Charges

Divested business lines are comprised of the
Remittance, Payables, Freight, and Check Acceptance business
lines that were sold by the Company in the first half of 1999,
the Denver collections operation discontinued in March 2001, and
the Business Process Outsourcing business unit sold in August
2001.

In 2000, the Company recorded charges of
$8.6 million ($5.6 million after-tax, or $0.11 per
diluted share) related to these business units. These charges
consisted of $7.1 million ($4.6 million after-tax, or
$0.09 per diluted share) to write-off goodwill and fixed assets
for the Denver collections business and $1.5 million
($1.0 million after-tax, or $0.02 per diluted share) for
site consolidation initiatives in the BPO unit.

In 1999, the Company recorded charges of
$71.7 million ($71.7 million after-tax, or $1.42 per
diluted share) related to these business units. These charges
consisted of $69.5 million ($69.9 million after-tax,
or $1.38 per diluted share) for impairment and associated
expenses related to the sale of the Freight, Payables,
Remittance, and Check Acceptance business lines and a
$2.2 million ($1.8 million after-tax, or $0.04 per
diluted share) restructuring charge related to the closure of a
BPO facility. The Freight, Payables, Remittance, and Check
Acceptance business lines were sold in the first half of 1999
for $62.6 million in cash.

Net
Interest Income

Net interest income increased to
$8.3 million in 2000 from $4.5 million in 1999 due to
higher interest rates in 2000 compared to 1999 and increased
levels of cash and investments due to the receipt of sale
proceeds from the business lines that were divested in the first
half of 1999, as well as cash flow from operations.

Provision
for Income Taxes

The overall effective tax rate was 38.4% in 2000.
The 2000 provision for income taxes was lowered by
$1.1 million due to a reduction in the valuation allowance
for state net operating loss carry forwards. The 1999 provision
for income taxes included the effect of the write-off of
$65.7 million of nondeductible goodwill related to the
divested business lines.

Liquidity and Capital Resources

The Companys primary uses of capital
resources include capital expenditures, working capital and
acquisitions. Future business acquisitions may be funded through
current liquidity, borrowed funds, and/or issuances of common
stock.

The Companys capital expenditures include
amounts for computers, external and internally developed
software, as well as improvements to operating facilities.
During 2001, the Companys capital expenditures totaled
$20.1 million. Such expenditures were financed from operating
cash flow, which for 2001 totaled $49.9 million. Capital
expenditures and operating cash flow for 2000 were
$14.4 million and $45.1 million, respectively.
Operating cash flow increased 11% in 2001 compared to 2000 due
to improved profits and the timing of tax payments between the
Company and National City, offset by higher accounts receivable

14



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##### Table of Contents



balances at year end. The Company expects capital
expenditures for 2002 to be comparable to 2001 which will be
principally used to enhance merchant card processing
capabilities.


On January 8, 2001, the Company acquired the
merchant services business units from several National City
banking subsidiaries for $44.0 million in cash.

On June 28, 2001, the Company acquired a 70%
ownership interest in AAMS for $48.5 million in cash.

On August 29, 2001, the Company completed
the sale of the BPO unit to Affiliated Computer Services, Inc.
for $43.0 million cash ($41.3 million after
transaction related expenses).

As the Company does not carry significant amounts
of inventory and historically has experienced short collection
periods for its accounts receivable, it does not require
substantial working capital to support revenue growth. Working
capital requirements will vary depending upon future acquisition
activity. Increases in working capital needs are expected to be
financed through operating cash flow and current cash balances.

Effects of September 11 Terrorist
Attacks

The terrorist attacks in New York and Washington
on September 11, 2001, led to reduced levels of air travel.
The Company currently processes credit card transactions for six
of the top ten United States airlines, and the majority of its
Payment Services business is also tied to the travel industry.
Travel-related customers, principally airlines, represented
approximately 13% of revenue from continuing businesses for the
year ended December 31, 2001, 6% from Merchant Card
Services and 7% from Payment Services. To the extent future air
travel continues at levels below historical trends, that portion
of Merchant Card Services and Payment Services revenue will be
impacted. There is less revenue exposure in the Payment Services
business due to the cost-plus contract with the Airlines
Reporting Corporation and contractual minimums with other
travel-related customers.

The unprecedented slowdown in air travel,
combined with the costs of additional security measures, has
raised questions about the ongoing financial viability of the
airline industry. In the event of bankruptcy liquidation of one
or more of the Companys airline customers, the Company
could become financially responsible for refunding tickets
purchased through VISA® or MasterCard ® under the
chargeback rules of those associations. See Commitments and
Contingencies, Note L to Consolidated Financial Statements.

In the near term, management believes that
airline bankruptcy liquidations are highly unlikely given the
recent Federal financial support for the airline industry. In
November 2001, Congress passed the Aviation and Transportation
Security Act which requires airlines to honor tickets for other
airlines that may suspend, interrupt or discontinue service due
to insolvency or bankruptcy. Considering the foregoing and in
light of other actions taken to mitigate the situation,
management believes the likelihood of any material loss under
the chargeback rules is remote.

Recent Accounting Pronouncements

Goodwill
and Other Intangible Assets

In June 2001, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards
(SFAS) 141, Business Combinations, and SFAS 142,
Goodwill and Other Intangible Assets.SFAS 141 requires
business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting and
broadens the criteria for recording intangible assets separate
from goodwill. Under the provisions of SFAS 142, goodwill and
certain other intangible assets, which do not possess finite
useful lives, will no longer be amortized over the estimated
life but rather will be tested at least annually for impairment
based on specific guidance provided in the new standard.
Intangible assets determined to have finite lives will continue
to be amortized over their estimated useful lives and also
continue to be subject to impairment testing.

The provisions of SFAS 142 were adopted by the
Company as required effective January 1, 2002. Application
of the nonamortization provisions of the statement is expected
to reduce amortization expense by approximately $3.2 million
pre-tax, resulting in an increase in net income of approximately
$2.6 million, or

15



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##### Table of Contents



$0.05 per diluted share, in 2002 as compared to
2001. SFAS 142, as part of its adoption provisions, requires a
transitional impairment test to be applied to all goodwill and
other indefinite-lived intangible assets prior to June 30,
2002 and any resulting impairment loss be reported as a change
in accounting principle. Management does not expect an
impairment loss to be recorded in 2002 as a result of adoption.
The Company currently does not have any other indefinite-lived
intangible assets on its balance sheet. It is also anticipated
there will not be any material categorical reclassifications or
adjustments to the useful lives of finite-lived intangible
assets as a result of adopting the new guidance.


In general, application of the new provisions may
result in more income statement volatility due to the potential
periodic recognition of impairment losses, which are likely to
vary in amount and regularity, for goodwill and other
indefinite-lived intangible assets, versus reducing those assets
through the recognition of recurring, consistent amortization
amounts.

Accounting
for Long-Lived Assets

SFAS 144, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of, was issued in October 2001 and addresses how and when to
measure impairment on long-lived assets and how to account for
long-lived assets that an entity plans to dispose of either
through sale, abandonment, exchange, or distribution to owners.
The new provisions supersede SFAS 121, which addressed asset
impairment, and certain provisions of APB Opinion 30 related to
reporting the effects of the disposal of a business segment and
requires expected future operating losses from discontinued
operations to be recorded in the period in which the losses are
incurred rather than the measurement date. Under SFAS 144, more
dispositions may qualify for discontinued operations treatment
in the income statement. The provisions of SFAS 144 became
effective for the Company January 1, 2002 and are not
expected to have a material impact on the Companys results
of operations, financial position, or liquidity.

Forward Looking Statements and Risk
Factors

Item 1 (the sections entitled Industry
Overview, Merchant Card Services, Payment Services, and
Regulation), Item 2 (entitled Properties), Item 3
(entitled Legal Proceedings), Item 5 (entitled Market for
the Registrants Common Equity and Related Shareholder
Matters), Item 7 (entitled Liquidity and Capital Resources,
Effect of September 11 Terrorist Attacks, and Recent
Accounting Pronouncements), and Item 7A (entitled
Quantitative and Qualitative Disclosure About Market Risk),
contain certain forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Although
management believes the expectations reflected in such
forward-looking statements are reasonable, actual results may
differ materially. Risks and uncertainties that could cause
actual results to differ materially include, but are not limited
to the following: the Companys ability to execute its
business plans; changes in general economic conditions in the
United States and other relevant economies; changes in consumer
spending habits; changes in the growth rate of the card
processing industry from recent years; ability to execute the
Companys acquisition strategy; successful integration of
acquisitions; consolidation in the banking, card processing or
electronic payment settlement industries; consolidation of major
customers or industries serviced; significant industry
competition; renewal of major customer relationships; changes in
interest rates; governmental and economic stability in foreign
countries in which the Company operates; unanticipated
litigation or material changes in existing litigation,
chargebacks, customer bankruptcy, claims and assessments;
organizational changes or loss of key management members;
reliance on third party processing relationships; changes in
banking regulations; changes in credit card association rules,
regulations or operations; changes in other laws or regulations
that impact the Companys business; changes in accounting
policies and procedures as may be required due to new accounting
pronouncements of the Financial Accounting Standards Board or
other regulatory agencies; technological changes; timely and
successful implementation of future processing systems projects;
financial or other business impacts due to systems
infiltrations; and successful business continuity plans.

16



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##### Table of Contents






Item 7A.  Quantitative and
Qualitative Disclosure About Market Risk

Derivative
Instruments

The Company does not use derivative instruments.

Market
Risk of Financial Instruments

The Companys primary market risk exposure
with regard to financial instruments is to changes in interest
rates. As of December 31, 2001, the Company had
$101 million in unrestricted cash and cash equivalents. For
the year ended December 31, 2001, NCBK also held an average
of approximately $150 million of customer funds, on which the
Company earns interest.

Because of the short-term nature of these
instruments, a sudden change in market interest rates would not
impact the fair value of these instruments. The Companys
earnings, however, are impacted by changes in interest rates,
affecting both interest earnings on the Companys cash
equivalents and interest earnings on customer funds maintained
by NCBK. At December 31, 2001, a hypothetical 100 basis
point increase in short-term interest rates would result in an
increase of approximately $3 million in annual pre-tax
earnings. A hypothetical 100 basis point decrease in short-term
interest rates would result in a decrease of approximately
$3 million in annual pre-tax earnings.




Item 8.  Financial Statements
and Supplementary Data

See Index to Consolidated Financial Statements at
Item 14.






|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants
	on Accounting and Financial Disclosure

None.




PART III




Item 10. Directors and Executive Officers
of the Registrant

The Executive Officers of the Company as of
January 31, 2002 were as follows:

|     |                   |     |  |          |    |  |  |                                                                      
|---- | ----------------- | --- |  | -------- | -- |  |  | ---------------------------------------------------------------------
|Name |                   | Age |  | Position
|     |                   |     |  |         
|     | Thomas A. Wimsett |     |  |          | 37 |  |  | President and Chief Executive Officer                                
|     | Mark D. Pyke      |     |  |          | 41 |  |  | Executive Vice President  Chief
	Operating Officer                  
|     | Norman M. Martin  |     |  |          | 58 |  |  | Executive Vice President  Merchant
	Card Services Product Management
|     | Robert C. Robins  |     |  |          | 60 |  |  | Executive Vice President  Business
	Development                     
|     | David E. Fountain |     |  |          | 41 |  |  | Senior Vice President  Chief Financial
	Officer                     
|     | Kelly L. Lanham   |     |  |          | 32 |  |  | Vice President  Chief Accounting
	Officer                           

An executive officer will serve until his
successor is chosen and qualified. There is no family
relationship between any of the executive officers.

Mr. Wimsett was appointed President and
Chief Executive Officer in September 1999. Mr. Wimsett
previously served as Executive Vice President of NPCs
Merchant Card Services Division from 1997 to 1999 and as
President of NPC Check Services from 1995 to 1997.
Mr. Wimsett has held various management positions at NPC
from 1983 to 1995.

Mr. Pyke was appointed Chief Operating
Officer in October 2001. Mr. Pyke previously served as
Executive Vice President  Merchant Card Services from
October 1999 to October 2001 and was a Senior Vice President of
the Merchant Card Services Division from 1998 to 1999.
Mr. Pyke held a variety of management positions in
NPCs Merchant Card Services Division from 1996 to 1998.
Prior to joining NPC,

17



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##### Table of Contents



Mr. Pyke spent four years with NaBANCO, a
merchant credit card processing subsidiary of First Data
Corporation.


Mr. Martin was appointed as Executive Vice
President  Merchant Card Services Product Management
in January 2000. Mr. Martin previously served as President
of Client Merchant Services for First Data Corporation from 1997
to 1998 and was an Executive Vice President for First Data
Corporation from 1995 to 1997. Before working with First Data
Corporation, Mr. Martin served in various positions at NPC
for over 25 years.

Mr. Robins was appointed Executive Vice
President  Business Development in November 2000.
Mr. Robins was employed by Visa U.S.A. from 1989 to 2000
and served as Executive Vice President of Market Development and
Acceptance from 1996 to 2000.

Mr. Fountain was appointed Chief Financial
Officer in October 1999. Mr. Fountain was appointed interim
Chief Financial Officer in July 1999 and served as Senior Vice
President  Chief Accounting Officer from 1998 to
1999. Mr. Fountain held a variety of financial management
positions with NPC from 1996 to 1998. Before working with NPC,
from 1983 to 1995, Mr. Fountain held various financial
management positions in the credit card industry with Total
System Services, Inc., MBNA Corporation and Associates First
Capital.

Mr. Lanham was appointed Chief Accounting
Officer in May 2000. Mr. Lanham joined NPC in November 1999
as Vice President  Corporate Controller. From 1991 to
1999, Mr. Lanham was employed by Arthur Andersen, serving
as a manager in the firms Audit and Business Advisory
division from 1996 to 1999.

The other information required by Item 10 is
incorporated by reference from the Companys Definitive
Proxy Statement to be dated approximately March 6, 2002.




Item 11.  Executive
Compensation

Incorporated by reference from the Companys
Definitive Proxy Statement to be dated approximately
March 6, 2002.






|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
	Owners and Management

Incorporated by reference from the Companys
Definitive Proxy Statement to be dated approximately
March 6, 2002.






|         |                                                
|-------- | -----------------------------------------------
|Item 13. | Certain Relationships and Related
	Transactions

Incorporated by reference from the Companys
Definitive Proxy Statement to be dated approximately
March 6, 2002.

18



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##### Table of Contents






PART IV






|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 14. | Exhibits, Financial Statement Schedules and
	Reports on Form 8-K

(a) 1.  Financial
Statements

|                                                                                                                               |  |             |     | 
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | --- | 
|                                                                                                                               |  | Page Number
|Description                                                                                                                    |  | in Report  
|                                                                                                                               |  |            
|Report of Ernst & Young LLP, Independent
	Auditors                                                                             |  |             | F-1 | 
|Consolidated Balance Sheets as of
	December 31, 2001 and 2000                                                                  |  |             | F-2 | 
|Consolidated Statements of Operations for each of
	the three years in the period ended December 31, 2001                       |  |             | F-3 | 
|Consolidated Statements of Changes in
	Shareholders Equity for each of the three years in the
	period ended December 31, 2001 |  |             | F-4 | 
|Consolidated Statements of Cash Flows for each of
	the three years in the period ended December 31, 2001                       |  |             | F-5 | 
|Notes to Consolidated Financial Statements                                                                                     |  |             | F-6 | 

2.  Financial Statement
Schedules

Omitted due to inapplicability or because
required information is shown in the Companys consolidated
financial statements or notes thereto.

3.  Exhibits

The index of exhibits has been filed as separate
pages of the 2001 Form 10-K and is available to shareholders on
request from the Secretary of the Company at the principal
executive offices. Copies of the exhibits may be obtained at a
cost of 30 cents per page.

(b) Reports on Form 8-K

October 17,
2001:The Registrant issued a news
release reporting earnings for the quarter and nine months ended
September 30, 2001.

19



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on February 20,
2002.



| |                          
| | -------------------------
| | NATIONAL PROCESSING, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ DAVID E. FOUNTAIN

| |                                
| | -------------------------------
| | Senior Vice President and Chief
| | Financial Officer              

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed by the
following persons in the capacities and on the dates indicated.

|                                                 |  |                                                                                  |  |      |                   |  
|------------------------------------------------ |  | -------------------------------------------------------------------------------- |  | ---- | ----------------- | -
|Signature                                        |  | Title                                                                            |  | Date
|                                                 |  |                                                                                  |  |     
|/s/ THOMAS A. WIMSETTThomas A. Wimsett           |  | President, Chief Executive Officer and Director
	(Principal Executive Officer)   |  |      | February 20, 2002 |  
|                                                
|/s/ DAVID E. FOUNTAINDavid E. Fountain           |  | Senior Vice President and Chief Financial Officer
	(Principal Financial Officer) |  |      | February 20, 2002 |  
|                                                
|/s/ PAUL G. CLARKPaul G. Clark                   |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|/s/ ROBERT G. SIEFERSRobert G. Siefers           |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|/s/ JEFFREY D. KELLYJeffrey D. Kelly             |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|Aureliano Gonzalez-Baz                           |  | Director                                                                         |  |      | February 20, 2002 |  
|                                                
|/s/ JEFFREY P. GOTSCHALLJeffrey P. Gotschall     |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|/s/ PRESTON B. HELLER, JR.Preston B. Heller, Jr. |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|/s/ JON L. GORNEYJon L. Gorney                   |  | Director                                                                         |  |      | February 20, 2002 | *
|                                                
|/s/ J. ARMANDO RAMIREZJ. Armando Ramirez         |  | Director                                                                         |  |      | February 20, 2002 | *



|  |                                                                                                                                                                                                                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The undersigned by signing his name hereto, does
	sign and execute the Annual Report on Form 10-K for fiscal
	year 2001 pursuant to the Power of Attorney executed by the
	above named Directors of the Company and which have been filed
	with the Securities Exchange Commission on behalf of such
	directors.



|    |                       | 
|--- | --------------------- | 
|By: | /s/ CARLTON E. LANGER | 

|                    | 
|------------------- | 
|Carlton E. Langer   | 
|As Attorney-in-Fact | 

20



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##### Table of Contents






REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

Shareholders and Board of Directors

National Processing, Inc.


We have audited the accompanying consolidated
balance sheets of National Processing, Inc. and subsidiaries (a
majority owned subsidiary of National City Corporation) as of
December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in shareholders equity,
and cash flows for each of the three years in the period ended
December 31, 2001. These financial statements are the
responsibility of National Processing, Inc.s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of National Processing, Inc. and
subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles
generally accepted in the United States.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Cleveland, Ohio

January 23, 2002


F-1



---



##### Table of Contents



NATIONAL PROCESSING, INC.






Consolidated Balance Sheets


|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                 |                                                                                                                                                         |                       
|                                                                                                 |                                                                                                                                                         | December 31,          
|                                                                                                 |                                                                                                                                                         |                       
|                                                                                                 |                                                                                                                                                         | 2001                   |         | 2000   
|                                                                                                 |                                                                                                                                                         |                        |         |        
|                                                                                                 |                                                                                                                                                         |                       
|                                                                                                 |                                                                                                                                                         | (Dollars in thousands)
|Assets                                                                                           |                                                                                                                                                         |                        |         |         |   |   |         |        
|Current assets:                                                                                  |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 | Cash and cash equivalents                                                                                                                               |                        | $       | 101,257 |   |   | $       | 58,107  |  
|                                                                                                 | Eurodollar deposits                                                                                                                                     |                        |         |        |   |   |         | 56,000  |  
|                                                                                                 | Accounts receivable-trade                                                                                                                               |                        |         | 163,644 |   |   |         | 128,627 |  
|                                                                                                 | Deferred tax assets                                                                                                                                     |                        |         | 3,299   |   |   |         | 2,283   |  
|                                                                                                 | Other current assets                                                                                                                                    |                        |         | 7,138   |   |   |         | 9,901   |  
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total current assets                                                                             |                                                                                                                                                         |                        | 275,338 |         |   |   | 254,918 |        
|Property and equipment:                                                                          |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 | Furniture and equipment                                                                                                                                 |                        |         | 54,178  |   |   |         | 69,417  |  
|                                                                                                 | Building and leasehold improvements                                                                                                                     |                        |         | 10,770  |   |   |         | 19,231  |  
|                                                                                                 | Software                                                                                                                                                |                        |         | 30,453  |   |   |         | 24,418  |  
|                                                                                                 | Property leased from affiliate                                                                                                                          |                        |         | 4,173   |   |   |         | 4,173   |  
|                                                                                                 | Land and improvements                                                                                                                                   |                        |         | 442     |   |   |         | 2,390   |  
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 |                                                                                                                                                         |                        | 100,016 |         |   |   | 119,629 |        
|                                                                                                 | Accumulated depreciation and amortization                                                                                                               |                        |         | (50,244 | ) |   |         | (58,675 | )
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 |                                                                                                                                                         |                        | 49,772  |         |   |   | 60,954  |        
|Other assets:                                                                                    |                                                                                                                                                         |                        |         |         |   |   |         |        
|Goodwill, net of accumulated amortization $8,283
	in 2001 and $6,939 in 2000                     |                                                                                                                                                         |                        | 91,227  |         |   |   | 79,399  |        
|Other intangible assets, net of accumulated
	amortization of $14,610 in 2001 and $10,902 in 2000 |                                                                                                                                                         |                        | 44,950  |         |   |   | 29,697  |        
|Deferred tax assets                                                                              |                                                                                                                                                         |                        | 13,310  |         |   |   | 4,149   |        
|Other assets                                                                                     |                                                                                                                                                         |                        | 3,741   |         |   |   | 6,328   |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total other assets                                                                               |                                                                                                                                                         |                        | 153,228 |         |   |   | 119,573 |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total assets                                                                                     |                                                                                                                                                         | $                      | 478,338 |         |   | $ | 435,445 |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                
|Liabilities and shareholders equity                                                             |                                                                                                                                                         |                        |         |         |   |   |         |        
|Current liabilities:                                                                             |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 | Accounts payable-trade                                                                                                                                  |                        | $       | 19,080  |   |   | $       | 15,243  |  
|                                                                                                 | Accrued bankcard assessments                                                                                                                            |                        |         | 28,113  |   |   |         | 24,458  |  
|                                                                                                 | Accrued compensation and benefits                                                                                                                       |                        |         | 6,465   |   |   |         | 9,735   |  
|                                                                                                 | Income taxes payable                                                                                                                                    |                        |         | 8,089   |   |   |         | 7,865   |  
|                                                                                                 | Other accrued liabilities                                                                                                                               |                        |         | 13,906  |   |   |         | 13,412  |  
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total current liabilities                                                                        |                                                                                                                                                         |                        | 75,653  |         |   |   | 70,713  |        
|Obligation under property leased from affiliate                                                  |                                                                                                                                                         |                        | 1,862   |         |   |   | 1,993   |        
|Deferred tax liabilities                                                                         |                                                                                                                                                         |                        |        |         |   |   | 1,181   |        
|Minority interest                                                                                |                                                                                                                                                         |                        | 827     |         |   |   |        |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total liabilities                                                                                |                                                                                                                                                         |                        | 78,342  |         |   |   | 73,887  |        
|Shareholders equity:                                                                            |                                                                                                                                                         |                        |         |         |   |   |         |        
|                                                                                                 | Preferred stock, without par value; 5,000,000
	shares authorized; no shares issued or outstanding                                                       |                        |         |        |   |   |         |        |  
|                                                                                                 | Common stock, without par value, 95,000,000
	shares authorized; 51,818,508 and 50,935,460 shares issued and
	outstanding in 2001 and 2000, respectively |                        |         | 1       |   |   |         | 1       |  
|                                                                                                 | Contributed capital                                                                                                                                     |                        |         | 193,584 |   |   |         | 178,729 |  
|                                                                                                 | Unearned compensation                                                                                                                                   |                        |         | (477    | ) |   |         |        |  
|                                                                                                 | Retained earnings                                                                                                                                       |                        |         | 206,888 |   |   |         | 182,828 |  
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total shareholders equity                                                                       |                                                                                                                                                         |                        | 399,996 |         |   |   | 361,558 |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        
|Total liabilities and shareholders equity                                                       |                                                                                                                                                         | $                      | 478,338 |         |   | $ | 435,445 |        
|                                                                                                 |                                                                                                                                                         |                        |         |         |   |   |         |        

See notes to consolidated financial statements.

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NATIONAL PROCESSING, INC.

Consolidated Statements of
Operations

|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |        |  
|---------------------------------------------------------------------- | ------- | ---------------------------------------- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | -
|                                                                       |         |                                         
|                                                                       |         | Year Ended December 31,                 
|                                                                       |         |                                         
|                                                                       |         | 2001                                     |         | 2000   |  | 1999
|                                                                       |         |                                          |         |        |  |     
|                                                                       |         |                                         
|                                                                       |         | (In thousands, except per share amounts)
|Revenue                                                                |         | $                                        | 473,250 |        |  | $    | 427,261 |        |  | $ | 430,984 |       
|Operating expenses                                                     |         |                                          | 343,819 |        |  |      | 308,350 |        |  |   | 331,298 |       
|General and administrative expenses                                    |         |                                          | 22,819  |        |  |      | 26,665  |        |  |   | 30,139  |       
|Depreciation and amortization                                          |         |                                          | 20,346  |        |  |      | 21,503  |        |  |   | 22,050  |       
|Restructuring, divestiture, and impairment charges                     |         |                                          | 3,870   |        |  |      | 8,572   |        |  |   | 71,691  |       
|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |       
|Operating profit (loss)                                                |         |                                          | 82,396  |        |  |      | 62,171  |        |  |   | (24,194 | )     
|Net interest income                                                    |         |                                          | 6,866   |        |  |      | 8,282   |        |  |   | 4,454   |       
|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |       
|Income (loss) before provision for income
	taxes and minority interest |         |                                          | 89,262  |        |  |      | 70,453  |        |  |   | (19,740 | )     
|Provision for income taxes                                             |         |                                          | 35,775  |        |  |      | 27,066  |        |  |   | 17,678  |       
|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |       
|Income (loss) before minority interest                                 |         |                                          | 53,487  |        |  |      | 43,387  |        |  |   | (37,418 | )     
|Minority interest                                                      |         |                                          | 827     |        |  |      |        |        |  |   |        |       
|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |       
|Net income                                                             |         | $                                        | 52,660  |        |  | $    | 43,387  |        |  | $ | (37,418 | )     
|                                                                       |         |                                          |         |        |  |      |         |        |  |   |         |       
|Net income (loss) per common share                                     |         |                                          |         |        |  |      |         |        |  |   |         |       
|                                                                       | Basic   |                                          | $       | 1.03   |  |      | $       | 0.85   |  |   | $       | (0.74  | )
|                                                                       | Diluted |                                          | $       | 1.01   |  |      | $       | 0.85   |  |   | $       | (0.74  | )
|Average common shares outstanding                                      |         |                                          |         |        |  |      |         |        |  |   |         |       
|                                                                       | Basic   |                                          |         | 51,352 |  |      |         | 50,821 |  |   |         | 50,705 |  
|                                                                       | Diluted |                                          |         | 51,983 |  |      |         | 51,049 |  |   |         | 50,705 |  

See notes to consolidated financial statements.

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NATIONAL PROCESSING, INC.

Consolidated Statements of Changes in
Shareholders Equity

|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |       |  |   |      |   |  |   |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ---------------------- | ---------- | ------ |  | ----------- | - | ------------ |  | -------- | ------- | ----- |  | - | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                               |  | Common                 |            | Common |  | Contributed |   | Unearned     |  | Retained |         |      
|                                                                                               |  | Shares                 |            | Stock  |  | Capital     |   | Compensation |  | Earnings |         | Total
|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |      
|                                                                                               |  |                       
|                                                                                               |  | (Dollars in thousands)
|Balance at January 1, 1999                                                                     |  |                        | 50,644,651 |        |  | $           | 1 |              |  | $        | 175,799 |       |  | $ |     |   |  | $ | 176,859 |   |  | $ | 352,659 |  
|Net loss                                                                                       |  |                        |           |        |  |             |  |              |  |          |        |       |  |   |     |   |  |   | (37,418 | ) |  |   | (37,418 | )
|Issuance of common shares under stock-based
	compensation plans, including related tax effects |  |                        | 141,001    |        |  |             |  |              |  |          | 1,165   |       |  |   |     |   |  |   |        |   |  |   | 1,165   |  
|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |       |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 1999                                                                   |  |                        | 50,785,652 |        |  |             | 1 |              |  |          | 176,964 |       |  |   |     |   |  |   | 139,441 |   |  |   | 316,406 |  
|Net income                                                                                     |  |                        |           |        |  |             |  |              |  |          |        |       |  |   |     |   |  |   | 43,387  |   |  |   | 43,387  |  
|Issuance of common shares under stock-based
	compensation plans, including related tax effects |  |                        | 149,808    |        |  |             |  |              |  |          | 1,765   |       |  |   |     |   |  |   |        |   |  |   | 1,765   |  
|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |       |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2000                                                                   |  |                        | 50,935,460 |        |  |             | 1 |              |  |          | 178,729 |       |  |   |     |   |  |   | 182,828 |   |  |   | 361,558 |  
|Net income                                                                                     |  |                        |           |        |  |             |  |              |  |          |        |       |  |   |     |   |  |   | 52,660  |   |  |   | 52,660  |  
|Common control business unit purchase, net of tax                                              |  |                        |           |        |  |             |  |              |  |          |        |       |  |   |     |   |  |   | (28,600 | ) |  |   | (28,600 | )
|Issuance of common shares under stock-based
	compensation plans, including related tax effects |  |                        | 883,048    |        |  |             |  |              |  |          | 14,855  |       |  |   | (477 | ) |  |   |        |   |  |   | 14,378  |  
|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |       |  |   |      |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                                                                   |  |                        | 51,818,508 |        |  | $           | 1 |              |  | $        | 193,584 |       |  | $ | (477 | ) |  | $ | 206,888 |   |  | $ | 399,996 |  
|                                                                                               |  |                        |            |        |  |             |   |              |  |          |         |       |  |   |      |   |  |   |         |   |  |   |         |  

See notes to consolidated financial statements.

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NATIONAL PROCESSING, INC.

Consolidated Statements of Cash
Flows

|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |        |  
|-------------------------------------------------------- | -------------------------------------------------- | ----------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | -------- | ------ | -
|                                                         |                                                    |                        
|                                                         |                                                    | Year Ended December 31,
|                                                         |                                                    |                        
|                                                         |                                                    | 2001                    |         | 2000    |   | 1999
|                                                         |                                                    |                         |         |         |   |     
|                                                         |                                                    |                        
|                                                         |                                                    | (In thousands)         
|Operating Activities                                     |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Net income (loss)                                        |                                                    | $                       | 52,660  |         |   | $    | 43,387  |         |   | $ | (37,418  | )     
|Non-cash items:                                          |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|                                                         | Depreciation and amortization                      |                         |         | 20,346  |   |      |         | 21,503  |   |   |          | 22,050 |  
|                                                         | Restructuring, divestiture, and impairment charges |                         |         | 3,250   |   |      |         | 8,521   |   |   |          | 58,214 |  
|                                                         | Deferred income taxes                              |                         |         | 4,042   |   |      |         | (3,788  | ) |   |          | (618   | )
|                                                         | Loss on disposition of assets                      |                         |         | 35      |   |      |         | 715     |   |   |          | 740    |  
|                                                         | Minority interest                                  |                         |         | 827     |   |      |         |        |   |   |          |       |  
|Changes in current assets and liabilities:               |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|                                                         | Accounts receivable-trade                          |                         |         | (44,513 | ) |      |         | (20,304 | ) |   |          | (7,463 | )
|                                                         | Accounts payable-trade                             |                         |         | 4,599   |   |      |         | 4,981   |   |   |          | 9,187  |  
|                                                         | Accrued bankcard assessments                       |                         |         | 3,655   |   |      |         | 4,336   |   |   |          | 2,369  |  
|                                                         | Income taxes payable                               |                         |         | 4,848   |   |      |         | (8,453  | ) |   |          | 11,942 |  
|                                                         | Other current assets and liabilities               |                         |         | (203    | ) |      |         | (4,817  | ) |   |          | (340   | )
|                                                         | Other, net                                         |                         |         | 364     |   |      |         | (1,015  | ) |   |          | 213    |  
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Net cash provided by operating activities                |                                                    |                         | 49,910  |         |   |      | 45,066  |         |   |   | 58,876   |       
|                                                        
|Investing activities                                     |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Capital expenditures                                     |                                                    |                         | (20,089 | )       |   |      | (14,406 | )       |   |   | (16,931  | )     
|Proceeds from sales of fixed assets                      |                                                    |                         | 34      |         |   |      | 314     |         |   |   | 532      |       
|Purchases of Eurodollar deposits                         |                                                    |                         |        |         |   |      | (76,000 | )       |   |   | (100,000 | )     
|Proceeds from maturities of Eurodollar deposits          |                                                    |                         | 56,000  |         |   |      | 80,000  |         |   |   | 40,000   |       
|Common control business unit purchase                    |                                                    |                         | (44,000 | )       |   |      |        |         |   |   |         |       
|Acquisitions, net of cash received                       |                                                    |                         | (48,500 | )       |   |      | (2,000  | )       |   |   | (23,000  | )     
|Net proceeds from sales of business lines                |                                                    |                         | 41,252  |         |   |      |        |         |   |   | 62,554   |       
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Net cash used in investing activities                    |                                                    |                         | (15,303 | )       |   |      | (12,092 | )       |   |   | (36,845  | )     
|                                                        
|Financing activities                                     |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Principal payments under property leased from
	affiliate |                                                    |                         | (131    | )       |   |      | (130    | )       |   |   | (141     | )     
|Issuance of common stock                                 |                                                    |                         | 8,674   |         |   |      | 1,765   |         |   |   | 1,165    |       
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Net cash provided by financing activities                |                                                    |                         | 8,543   |         |   |      | 1,635   |         |   |   | 1,024    |       
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Net increase in cash and cash equivalents                |                                                    |                         | 43,150  |         |   |      | 34,609  |         |   |   | 23,055   |       
|Cash and cash equivalents, beginning of period           |                                                    |                         | 58,107  |         |   |      | 23,498  |         |   |   | 443      |       
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Cash and cash equivalents, end of period                 |                                                    | $                       | 101,257 |         |   | $    | 58,107  |         |   | $ | 23,498   |       
|                                                         |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|Supplemental Cash Flow Information                       |                                                    |                         |         |         |   |      |         |         |   |   |          |       
|                                                         | Cash paid for income taxes                         |                         | $       | 26,396  |   |      | $       | 37,342  |   |   | $        | 5,057  |  

See notes to consolidated financial statements.

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##### Table of Contents



NATIONAL PROCESSING, INC.

Notes to Consolidated Financial
Statements

A. Organization and Business

Organization

National Processing, Inc. and subsidiaries (the
Company) is a provider of electronic payment
processing and is headquartered in Louisville, Kentucky. The
Company is 86% owned by National City Corporation
(National City), a financial holding company
headquartered in Cleveland, Ohio.

The Company and National City are parties to a
registration rights agreement whereby National City has the
right to require the Company to use its best efforts to register
under the Securities Act of 1933, as amended, all or a portion
of the issued and outstanding common stock held by National
City. National City also has the right to participate, or
piggy-back, in equity offerings initiated by the
Company, subject to a reduction of the size of the offering on
the advice of the managing underwriter.

Business

The Company operates two business segments,
Merchant Card Services and Payment Services. Merchant Card
Services authorizes, processes, and performs financial
settlement and reporting of card transactions including credit,
debit, stored value, and electronic benefits transfer
(EBT). Merchant Card Services represented 85% of the
Companys revenue in 2001 and provides services to over
600,000 merchant locations primarily in the United States.

Payment Services was formerly an operating unit
within the Companys Corporate Outsourcing Solutions
segment. This segment was renamed Payment Services in 2001 after
the sale of the Business Process Outsourcing (BPO)
unit. Payment Services provides financial settlement and
reporting solutions to large and mid-size corporate customers in
the travel service and healthcare industries. Payment Services
settles 100% of domestic airline tickets sold through travel
agencies in the United States. Payment Services also settles
commission payments for car rental companies, cruise line
operators, and hotels.

Sponsorship Agreement

The Company and National City are parties to a
sponsorship agreement (the Sponsorship Agreement)
whereby the Company acts as National Citys sole agent for
the purposes of providing electronic data authorization and
capture, reporting, settlement, and clearing services for
merchants who participate in Visa® and MasterCard ®
programs. The Company, along with other nonbank processors, must
be sponsored by a financial institution that is a member of the
Visa® and MasterCard ® associations. National City,
being a member of such associations, acts as the Companys
sole sponsor under the terms of the Sponsorship Agreement.

The Company retains full responsibility for
performance of Merchant Card Services, except for certain
obligations or responsibilities of National City pursuant to the
Sponsorship Agreement. The Sponsorship Agreement provides that
the Company will comply with (1) all Visa® and
MasterCard ® bylaws, manuals and operating regulations and
other written materials as they from time to time are amended
which bind or apply to National City as a member of Visa®
and MasterCard ® with respect to Merchant Card Services or
to the Company as a third party processor, (2) all
agreements between merchants and National City with respect to
Merchant Card Services, and (3) all applicable federal or
state laws and regulations. Under the Sponsorship Agreement, the
Company will receive all fees, discounts and other amounts
payable by merchants for Merchant Card Services and will bear
the expenses of maintaining facilities necessary to provide such
services. Certain indemnification provisions are also contained
in the Sponsorship Agreement, under which the Company will
indemnify National City against losses, claims or other amounts
arising out of the Companys failure to perform in
accordance with the terms of the Sponsorship Agreement due to
negligence of the Company.

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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





B. Summary of Significant Accounting
Policies

Principles of Consolidation and
Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
Beginning June 29, 2001, the consolidated financial
statements also include the Companys 70% ownership
interest in ABN AMRO Merchant Services, LLC (AAMS)
(see Note D). All significant intercompany transactions and
balances have been eliminated in consolidation. The accounting
and reporting policies of the Company conform with accounting
principles generally accepted in the United States.

Financial statements prepared in accordance with
accounting principles generally accepted in the United States
require the use of estimates and assumptions by management that
affect the reported amounts of revenue and expenses, assets and
liabilities, and the disclosure requirements for contingent
assets and liabilities during and at the date of the financial
statements. Consequently, actual results could differ from those
estimates.

Revenue Recognition

The Company recognizes as revenue the amounts
charged to its customers for processing activities at the time
services are rendered. Revenue is recorded net of interchange
fees charged by the credit card associations as such costs are
not controlled by the Company.

A portion of total revenue is derived from
earnings on customer cash balances, which are maintained by NCBK
pursuant to contract terms. For the years ended
December 31, 2001, 2000, and 1999, this represented less
than 2% of consolidated revenue.

Cash, Cash Equivalents, and
Eurodollar Deposits

Cash equivalents consist of highly liquid bank
overnight repurchase agreements, which are readily convertible
to cash. Eurodollar deposits are short-term deposits with
maturities of less than one year. These securities are stated at
cost, which approximates fair value.

Property and Equipment

Property and equipment is stated at cost and
depreciated on a straight-line basis over the estimated useful
life or term of the lease, whichever is shorter. Maintenance and
repairs are expensed as incurred, while improvements that extend
the useful life of the related asset are capitalized and
depreciated over the remaining life of the related asset.

The Company capitalizes certain costs incurred to
develop or obtain internal-use software. For purposes of
amortization and impairment, capitalized costs are treated in
the same manner as other long-lived assets. To be considered as
internal-use software, the software is either acquired,
internally developed, or modified solely to meet the
Companys internal needs with no plans to market the
software externally. Project costs that are considered research
and development costs are expensed as incurred. Capitalized
software development and purchased software costs are recorded
at cost. Commencing the month following project completion,
these costs are amortized on a straight-line basis over the
estimated useful life of the software.

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NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





The ranges of estimated useful lives are as
follows:

|                                    |  |              
|----------------------------------- |  | -------------
|Furniture and equipment             |  | 3 to 10 years
|Building and leasehold improvements |  | 5 to 40 years
|Software                            |  | 3 to 10 years
|Property leased from affiliates     |  | 35 years     
|Land improvements                   |  | 15 years     

Upon the sale or disposal of property or
equipment, the cost and accumulated depreciation accounts are
adjusted accordingly and any gain or loss is recognized in
income. Depreciation expense, including depreciation expense on
property leased from affiliates, was $12.0 million,
$14.2 million, and $15.8 million in 2001, 2000, and 1999,
respectively.

Other Intangible Assets

Other intangible assets are composed primarily of
acquired merchant portfolios which represent costs allocated to
customer contracts acquired through acquisitions. These costs
are amortized on a straight-line basis over periods ranging from
7 to 10 years.

Goodwill

Operating results of companies acquired in
purchase transactions are included in the consolidated
statements of operations from their respective acquisition
dates. The excess of the purchase price over the net assets
acquired (goodwill) is amortized on a straight-line basis
over 40 years.

Effective January 1, 2002, the Company
adopted SFAS 142, Goodwill and Other Intangible Assets,
which changes the way goodwill is amortized. See Note C for
further discussion of the impact of this new accounting
pronouncement on the Companys financial statements.

Asset Impairment

Long-lived assets to be held and those to be
disposed of and certain intangibles are evaluated for impairment
using the guidance provided by Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. The provisions of this statement establish when
an impairment loss is recognized and how it is measured.

Effective January 1, 2002, the Company
adopted SFAS 144, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of,which
changes the way asset impairment is measured. See Note C for
further discussion of the impact of this new accounting
pronouncement on the Companys financial statements.

Accrued Bankcard
Assessments

Liabilities to Visa® and MasterCard ®
originating from the Companys agreements with these
agencies, as an authorized processor, are accrued and settled on
a monthly and quarterly basis, respectively. The Company
recovers these assessment charges through various contractual
arrangements with its customers.

Income Taxes

The Company is included in the consolidated
federal income tax return of National City. National City
allocates income taxes to its subsidiaries on a separate return
basis. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying

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NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized as income or expense in the period that includes the
enactment date.


Reclassifications

Certain prior year amounts have been reclassified
to conform with the 2001 presentation.

C. Recent Accounting
Pronouncements

Goodwill and Other Intangible
Assets

In June 2001, the Financial Accounting Standards
Board issued SFAS 141, Business Combinations, and SFAS
142, Goodwill and Other Intangible Assets. SFAS 141
requires business combinations initiated after June 30,
2001 to be accounted for using the purchase method of accounting
and broadens the criteria for recording intangible assets
separate from goodwill. Under the provisions of SFAS 142,
goodwill and certain other intangible assets, which do not
possess finite useful lives, will no longer be amortized into
net income over an estimated life but rather will be tested at
least annually for impairment based on specific guidance
provided in the new standard. Intangible assets determined to
have finite lives will continue to be amortized over their
estimated useful lives and also continue to be subject to
impairment testing.

The provisions of SFAS 142 were adopted by the
Company as required effective January 1, 2002. Application
of the nonamortization provisions of the statement is expected
to reduce amortization expense by approximately $3.2 million
pre-tax, resulting in an increase in net income of approximately
$2.6 million, or $0.05 per diluted share, in 2002 as compared to
2001. SFAS 142, as part of its adoption provisions, requires a
transitional impairment test be applied to all goodwill and
other indefinite-lived intangible assets prior to June 30,
2002 and any resulting impairment loss be reported as a change
in accounting principle. Management does not expect an
impairment loss to be recorded in 2002 as a result of adoption.
The Company currently does not have any other indefinite-lived
intangible assets on its balance sheet. It is also anticipated
there will not be any material categorical reclassifications or
adjustments to the useful lives of finite-lived intangible
assets as a result of adopting the new guidance.

In general, application of the new provisions may
result in more income statement volatility due to potential
periodic recognition of impairment losses, which are likely to
vary in amount and regularity, for goodwill and other
indefinite-lived intangible assets, versus reducing those assets
through the recognition of recurring, consistent amortization
amounts.

Accounting for Long-Lived
Assets

SFAS 144, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of, was issued in October 2001 and addresses how and when to
measure impairment on long-lived assets and how to account for
long-lived assets that an entity plans to dispose of either
through sale, abandonment, exchange, or distribution to owners.
The new provisions supersede SFAS 121, which addressed asset
impairment, and certain provisions of APB Opinion 30 related to
reporting the effects of the disposal of a business segment and
requires expected future operating losses from discontinued
operations to be recorded in the period in which the losses are
incurred rather than the measurement date. Under SFAS 144, more
dispositions may qualify for discontinued operations treatment
in the income statement. The provisions of SFAS 144 became
effective for the Company January 1, 2002 and are not
expected to have a material impact on the Companys results
of operations, financial position, or liquidity.

F-9



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





D. Acquisitions

On June 28, 2001, the Company acquired a 70%
ownership interest in ABN AMRO Merchant Services, LLC for
$48.5 million in cash. Under the terms of the agreement,
the Company provides AAMS with all merchant processing services
including both authorization and settlement of all card-based
transactions. The acquisition, accounted for as a purchase,
increased the Companys goodwill by approximately
$27 million. The remainder of the purchase price was
allocated to other indentifiable intangibles, primarily acquired
merchant contracts, which are being amortized on a straight-line
basis over 10 years. The results of operations of AAMS have
been included in the consolidated financial statements since the
date of its acquisition. Incremental revenue as a result of this
acquisition was $17.7 million for 2001.

On January 8, 2001, the Company purchased
the merchant services business units from several of National
Citys banking subsidiaries for $44.0 million in cash.
This acquisition included merchant contracts and additional
sales personnel. The Company also assumed responsibility for all
merchant processing sales efforts throughout National
Citys 1,200 branch network via an exclusive multi-year
marketing agreement. The Company had previously provided the
authorization and settlement processing for these merchants via
a third party processing contract with National City. For the
year 2001, the Company recorded $15.5 million of
incremental revenue as a result of this acquisition. The
acquisition was accounted for as a transaction among entities
under common control and was recorded at the historical cost
basis of National City. The excess of the cash paid over the
historical cost bases was recorded as a reduction in
shareholders equity, net of income taxes of
$15.4 million. The results of operations of the National
City merchant services business units have been included in the
consolidated financial statements since the date of acquisition.

On December 31, 1999, the Company acquired a
merchant processing portfolio from Heartland Payment Systems LLC
for $23 million. Amounts paid were recorded as acquired
merchant portfolios, which is included in other intangible
assets in the accompanying balance sheet and are being amortized
over 10 years.

E. Divested Business Units and Related
Charges

In 2001, the Company divested its BPO business
and exited its Denver collections business which were components
of the former Corporate Outsourcing Solutions segment. Revenue
from these divested businesses was $41.2 million, which
represented 9% of the Companys revenue in 2001. The sale
of the BPO unit to Affiliated Computer Services
(ACS) was completed on August 29, 2001 for
$43.0 million in cash ($41.3 million after transaction
related expenses).

During 2001, the Company recorded charges of
$3.9 million ($4.6 million after-tax, or $0.09 per
diluted share) related to the BPO divestiture. These charges
consisted of a loss of $3.3 million ($4.2 million
after-tax, or $0.08 per diluted share) on the sale of the
business and a $0.6 million ($0.4 million after-tax,
or $0.01 per diluted share) charge for severance costs related
to fourth quarter organizational restructuring actions taken to
reduce support costs associated with the BPO unit.

In 2000, the Company recorded charges of
$8.6 million ($5.6 million after-tax, or $0.11 per
diluted share) related to these business units. These charges
consisted of $7.1 million ($4.6 million after-tax, or
$0.09 per diluted share) to write-off goodwill and fixed assets
for the Denver collections business and $1.5 million
($1.0 million after-tax, or $0.02 per diluted share) for
site consolidation initiatives in the BPO unit.

In 1999, the Company recorded charges of
$71.7 million ($71.7 million after-tax, or $1.42 per
diluted share) related to divested business units. These charges
consisted of $69.5 million for ($69.9 million
after-tax, or $1.38 per diluted share) for impairment and
associated expenses related to the sale of the Freight,
Payables, Remittance, and Check Acceptance business lines and a
$2.2 million ($1.8 million after-tax, or $0.04 per
diluted share) restructuring charge related to the closure of a
BPO facility. The Freight, Payables, Remittance, and Check
Acceptance business lines were sold in the first half of 1999
for $62.6 million in cash.

F-10



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





F. Transactions with Affiliates

The Company leases certain facilities from
National City Bank of Kentucky (NCBK), a wholly
owned subsidiary of National City, under long-term agreements
classified as Property Leased From Affiliate in the
accompanying balance sheets. Future minimum payments under this
lease, which expires in 2019, are $3.2 million, including
interest of $1.3 million. Future minimum payments under
these leases, including interest, for the next five years are
$0.2 million per year.

Substantially all of the Companys cash and
Eurodollar deposits are held by NCBK. The majority of interest
income and earnings on customer balances included in the
Consolidated Statements of Operations are derived from NCBK
accounts.

Prior to the divestiture of the Remittance
business line, the Company used the proof and transit department
of NCBK to provide processing for remittances. The charges for
these services, which are included in operating expenses, were
$1.6 million in 1999.

The Company receives certain administrative
services, such as internal audit and legal services, from
National City and its affiliates. The Company also utilizes NCBK
for the majority of its banking services. Charges for these
services are included in general and administrative expenses and
totaled $1.6 million, $1.8 million, and $1.6 million
in 2001, 2000, and 1999, respectively. As of December 31,
2001 and 2000, no amounts were due to or from National City.

On January 8, 2001, the Company acquired the
merchant services business units from several National City
banking subsidiaries for $44.0 million, which was paid in
cash at closing (see Note D).

G. Operating Leases

The Company leases various offices, facilities,
and equipment under noncancellable lease agreements with
expiration dates through 2019. During the normal course of
business, most of these leases will be renewed or replaced by
other leases. Future minimum rental payments under these leases
are $1.5 million in 2002, $1.3 million in 2003,
$1.1 million in 2004, $1.0 million in 2005,
$0.9 million in 2006 and $6.7 million thereafter. Rent
expense under operating leases was $2.9 million,
$3.7 million, and $4.8 million in 2001, 2000, and
1999, respectively.

H. Income Taxes

The provision for income taxes consists of the
following (in thousands):

|          |         |                         |        |        |   |      |        |        |   |   |        |        |  
|--------- | ------- | ----------------------- | ------ | ------ | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|          |         |                        
|          |         | Year Ended December 31,
|          |         |                        
|          |         | 2001                    |        | 2000   |   | 1999
|          |         |                         |        |        |   |     
|Current:  |         |                         |        |        |   |      |        |        |   |   |        |       
|          | Federal |                         | $      | 31,074 |   |      | $      | 26,565 |   |   | $      | 13,320 |  
|          | State   |                         |        | 1,659  |   |      |        | 3,638  |   |   |        | 4,351  |  
|          | Foreign |                         |        | (1,000 | ) |      |        | 651    |   |   |        | 628    |  
|Deferred: |         |                         |        |        |   |      |        |        |   |   |        |       
|          | Federal |                         |        | 1,660  |   |      |        | (2,961 | ) |   |        | 464    |  
|          | State   |                         |        | 2,382  |   |      |        | (827   | ) |   |        | (1,085 | )
|          |         |                         |        |        |   |      |        |        |   |   |        |       
|          |         | $                       | 35,775 |        |   | $    | 27,066 |        |   | $ | 17,678 |       
|          |         |                         |        |        |   |      |        |        |   |   |        |       

F-11



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





The temporary differences that gave rise to
deferred tax assets and liabilities at December 31 are as
follows (in thousands):

|                          |                                   |      |        |        |   |   |        |        |  
|------------------------- | --------------------------------- | ---- | ------ | ------ | - | - | ------ | ------ | -
|                          |                                   | 2001 |        | 2000  
|                          |                                   |      |        |       
|Deferred tax assets:      |                                   |      |        |        |   |   |        |       
|                          | Accrued expenses                  |      | $      | 792    |   |   | $      | 980    |  
|                          | Accrued compensation and benefits |      |        | 1,232  |   |   |        | 1,289  |  
|                          | State net operating losses        |      |        | 1,622  |   |   |        | 4,433  |  
|                          | Amortization of intangibles       |      |        | 14,048 |   |   |        | 2,206  |  
|                          | Other                             |      |        | 4,507  |   |   |        | 3,116  |  
|                          |                                   |      |        |        |   |   |        |       
|                          |                                   |      | 22,201 |        |   |   | 12,024 |       
|                          | Valuation allowance               |      |        |       |   |   |        | (284   | )
|                          |                                   |      |        |        |   |   |        |       
|                          |                                   |      | 22,201 |        |   |   | 11,740 |       
|Deferred tax liabilities: |                                   |      |        |        |   |   |        |       
|                          | Depreciation of fixed assets      |      |        | (1,986 | ) |   |        | (3,023 | )
|                          | Purchase accounting adjustments   |      |        | (3,606 | ) |   |        | (3,466 | )
|                          |                                   |      |        |        |   |   |        |       
|                          |                                   |      | (5,592 | )      |   |   | (6,489 | )     
|                          |                                   |      |        |        |   |   |        |       
|Net deferred tax assets   |                                   | $    | 16,609 |        |   | $ | 5,251  |       
|                          |                                   |      |        |        |   |   |        |       

The reconciliation of the Companys income
tax provisions and the amounts computed by applying the U.S.
statutory income tax rate to income before taxes is as follows
(in thousands):

|                                    |  |                         |        |      |  |      |        |   |  |   |        |  
|----------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                    |  |                        
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2001                    |        | 2000 |  | 1999
|                                    |  |                         |        |      |  |     
|U.S. statutory rate                 |  | $                       | 31,242 |      |  | $    | 24,659 |   |  | $ | (6,909 | )
|Nondeductible amortization          |  |                         | 630    |      |  |      | 630    |   |  |   | 811    |  
|Nondeductible goodwill write-offs   |  |                         |       |      |  |      |       |   |  |   | 22,994 |  
|State taxes, net of federal benefit |  |                         | 2,811  |      |  |      | 2,940  |   |  |   | 2,391  |  
|Change in valuation allowance       |  |                         | (185   | )    |  |      | (1,113 | ) |  |   | (268   | )
|Foreign tax benefit                 |  |                         |       |      |  |      |       |   |  |   | (1,432 | )
|Sale of BPO business                |  |                         | 1,305  |      |  |      |       |   |  |   |       |  
|Other                               |  |                         | (28    | )    |  |      | (50    | ) |  |   | 91     |  
|                                    |  |                         |        |      |  |      |        |   |  |   |        |  
|                                    |  | $                       | 35,775 |      |  | $    | 27,066 |   |  | $ | 17,678 |  
|                                    |  |                         |        |      |  |      |        |   |  |   |        |  

For 2001 and 2000, income tax benefits of
$4.6 million and $0.1 million respectively, were
received related to the exercise of nonqualified employee stock
options. This benefit is recorded directly to shareholders
equity.

As of December 31, 2001, the Company has
approximately $21.0 million of state net operating loss
carryforwards for income tax purposes available to offset future
taxable income in the related states which expire through 2014.
The Company believes that it is more likely than not that future
taxable income will be generated in these states sufficient to
justify the deferred tax assets recorded. The valuation
allowance decreased in both 2001 and 2000 as the result of
changes in the estimated realizability of the related deferred
tax assets due to improved operating results.

F-12



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





Income before taxes from foreign operations was
$1.3 million, $2.6 million and $6.8 million,
respectively, in 2001, 2000 and 1999. Income (loss) before
income taxes from U.S. operations was $88.0 million,
$67.9 million, and ($26.5) million, respectively, in 2001,
2000, and 1999.

I. Employee Benefit Plans

The Company offers a 401(k) savings plan to all
employees who meet certain age and eligibility requirements. The
plan is funded by employee contributions and discretionary
matching contributions by the Company. The Company recorded
$2.1 million, $1.4 million, and $2.5 million in
matching contribution expense during 2001, 2000, and 1999,
respectively.

J. Net Income (Loss) Per Common
Share

The calculation of net income (loss) per
common share follows (in thousands, except per share amounts):

|         |                                             |                         |   |        |  |      |   |        |  |  |   |         |  
|-------- | ------------------------------------------- | ----------------------- | - | ------ |  | ---- | - | ------ |  |  | - | ------- | -
|         |                                             |                        
|         |                                             | Year Ended December 31,
|         |                                             |                        
|         |                                             | 2001                    |   | 2000   |  | 1999
|         |                                             |                         |   |        |  |     
|Basic:   |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Net income (loss)                           |                         | $ | 52,660 |  |      | $ | 43,387 |  |  | $ | (37,418 | )
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Average common shares outstanding           |                         |   | 51,352 |  |      |   | 50,821 |  |  |   | 50,705  |  
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Net income (loss) per common share-basic    |                         | $ | 1.03   |  |      | $ | 0.85   |  |  | $ | (0.74   | )
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|Diluted: |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Net income (loss)                           |                         | $ | 52,660 |  |      | $ | 43,387 |  |  | $ | (37,418 | )
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Average common shares outstanding           |                         |   | 51,352 |  |      |   | 50,821 |  |  |   | 50,705  |  
|         | Dilutive effect of stock options            |                         |   | 631    |  |      |   | 228    |  |  |   |        |  
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Average common shares outstanding- diluted  |                         |   | 51,983 |  |      |   | 51,049 |  |  |   | 50,705  |  
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        
|         | Net income (loss) per common share- diluted |                         | $ | 1.01   |  |      | $ | 0.85   |  |  | $ | (0.74   | )
|         |                                             |                         |   |        |  |      |   |        |  |  |   |        

For 1999 the effect of stock options was
antidilutive.

K. Stock Options

The Company maintains various stock-based
compensation plans that allow for the granting of stock options
to eligible employees and directors. The Company has elected not
to adopt the recognition provisions of SFAS 123, Accounting
for Stock-Based Compensation, which requires a fair-value
based method of accounting for stock options and similar equity
awards, and continues to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations to account for its
stock-based compensation plans.

The stock option plans originally authorized the
issuance to officers, directors, and key employees of up to
9,200,000 options to purchase shares of common stock at the fair
value of the common stock on the date of grant. These options
generally become exercisable 33% annually beginning one year
from the date of grant and expire not later than ten years from
the date of grant.

F-13



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





A summary of stock option activity follows:

|                  |            |                     |           |                     |   |                  |           |            |   |   |       |       | 
|----------------- | ---------- | ------------------- | --------- | ------------------- | - | ---------------- | --------- | ---------- | - | - | ----- | ----- | 
|                  |            | Option Shares       |           |                     |   | Weighted-Average
|                  |            | Available for Grant |           | Options Outstanding |   | Price Per Share 
|                  |            |                     |           |                     |   |                 
|January 1, 1999   |            |                     | 1,186,468 |                     |   |                  | 2,943,881 |            |   | $ | 12.77 |      
|                  | Granted    |                     |           | (628,000            | ) |                  |           | 628,000    |   |   |       | 8.64  | 
|                  | Forfeited  |                     |           | 1,088,939           |   |                  |           | (1,088,939 | ) |   |       | 13.02 | 
|                  | Exercised  |                     |           |                    |   |                  |           | (141,001   | ) |   |       | 8.27  | 
|                  |            |                     |           |                     |   |                  |           |            |   |   |       |      
|December 31, 1999 |            |                     | 1,647,407 |                     |   |                  | 2,341,941 |            |   |   | 11.82 |      
|                  | Authorized |                     |           | 5,000,000           |   |                  |           |           |   |   |       |      | 
|                  | Granted    |                     |           | (1,080,500          | ) |                  |           | 1,080,500  |   |   |       | 11.41 | 
|                  | Forfeited  |                     |           | 465,668             |   |                  |           | (465,668   | ) |   |       | 12.57 | 
|                  | Exercised  |                     |           |                    |   |                  |           | (149,808   | ) |   |       | 11.80 | 
|                  |            |                     |           |                     |   |                  |           |            |   |   |       |      
|December 31, 2000 |            |                     | 6,032,575 |                     |   |                  | 2,806,965 |            |   |   | 11.54 |      
|                  | Granted    |                     |           | (1,464,725          | ) |                  |           | 1,511,583  |   |   |       | 25.91 | 
|                  | Forfeited  |                     |           | 145,570             |   |                  |           | (145,570   | ) |   |       | 14.42 | 
|                  | Exercised  |                     |           |                    |   |                  |           | (898,906   | ) |   |       | 11.36 | 
|                  |            |                     |           |                     |   |                  |           |            |   |   |       |      
|December 31, 2001 |            |                     | 4,713,420 |                     |   |                  | 3,274,072 |            |   |   | 18.09 |      
|                  |            |                     |           |                     |   |                  |           |            |   |   |       |      

Information about stock options outstanding at
December 31, 2001 follows:

|         |                 |             |  |                |           |                  |  |             |       |                |  |  |     |  |  |  |           |  |  |   |       | 
|-------- | --------------- | ----------- |  | -------------- | --------- | ---------------- |  | ----------- | ----- | -------------- |  |  | --- |  |  |  | --------- |  |  | - | ----- | 
|         |                 |             |  |                |           | Weighted-Average |  |             |       |               
|Range of |                 |             |  | Weighted-      |           | Remaining        |  |             |       | Weighted-     
|Exercise |                 |             |  | Average        |           | Contractual Life |  |             |       | Average       
|Prices   |                 | Outstanding |  | Exercise Price |           | (in years)       |  | Exercisable |       | Exercise Price
|         |                 |             |  |                |           |                  |  |             |       |               
|         | $ 5.50 - $10.99 |             |  |                | 637,792   |                  |  | $           | 9.21  |                |  |  | 6.9 |  |  |  | 475,672   |  |  | $ | 9.33  | 
|         | 11.00 - 15.99   |             |  |                | 882,272   |                  |  |             | 11.78 |                |  |  | 8.2 |  |  |  | 362,505   |  |  |   | 11.81 | 
|         | 16.00 - 20.99   |             |  |                | 318,000   |                  |  |             | 17.12 |                |  |  | 4.9 |  |  |  | 300,000   |  |  |   | 17.02 | 
|         | 21.00 - 25.99   |             |  |                | 1,258,156 |                  |  |             | 25.50 |                |  |  | 9.3 |  |  |  |          |  |  |   |      | 
|         | 26.00 - 32.95   |             |  |                | 177,852   |                  |  |             | 30.61 |                |  |  | 9.5 |  |  |  |          |  |  |   |      | 
|         |                 |             |  |                |           |                  |  |             |       |                |  |  |     |  |  |  |           |  |  |   |       | 
|         | Total           |             |  |                | 3,274,072 |                  |  | $           | 18.09 |                |  |  | 8.1 |  |  |  | 1,138,177 |  |  | $ | 12.15 | 
|         |                 |             |  |                |           |                  |  |             |       |                |  |  |     |  |  |  |           |  |  |   |       | 

For purposes of providing the pro forma
disclosures required under SFAS 123, the fair value of stock
options granted in 2001, 2000, and 1999 was estimated at the
date of grant using a Black-Scholes option pricing model. The
Black-Scholes option pricing model was originally developed for
use in estimating the fair value of traded options, which have
different characteristics than the Companys employee stock
options. The model is also sensitive to changes in the
subjective assumptions, which can materially affect the fair
value estimate. As a result, management believes the
Black-Scholes model may not necessarily provide a reliable
single measure of the fair value of employee stock options.

Had compensation cost for the Companys
stock-based compensation plans been determined consistent with
SFAS 123, net income (loss) and diluted earnings
(loss) per share would have been $48.2 million and
$0.93 for 2001, $41.7 million and $0.82 for 2000, and
$(35.0) million and $(0.69) for 1999, respectively. The effects
of applying SFAS 123 in 2001, 2000, and 1999 may not be
representative of the pro forma impact in future years.

F-14



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





The following weighted-average assumptions were
used in the option-pricing model:

|                                                  |  |      |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                  |  | 2001 |         | 2000 |  | 1999
|                                                  |  |      |         |      |  |     
|Risk free interest rate                           |  |      | 5.5     | %    |  |      | 5.0     | % |  |   | 6.4     | %
|Expected option life                              |  |      | 7 years |      |  |      | 7 years |   |  |   | 7 years |  
|Expected dividend yield                           |  |      | 0       | %    |  |      | 0       | % |  |   | 0       | %
|Volatility factor                                 |  |      | .495    |      |  |      | .479    |   |  |   | .744    |  
|Weighted average grant date fair value of options |  | $    | 15.14   |      |  | $    | 6.36    |   |  | $ | 6.30    |  

On May 10, 2001 the shareholders of the
Company approved the National Processing, Inc. 2001 Restricted
Stock Plan. Under the terms of the plan, the Company may issue
up to 500,000 shares of common stock to officers and key
employees. In the third quarter of 2001, the Company issued
32,500 shares of restricted stock. The stock awards were
provided in recognition of future contributions to the
continuing success of the company. In general, the restrictions
on shares granted expire within a four year period. The Company
recognized $0.2 million of compensation expense in 2001
related to these restricted stock awards. As of
December 31, 2001, 29,000 shares of restricted stock were
outstanding.

L. Commitments and
Contingencies

Chargebacks 
General

Under the rules of Visa® and MasterCard
® , when a merchant processor acquires card transactions,
it has certain contingent liabilities for the transactions
processed. This contingent liability arises in the event of a
billing dispute between the merchant and a cardholder that is
not ultimately resolved in the merchants favor. In such a
case, the transaction is charged back to the
merchant and the disputed amount is credited or otherwise
refunded to the cardholder. If the Company is unable to collect
this amount from the merchants account, and if the
merchant refuses or is unable to reimburse the Company for the
chargeback due to bankruptcy or other reasons, the Company will
bear the loss for the amount of the refund paid to the
cardholder. In most cases, this contingent liability situation
is unlikely to arise because most products or services are
delivered when purchased, and credits are issued on returned
items. However, where the product or service is not provided
until some later time following the purchase, the contingent
liability could be more likely. The Company mitigates its
contingent liability risk by instructing NCBK to withhold
certain settlement funds due to merchants based on contractual
terms. As of December 31, 2001, NCBK had $64.7 million of
customer deposits and withheld settlement funds. Management
believes the likelihood of any material loss under the
chargeback rules is remote.

Chargebacks 
Airline Exposure

The terrorist attacks in New York and Washington
on September 11, 2001, led to reduced levels of air travel.
The Company currently processes credit card transactions for six
of the top ten United States airlines, and the majority of its
Payment Services business is also tied to the travel industry.
Travel-related customers, principally airlines, represented
approximately 13% of revenue from continuing businesses for the
year ended December 31, 2001, 6% from Merchant Card
Services and 7% from Payment Services. To the extent future air
travel continues at levels below historical trends, that portion
of Merchant Card Services and Payment Services revenue will be
impacted. There is less revenue exposure in the Payment Services
business due to the cost-plus contract with the Airlines
Reporting Corporation and contractual minimums with other
travel-related customers.

The unprecedented slowdown in air travel,
combined with the costs of additional security measures, has
raised questions about the ongoing financial viability of the
airline industry. In the event of bankruptcy liquidation of one
or more of the Companys airline customers, the Company
could become financially

F-15



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





responsible for refunding tickets purchased
through VISA® or MasterCard ® under the chargeback
rules of those associations.


In the near term, management believes that
airline bankruptcy liquidations are highly unlikely given the
recent Federal financial support for the airline industry. In
November 2001, Congress passed the Aviation and Transportation
Security Act which requires airlines to honor tickets for other
airlines that may suspend, interrupt or discontinue service due
to insolvency or bankruptcy. Considering the foregoing and in
light of other actions taken to mitigate the situation,
management believes the likelihood of any material loss under
the chargeback rules is remote.

Litigation

In the normal course of business, the Company is
involved in litigation from time to time. In the opinion of
management, the ultimate liability, if any, arising from this
litigation is not expected to have a material adverse effect on
the Companys financial condition, results of operations,
or liquidity.

M. Quarterly Results of Operations
(Unaudited):

Selected quarterly data for 2001 and 2000 are as
follows (in thousands, except per share amounts):

|                                    |  |         |         |         |  |         |         |         |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                    |  | First   |         | Second  |  | Third   |         | Fourth  |  |     
|                                    |  | Quarter |         | Quarter |  | Quarter |         | Quarter |  | Year
|                                    |  |         |         |         |  |         |         |         |  |     
|2001                                |  |         |         |         |  |         |         |         |  |      |         |  |  |   |         |  |  |   |         | 
|Revenue                             |  | $       | 109,045 |         |  | $       | 117,876 |         |  | $    | 122,376 |  |  | $ | 123,953 |  |  | $ | 473,250 | 
|Operating profit                    |  |         | 16,432  |         |  |         | 14,753  |         |  |      | 23,421  |  |  |   | 27,790  |  |  |   | 82,396  | 
|Net income                          |  |         | 11,539  |         |  |         | 7,918   |         |  |      | 15,034  |  |  |   | 18,169  |  |  |   | 52,660  | 
|Basic net income per common share   |  | $       | 0.23    |         |  | $       | 0.15    |         |  | $    | 0.29    |  |  | $ | 0.35    |  |  | $ | 1.03    | 
|Diluted net income per common share |  | $       | 0.22    |         |  | $       | 0.15    |         |  | $    | 0.29    |  |  | $ | 0.35    |  |  | $ | 1.01    | 

|                                    |  |         |        |         |  |         |         |         |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------------------- |  | ------- | ------ | ------- |  | ------- | ------- | ------- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                    |  | First   |        | Second  |  | Third   |         | Fourth  |  |     
|                                    |  | Quarter |        | Quarter |  | Quarter |         | Quarter |  | Year
|                                    |  |         |        |         |  |         |         |         |  |     
|2000                                |  |         |        |         |  |         |         |         |  |      |         |  |  |   |         |  |  |   |         | 
|Revenue                             |  | $       | 97,867 |         |  | $       | 104,513 |         |  | $    | 108,631 |  |  | $ | 116,250 |  |  | $ | 427,261 | 
|Operating profit                    |  |         | 13,631 |         |  |         | 15,356  |         |  |      | 18,926  |  |  |   | 14,258  |  |  |   | 62,171  | 
|Net income                          |  |         | 9,548  |         |  |         | 10,476  |         |  |      | 12,982  |  |  |   | 10,381  |  |  |   | 43,387  | 
|Basic net income per common share   |  | $       | 0.19   |         |  | $       | 0.21    |         |  | $    | 0.26    |  |  | $ | 0.20    |  |  | $ | 0.85    | 
|Diluted net income per common share |  | $       | 0.19   |         |  | $       | 0.21    |         |  | $    | 0.25    |  |  | $ | 0.20    |  |  | $ | 0.85    | 

The above financial data for 2001 includes a net
charge of $3.9 million ($4.6 million after-tax, or
$0.09 per diluted share). This net charge consists of a second
quarter charge of $6.3 million ($6.2 million
after-tax, or $0.12 per diluted share), which was partially
offset by a net positive adjustment of $2.4 million
($1.5 million after-tax, or $0.03 per diluted share) in the
fourth quarter. The second quarter charge related to the
Companys divestiture of its BPO unit. The net fourth
quarter gain represented a $3.0 million ($1.9 million
after-tax) favorable adjustment to the BPO divestiture charge,
partially offset by $0.6 million ($0.4 million
after-tax) charge for severance costs related to fourth quarter
organizational restructuring actions taken to reduce support
costs associated with the BPO unit.

The above financial data for 2000 includes total
nonrecurring charges of $8.6 million ($5.6 million
after-tax, or $0.11 per diluted share). These charges consisted
of a second quarter charge of $1.5 million
($1.0 million after-tax, or $0.02 per diluted share) for
site consolidation initiatives in the BPO unit and a fourth
quarter impairment charge of $7.1 million ($4.6 million
after-tax, or $0.09 per diluted share) related to the
Companys decision to exit its Denver collections business.

F-16



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)





N. Segment Reporting

The Company operates two business segments,
Merchant Card Services and Payment Services. Merchant Card
Services authorizes, processes, and performs financial
settlement and reporting of card transactions including credit,
debit, stored value, and EBT. Payment Services provides
financial settlement and reporting solutions to large and
mid-size corporate customers in the travel service and
healthcare industries.

Reportable segments are identified by the
services they offer. General and administrative expenses are
allocated to the segments based upon various methods determined
by the nature of the expenses. There is no intersegment revenue.
Depreciation expense for corporate fixed assets is allocated to
the two segments. Corporate assets are comprised primarily of
cash, Eurodollar deposits, income tax balances, and fixed assets
used by both segments or by support service areas. The
accounting policies of the reportable segments are the same as
those of the Company. Prior period amounts have been classified
to conform to the current line of business reporting structure.

|                                                   |  |             |         |                        |  |           |         |       |  |   |         |   |  |   |         |  
|-------------------------------------------------- |  | ----------- | ------- | ---------------------- |  | --------- | ------- | ----- |  | - | ------- | - |  | - | ------- | -
|                                                   |  | Merchant    |         |                        |  |           |         |      
|                                                   |  | Card        |         | Payment                |  |           |         |      
|                                                   |  | Services(1) |         | Services(2)            |  | Corporate |         | Total
|                                                   |  |             |         |                        |  |           |         |      
|                                                   |  |             |         |                        |  |          
|                                                   |  |             |         | (Dollars in thousands) |  |          
|2001                                               |  |             |         |                        |  |           |         |       |  |   |         |   |  |   |         |  
|Revenue                                            |  | $           | 401,972 |                        |  | $         | 71,278  |       |  | $ |        |   |  | $ | 473,250 |  
|Restructuring, divestiture, and impairment charges |  |             |        |                        |  |           | 3,870   |       |  |   |        |   |  |   | 3,870   |  
|Operating profit                                   |  |             | 76,923  |                        |  |           | 5,473   |       |  |   |        |   |  |   | 82,396  |  
|Depreciation and amortization                      |  |             | 15,766  |                        |  |           | 4,580   |       |  |   |        |   |  |   | 20,346  |  
|Net interest income                                |  |             | 5,994   |                        |  |           | 872     |       |  |   |        |   |  |   | 6,866   |  
|Total assets                                       |  |             | 326,409 |                        |  |           | 6,383   |       |  |   | 145,546 |   |  |   | 478,338 |  
|Capital expenditures                               |  |             | 14,800  |                        |  |           | 1,339   |       |  |   | 3,950   |   |  |   | 20,089  |  
|2000                                               |  |             |         |                        |  |           |         |       |  |   |         |   |  |   |         |  
|Revenue                                            |  | $           | 317,853 |                        |  | $         | 109,408 |       |  | $ |        |   |  | $ | 427,261 |  
|Restructuring, divestiture, and impairment charges |  |             |        |                        |  |           | 8,572   |       |  |   |        |   |  |   | 8,572   |  
|Operating profit                                   |  |             | 54,368  |                        |  |           | 7,803   |       |  |   |        |   |  |   | 62,171  |  
|Depreciation and amortization                      |  |             | 13,705  |                        |  |           | 7,798   |       |  |   |        |   |  |   | 21,503  |  
|Net interest income                                |  |             | 6,328   |                        |  |           | 1,954   |       |  |   |        |   |  |   | 8,282   |  
|Total assets                                       |  |             | 223,919 |                        |  |           | 56,311  |       |  |   | 155,215 |   |  |   | 435,445 |  
|Capital expenditures                               |  |             | 9,669   |                        |  |           | 3,143   |       |  |   | 1,594   |   |  |   | 14,406  |  
|1999                                               |  |             |         |                        |  |           |         |       |  |   |         |   |  |   |         |  
|Revenue                                            |  | $           | 288,772 |                        |  | $         | 142,212 |       |  | $ |        |   |  | $ | 430,984 |  
|Restructuring, divestiture, and impairment charges |  |             | 25,293  |                        |  |           | 46,398  |       |  |   |        |   |  |   | 71,691  |  
|Operating profit (loss)                            |  |             | 13,318  |                        |  |           | (29,288 | )     |  |   | (8,224  | ) |  |   | (24,194 | )
|Depreciation and amortization                      |  |             | 7,082   |                        |  |           | 14,968  |       |  |   |        |   |  |   | 22,050  |  
|Net interest income                                |  |             | 3,165   |                        |  |           | 1,289   |       |  |   |        |   |  |   | 4,454   |  
|Total assets                                       |  |             | 204,822 |                        |  |           | 54,211  |       |  |   | 143,297 |   |  |   | 402,330 |  
|Capital expenditures                               |  |             | 1,210   |                        |  |           | 6,695   |       |  |   | 9,026   |   |  |   | 16,931  |  



---



|    |                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Merchant Card Services was formerly an operating
	unit within the Companys Merchant Services segment. Upon
	the sale of the Check Acceptance business unit in 1999, this
	segment was renamed Merchant Card Services. The historical
	segment disclosures include the divested Check Acceptance
	business unit through June 1, 1999, the date of the sale.

F-17



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##### Table of Contents



NATIONAL PROCESSING, INC.


Notes to Consolidated Financial
Statements  (Continued)







|    |                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Payment Services was formerly an operating unit
	within the Companys Corporate Outsourcing Solutions
	segment. This segment was renamed Payment Services in 2001 after
	the sale of the BPO business unit. The historical segment
	disclosures include the results of various divested business
	units formerly classified as part of the Corporate Outsourcing
	Solutions segment.

Revenue from foreign operations in 2001, 2000,
and 1999, was $40.3 million, $69.8 million and
$63.9 million, respectively. The net book value of foreign
long-lived assets, primarily in Juarez, Mexico, was
approximately $1.4 million, $16.6 million and
$13.7 million at December 31, 2001, 2000, and 1999,
respectively.

F-18



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##### Table of Contents



NATIONAL PROCESSING, INC.




PART IV ITEM
14:     EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                              
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 3.1   | (i)         |  | Amended Articles of Incorporation of the
	Registrant. (A)                                                                                                                                                                    
|        | 3.1   | (ii)        |  | Code of Regulations of the Registrant. (A)                                                                                                                                                                                   
|        | 4.1   |             |  | Specimen Certificate for the Common Stock,
	without par value, of the Registrant. (B)                                                                                                                                        
|        | 4.2   |             |  | Registration Rights Agreement between the
	Registrant and National City Corporation, dated July 16,
	1996. (B)                                                                                                               
|        | 10.1  |             |  | Absolute Net Ground Lease by and between Preston
	Manor, Inc. and Allied Stores Corporation, dated
	January 16, 1969. (A)                                                                                                    
|        | 10.2  |             |  | Second Amendment to Lease by and between William
	G. Earley, Plaza Centers, Inc. and First National Bank of
	Louisville, dated April 15, 1986. (A)                                                                           
|        | 10.3  |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.4  |             |  | Sponsorship Agreement between NPC and National
	City Bank of Kentucky, dated June 30, 1996. (B)                                                                                                                              
|        | 10.5  |             |  | Administrative Services Agreement between NPC and
	National City Corporation, dated July 15, 1996. (B)                                                                                                                       
|        | 10.6  |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.7  |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.8  |             |  | Form of Card Services Agreement by and among NPC
	and its affiliated corporations and certain bank subsidiaries of
	National City Corporation. (B)                                                                           
|        | 10.9  |             |  | Tax Sharing Agreement between the Company and
	National City Corporation, dated July 17, 1996. (B)                                                                                                                           
|        | 10.10 |             |  | The Agreement between Airlines Reporting
	Corporation and First National Bank of Louisville and NPC for
	Area Settlement Plan Processing Services, dated October 16,
	1986. (B)                                              
|        | 10.11 |             |  | First Amendment to Agreements between Airlines
	Reporting Corporation and First National Bank of Louisville and
	NPC, dated December 12, 1991. (A)                                                                           
|        | 10.12 |             |  | 1994 Amendment to Agreements between Airlines
	Reporting Corporation and NPC, dated December 31, 1994. (A)                                                                                                                   
|        | 10.13 |             |  | Supplemental Agreement by and between NPC and
	Airlines Reporting Corporation, dated February 24, 1995. (A)                                                                                                                  
|        | 10.14 |             |  | Amendment to Agreement between Airlines Reporting
	Corporation and National City Bank of Kentucky and NPC, for Area
	Settlement Plan Processing Services, dated August 19, 1995.
	(A)                                        
|        | 10.15 |             |  | December 1, 1998 Amendment to the ARC and
	NPC Processing Agreement. (Incorporated herein by reference to
	Exhibit 10.15 to the Registrants Annual Report on
	Form 10-K for the year ended December 31, 1999)               
|        | 10.16 |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.17 |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.18 |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.19 |             |  | Employment Agreement between the Registrant and
	Mark Pyke dated March 4, 1996. (Incorporated herein by
	reference to Exhibit 10.19 to the Registrants Annual
	Report on Form 10-K for the year ended December 31,
	1999) **
|        | 10.20 |             |  | (Intentionally Omitted)                                                                                                                                                                                                      
|        | 10.21 |             |  | Employment Agreement and Undertaking of
	Confidentiality between NPC and Thomas A. Wimsett dated
	May 23, 1995. (A)**                                                                                                        



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##### Table of Contents



|        |       |             |  |                                                                                                                                                                                                                                                                  
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.22 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.23 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.24 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.25 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.26 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.27 |             |  | Severance Agreement between the Registrant and
	Thomas A. Wimsett, dated June 7, 1996. (B)**                                                                                                                                                                     
|        | 10.28 |             |  | National Processing, Inc. 2000 Stock Option Plan.
	(Incorporated herein by reference to Exhibit 10.28 to the
	Registrants Quarterly Report on Form 10-Q for the quarter
	ended June 30, 2000) **                                                                
|        | 10.29 |             |  | 1996 Stock Option Plan and Form of Stock Option
	Agreement. (B)**                                                                                                                                                                                                
|        | 10.30 |             |  | Nonemployee Directors Stock Option Plan and Form
	of Stock Option Agreement. (B)**                                                                                                                                                                               
|        | 10.31 |             |  | Amended and Restated NPC Short-Term Incentive
	Compensation Plan for Senior Executives, effective
	February 9, 2000. (Incorporated herein by reference to
	Exhibit 10.31 to the Registrants Annual Report on
	Form 10-K for the year ended December 31, 1999) **
|        | 10.32 |             |  | NPCs Long-Term Incentive Compensation Plan
	for Senior Officers, effective January 1, 1998.
	(Incorporated herein by reference to Exhibit 10.32 to the
	Registrants Annual Report on Form 10-K for the year
	ended December 31, 2000) **                       
|        | 10.33 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.34 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.35 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.36 |             |  | Amendment to Building Lease between National City
	Bank of Kentucky and NPC, dated July 3, 1996. (B)**                                                                                                                                                           
|        | 10.37 |             |  | Form of Severance Agreement between the
	Registrant and certain Senior Vice Presidents. (B)**                                                                                                                                                                    
|        | 10.38 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.39 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.40 |             |  | (Intentionally Omitted)                                                                                                                                                                                                                                          
|        | 10.41 |             |  | National Processing, Inc. 2001 Restricted Stock
	Plan (Incorporated herein by reference to Exhibit A to
	National Processing, Inc.s Proxy Statement on
	Form 14A #001-11905, dated March 31, 2001).                                                             
|        | 10.42 |             |  | National Processing, Inc.s U.S. Asset
	Purchase Agreement, dated July 11, 2001 (Incorporated herein by
	reference to Exhibit 10.42 to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001).                                    
|        | 10.43 |             |  | National Processing, Inc.s Mexico Asset
	Purchase Agreement, dated July 11, 2001 (Incorporated herein by
	reference to Exhibit 10.43 to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001).                                  
|        | 10.44 |             |  | National Processing, Inc.s Stock Purchase
	Agreement, dated July 11, 2001 (Incorporated herein by
	reference to Exhibit 10.44 to the Registrants
	Quarterly Report on Form 10-Q for the quarter ended
	June 30, 2001).                                         
|        | 21.1  |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                  
|        | 23.1  |             |  | Consent of Ernst & Young LLP, Independent
	Auditors for National Processing, Inc.                                                                                                                                                                                
|        | 24.1  |             |  | Directors of National Processing, Inc. Annual
	Report on Form 10-K Power of Attorney.                                                                                                                                                                            



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##### Table of Contents





---



|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) | Exhibit is incorporated herein by reference to
	the applicable exhibit in the Registrants Registration
	Statement on Form S-1 (Registration No. 333-05507) filed on
	June 7, 1996.



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(B) | Exhibit is incorporated herein by reference to
	the applicable exhibit in the Registrants Amendment
	No. 1 to Form S-1 Registration Statement (Registration
	No. 333-05507) filed on July 18, 1996.



|   |                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------
|** | Represents a management contract or compensatory
	plan required to be filed pursuant to Item 14 of
	Form 10-K.