Back to GetFilings.com

Use these links to rapidly review the document
CARREKER CORPORATION Index
Item 8. Financial Statements and Supplementary Data.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

Commission file number 0-24201

CARREKER CORPORATION
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (972) 458-1981

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

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

Common Stock, par value $0.01 per share
(Title of class)

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

        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. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value on July 31, 2004 of the voting and non-voting common equity held by non-affiliates of the registrant was $202,239,992.

        Number of shares of registrant's Common Stock, par value $0.01 per share, outstanding as of March 31, 2005: 24,859,503

DOCUMENTS INCORPORATED BY REFERENCE

        Selected portions of the registrant's definitive Proxy Statement for the 2005 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

CARREKER CORPORATION

Index

2

PART I

Item 1. Business.

        Unless the context otherwise requires, the term "we," "us," "our," "Company," "Carreker," or "Carreker Corporation" when used in this Form 10-K ("Report") and in the Annual Report to the Stockholders refers to Carreker Corporation, a Delaware corporation organized in 1998, and its consolidated subsidiaries and predecessors. Our Internet Website address is www.Carreker.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports are available, free of charge, on our Internet Website under "Investor Relations (IR)—SEC Filings" as soon as reasonably practicable after we file electronically such material with, or furnish it to, the United States Securities and Exchange Commission, or SEC. Information on our Internet Website does not constitute a part of this Report. This Report contains some forward-looking statements within the meaning of the federal securities laws. When used in this Report, the words "expects," "plans," "believes," "anticipating," "estimates," and similar expressions are intended to identify forward looking statements. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward looking statements due to a number of factors, including without limitation those set forth under "Forward Looking Statements and Risk Factors" below.

Our Business Focus

        For the last 27 years Carreker Corporation has designed, developed, sold and delivered payments-related software and consulting solutions to financial institutions and financial service providers. Our products and services address a broad spectrum of payment activities and are designed to help our clients enhance the performance of their payments businesses; improve operational efficiency in payments processing; enhance revenue and profitability from payments-oriented products and services; reduce losses associated with fraudulent payment transactions; facilitate compliance with risk-related laws and regulations; and/or maximize clients' customer income streams by aligning their customer interactions and products with customer needs.

        We are organized into three primary operating divisions: Global Payments Technologies ("GPT"), Revenue Enhancement ("RevE") and Global Payments Consulting ("GPC"). These operating divisions are operated in discrete yet synergistic ways to bring value to our clients. In addition we have established a joint venture named Carretek LLC to address the payments outsourcing arena.

Products and Services

        The products and services of our three primary operating divisions are described below in this sequence: Global Payments Technologies ("GPT"), Revenue Enhancement ("RevE") and Global Payments Consulting ("GPC")

        Global Payments Technologies Solutions.    Carreker's technology solutions help financial institutions address the needs of some critical payment services and delivery functions that impact overall operating revenues and costs and risk management. These functions include presentment of checks in paper and electronic form, identification and mitigation of fraudulent payments, handling irregular items such as checks returned unpaid (exceptions), maintaining a record of past transactions (archiving), responding to related customer inquiries (research), and correcting any errors that are discovered (adjustments). Global Payments Technologies ("GPT") solutions address these and other key functions in the context of improving operational efficiency and a gradual transition from paper to electronic-based payment systems. In addition, we offer technology solutions that optimize the inventory management of a bank's cash stock levels and logistical service requirements, including managing how much is needed, when it is needed and where it is needed. Our solutions reduce the amount of cash banks need to hold in reserve accounts and as cash-on-hand while ensuring a high level of customer service through timely replenishment of ATM cash supplies at minimal logistical services cost.

3

        Specific solutions in the GPT group include:

4

5

6

        Revenue Enhancement.    The Revenue Enhancement division includes two business units: RevE and Customer Value Enhancement ("CVE"), formerly known as EnAct. RevE is a highly specialized division that provides consulting services focused on tactical methods of increasing banks' fee income. The scope and depth of this practice has expanded throughout its 14 year history and now includes retail, small business, and commercial deposits, treasury management, consumer and commercial lending, credit card lending and trust and investment services. Our solutions involve developing strategies that enable our clients to take advantage of electronification trends, often gaining first mover advantages for our clients. In addition to developing strategies, our business model ensures that we continue to translate those strategies into tactical implementations with measurable revenue streams. Our client base has continued to expand with very high penetration rates in the markets in which we operate. Thus, we have experienced a trend of becoming longer term strategic partners with our clients.

        Another component of our Revenue Enhancement offering is our CVE solutions that includes EnAct software, proprietary sales management methodologies and sales training programs. Our CVE solutions assist financial institutions in leveraging central intelligence with local insight. This enables our clients to recognize those customers and prospects representing the greatest value or potential. Our approach is unique and complementary to many CRM investments that banks have made in recent years and is designed to focus their activities such that they can actually attain increased returns on these CRM investments.

        Global Payments Consulting.    Our Global Payments Consulting (GPC) division helps financial institutions proactively plan, prepare and optimize for the regulatory, competitive and technological impacts affecting the financial payments environment. The division provides strategic planning and implementation advisory services for financial institutions and other clients. These planning and implementation services include:

•

Enterprise payment strategy



•

Payment research services



•

Predictive financial and operational modeling of the implications of payment trends and strategies



•

Image-enabled payment infrastructure planning



•

Transportation, float and funds availability optimization



•

Consolidation and merger/integration planning



•

Program Management



•

Enterprise Risk

        The GPC division also contains the license, maintenance and services revenue of our Float Management software products—Float Analysis System and Float Management System—for managing a bank's float through float analysis and pricing to improve profitability, reporting, workflow and check clearing operations. These products also provide critical activity summaries, aid in creating multiple availability and pricing schedules, and pinpoint the cost/profitability of transactions or relationships.

        Outsourcing.    Carretek LLC is a transformational business outsourcer for payment and transaction processing jointly owned by Carreker Corporation (51%) and Majesco Software Inc. (49%), the U.S. subsidiary of Mastek Limited, a leading Indian outsourcing company with global operations. Carretek was formed in fiscal 2003. While the venture has signed its first contract, it is still in the developmental phase and its results are contained in the Corporate-Unallocated business segment.

        Carretek's mission is to enable financial institutions and their processors to realize the benefits of transformational offshore-centric outsourcing ("offshoring") of their business processes. The benefits to

7

clients could include reduction in operating costs, improvements in productivity, and enhancement of quality.

        Initially, Carretek is focused on offshoring payments-related business processes. Through Carretek, financial institutions can leverage the global work force at this critical period when Check 21 and other payment electronification trends are pressuring financial institutions to reduce their payment per item costs beyond the power of traditional cost management practices. Carretek has designed and built specific product offerings targeted at payment and transaction processing functions for this express purpose. Within this area of expertise, the Carretek offering includes a flexible array of offshore outsourcing services to financial institutions.

The Carreker Solution

        The products and services offered by our divisions are designed to address our clients' needs to adapt to an ever-changing landscape in the payments businesses for financial institutions. These solutions combine consulting and professional services with software applications to enable financial institutions to identify and implement payment solutions, increase revenues, reduce costs and enhance delivery of customer services. The key characteristics of our solutions include:

        Integrated and Consultative Approach.    We combine our consulting expertise and software applications to serve as a single-source provider of fully-integrated payments solutions. This approach sets us apart from providers of partial solutions that require financial institutions to seek multiple solution providers and costly additional expertise or implementation services to attain a complete solution. By offering this integration, we can streamline the buying decisions, simplify the implementation efforts and accelerate results when compared to a multiple supplier approach.

        Comprehensive Delivery Model.    We deliver our software and consulting solutions in a variety of delivery models to meet our clients' specific needs. These delivery methods include traditional software licensing and associated consulting, third party web-hosting and licensing software for use by multiple banks in a shared operating environment. Our ability to deliver products and services in a variety of methods allows us to provide solutions to a wider range of clients.

        Compelling Business Proposition for Clients.    Our solutions reduce investment risk for our clients by increasing revenues or reducing costs in a concrete and measurable way and in a relatively short period of time. In addition, in appropriate circumstances, we value-price certain of our solutions, whereby we receive a percentage of the amount of additional revenues or reduced costs achieved by the customer. These arrangements allow banks to fund their investments in our solutions with the benefits derived from their implementation.

        Broad Array of Services and Technology.    We believe that our offerings provide the broadest footprint of solutions from a single supplier of payments solutions in the banking industry. This array of products enables us to provide a financial institution with a very targeted solution for a narrow area of its operations or to address a broad range of its operational requirements.

Our Market

        Carreker's direct market is the financial services industry. Within that huge sector, we focus mainly on large banks and mainly in the U.S. However our market also includes:

•

Non-banks, mainly in the form of companies that provide processing and related services to banks



•

Banks below $5 billion in assets, especially for certain products as detailed previously in the Products and Services section

8

•

Banks in other countries, especially where English is the first language, although that is less a factor over time



•

Customers of banks that will increasingly use our technology as it is imbedded in the banks' customer offerings

        At present, we serve all of the top 20 banks in the U.S., plus 75 of the next 100 banks, and many smaller banks. We also serve the six largest financial institutions in Canada, the four largest in the UK, the two largest in Ireland, the five largest in Australia and New Zealand, and three of the four largest in South Africa. We have a smaller presence in other European and Latin American countries.

        Most of the major bank processing companies are our clients, and we have alliance and/or reseller relationships with many of them to maximize distribution of our products and services.

        Banks are expected to continue spending heavily on Information Technology ("IT") this year. TowerGroup and Celent both forecast approximately a four percent increase. According to Celent, "Areas such as security, payments, multi-channel integration, and branch automation will be highlighted in 2005, as banks push towards increasing strategic investments in new technology."

        Significant new regulatory, competitive, technological, human capital and behavioral forces are acting on the payments industry now in ways that seem likely to impact virtually all participants in this market space. The forces include the following:

        Regulatory Change.    There are a number of legislative and regulatory changes impacting the form, structure, process and controls around paper, electronic and currency-based financial payments. We believe financial institutions around the world will need to invest in the understanding, planning and implementation activities related to these changes. Three of the more important areas of legislative/regulatory changes to note are as follows:

•

Check Clearing for the 21st Century Act, more commonly referred to as Check 21—This piece of U.S. legislation was signed into law October 28, 2003 and came into effect in October of 2004. This legislation provides an important new impetus to the practice of exchanging check ‘images,‘ in lieu of actual checks. We believe the effect of this legislation will be potentially to increase market demand for our check imaging, substitute checks, electronic check presentment, and image back office products and we are actively positioning those products accordingly.



•

USA Patriot Act (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 or USAPA)—This U.S. legislation was signed into law in late October 2001 following the terrorist acts of 9/11. The USAPA made significant amendments to over 15 important statutes. Regulations under USAPA were issued in 2003 and are now in effect at all U.S. financial institutions. The law imposes new regulatory duties upon financial institutions to help prohibit and detect the financing of terrorism through money laundering by requiring the adoption of enhanced procedures by financial institutions. These procedures require the gathering and retention of information to establish and verify the true identity of financial institution customers. We are working now to incorporate enhanced anti-money laundering detection and compliance technologies into our fraud mitigation suite of software products.



•

New Basel Capital Accord (also known as Basel II)—The Basel Accord is intended to be available for implementation in member countries by the end of 2006 with full implementation by January 2008. The goal of these revisions is to put a new capital adequacy framework in place for banks around the globe along two important dimensions. First, by developing capital regulations that encompass minimum capital requirements, supervisory review and market discipline. Second, by increasing substantially the risk sensitivity of the minimum capital requirements and by modifying the definition of risk-weighted assets to change the treatment of

9

credit risk and to introduce explicit treatment of operational risk. These changes will stipulate significant new capital and operational risk management requirements for banks. Whether in terms of new redundancy requirements for payments infrastructure or new business continuity practices for banks, we believe additional opportunities to leverage our technology and our operations consulting expertise may result from banks' efforts to achieve compliance.

        Disintermediation of the Financial Institution.    We believe the market share of financial institutions in the payments business has been declining over the last 20 years as new non-bank providers offer a competitive alternative to banks as financial intermediaries. We believe financial institutions are intimately aware of this trend and its implications on the positioning of their client relationship, their value proposition, their revenues and their profits. We believe these financial institutions are and will be developing and executing strategies to protect and expand their market share of the payments business by investing in new value propositions, new products and new services in various payment arenas.

        Convergence of Payment Vehicles.    We believe that the front-end and the back-end of the presentment, processing and settlement aspects of the paper and electronic payment types will converge driven by customer demand and delivery efficiency. Although we believe the total number of payment transactions will increase for the foreseeable future, we believe paper-based payments will decline in number with the increase in electronic payments more than offsetting this decline. We believe over time the systems and operations infrastructure for payments, which is in silos today by payment type, will tend to converge and result in next generation payment technologies that will need to be developed. These technologies will be more real-time than traditional batch technologies. Straight through processing service offerings will be specifically tailored to communities of interest (e.g. casinos, healthcare or small retail) and payment related information services (e.g. loyalty programs and cross-sell programs) will be developed.

        Mergers and Consolidations.    Mergers and consolidations of financial institutions have been on the rise in the US recently. We believe these mergers will result in significant investments in business, system and operations integration for long-term shareholder value. We believe consulting and software solutions supporting the integration activities of the surviving financial institutions will be important offerings in the future.

        Electronification.    Technologies for electronification of check workflows continue to be refined and to gain further industry adoption. Many of our key customers are defining strategies now for the electronification of checks at the earliest point of receipt and for exchanging images between banks as a basis for financial settlement. Such practices would significantly reduce check-related operating expenses for banks and position banks to deliver more robust payment services to their customers. We believe we are positioned, through our broad suite of check imaging products, to benefit from the continued adoption of check imaging.

        At the same time, practices are emerging for conversion of checks at the point of sale or at lockbox processing locations to alternative electronic payment types, such as ACH or debit transactions. In these cases, transactions are less likely to be processed through Carreker's current suite of technology solutions. We are developing enhancements to selected products that will address these electronic payment types.

        As a third point, integration between banks and the point of sale will increasingly lead to more real time verification and guarantee of transactions at the point of sale. We are engaged now with key customers and partners in trying to define next-generation fraud mitigation solutions, and see this as an area of opportunity for technology growth.

        Importance of Fraud/Risk Mitigation.    We believe transaction fraud losses have continued to increase for financial institutions and their customers as electronic payment vehicles have grown in

10

availability and adoption. Further, we believe compliance costs and penalties for non-compliance with new regulations designed to mitigate global risks through controls on electronic and currency-based financial transactions will continue to increase. We believe significant investments in processes, procedures and technologies will continue to be made to detect and prevent fraud losses and improve compliance, while minimizing the intrusion of controls on customer activities.

        Globalization of Payments Work.    As the important work of processing payments becomes more electronic, the opportunities for financial institutions to leverage workforces around the world to achieve cost and quality advantages will proliferate. We believe financial institutions will gradually at first, and more rapidly later, source and process components of their payments work in secure, low cost countries around the globe.

Customers

        A majority of our revenues are generated from contracts with banks maintaining assets in excess of $5.0 billion. We currently provide services or products to each of the 20 largest banks in the United States, as measured by total assets by Sheshunoff Information Services. Our five largest customers accounted for approximately 31%, 28% and 34% of total revenues during the fiscal years ended January 31, 2005, 2004 and 2003, respectively. Wells Fargo accounted for approximately 14% of total revenues during the year ended January 31, 2005. No single customer accounted for more than 10% of total revenues during the year ended January 31, 2004. U.S. Bank, N.A. accounted for approximately 10% of total revenues during the year ended January 31, 2003. Please see Note 11 of our Notes to Consolidated Financial Statements for information about our non-U.S. customers.

Solutions Development

        Our solutions development activities focus on identifying specific bank needs, prototyping and developing promising applications, test marketing new products, developing sales strategies and coordinating distribution and on-going maintenance for each of our solutions. In certain instances, we have contracted with third party software development companies to develop our solutions.

        We frequently receive customer requests for new services and/or software. We strive to develop solutions in response to these requests and historically have been able to partner with our customers and share some or all of the development costs. In addition to customer-funded solutions development, we have invested significant amounts in solutions development, including expenditures (inclusive of amounts capitalized) of $11.2 million, $8.5 million, and $11.4 million for research and development in the years ended January 31, 2005, 2004 and 2003, respectively. Further, some of our key product introductions have resulted from the adaptation of products developed for customers to address a wider market. In exchange for either a one-time payment and/or on-going royalties, we are often able to obtain the right to develop, enhance and market these modified products.

Technology

        Our software products incorporate open systems architecture and protocols to provide scalability and functionality to interface with a bank's current and legacy systems. Our core proprietary technologies, for both our client/server and mainframe software products, are primarily directed at using a standard set of components, drivers, and application interfaces, and leveraging the quality and productivity benefits of reusable component development.

        Many of our newer products operate on Windows or Unix platforms, support industry-standard Web browsers such as Microsoft Internet Explorer and AOL Netscape, and databases such as Oracle, DB2, or SQL, and can be delivered as an Application Service Provider ("ASP") or standard packaged product.

11

        We continue to enhance our second-generation computer systems, which are primarily IBM mainframe-based or client server applications, and use common computer tools to integrate the data from these computer programs into our new products.

Sales and Marketing

        We have developed strong relationships with many senior bank executives as a result of our delivery of solutions to many of the largest banks in the United States for over 27 years. As of January 31, 2005, we had 14 Account Relationship Managers, who are responsible for managing our day-to-day relationships with our customers. 13 are responsible for North American bank relationships, and 1 is responsible for the International bank relationships. Our Account Relationship Managers' responsibilities include identifying customers' needs and assisting our business unit teams in presenting their solutions and concluding sales. Our Account Relationship Managers work closely with our executive officers, some of whom serve as Executive Relationship Managers to our customers. We also employ applicable business segment sales and technical sales support staff, who are familiar with our technology and who participate in opportunities to sell technology-based solutions.

        We derive a significant portion of our business through customer referrals. In addition, we market our services through a variety of media, including:

•

our web site;



•

direct mail;



•

user conferences conducted exclusively for our customers and qualified prospects;



•

participation in industry conferences and trade shows;



•

publication of "white papers" related to specific aspects of our services;



•

customer newsletters; and



•

informational listings in trade journals.

        As of January 31, 2005, we employed a marketing staff of 8 individuals, including graphics designers, writers, administrative coordinators and a Web master.

Competition

        We operate in a highly competitive and rapidly changing global marketplace and compete with a variety of organizations that offer products and services competitive with those we offer. In our consulting and revenue enhancement businesses our clients retain us on a non-exclusive basis. In addition, a client may choose to use its own resources rather than engage us for these consulting services. Our competitors in the consulting business space include strategic consulting firms and full-service consulting services, as well as niche consulting providers. Increasingly, the global information technology service firms are offering a full range of consulting services. Further, the niche financial institution processing companies are increasingly creating and offering consulting services as an additional value-added service to their IT processing offerings. In the Revenue Enhancement business our competitors are almost exclusively niche providers that are typically small and medium-sized private organizations. However, we also face competition from bank internal revenue enhancement departments. In our Carretek business line, we primarily compete against large global outsourcing providers and our customers' internally built and operated alternatives.

        In our global payments technology business segment, our competitors are generally the global information technology service firms and the smaller niche application providers. In each of our major software product suites a range of competitors exists. The global IT services firms compete in some of our software product suites. At the same time, differing groups of application and niche application

12

competitors focus on one or more of our other product suites. Some of these competitors have significantly greater financial, technical, marketing and other resources than we do.

        In addition to competing with a variety of third parties, we experience competition from our customers and potential customers when they develop, implement and maintain their own services and applications. In addition, customers or potential customers could enter into strategic relationships with one or more of our competitors to develop, market and sell competing services or products.

Government Regulation

        Our primary customers are banks. Although the services we currently offer have not been subject to any material industry-specific government regulation, the banking industry is heavily regulated. Our products and services must allow our banking customers to comply with all applicable regulations, and as a result, we must understand the intricacies and application of many government regulations. The regulations most applicable to our provision of solutions to banks include regulations governing information and data security of customer accounts, establishing minimum reserve requirements, governing funds availability and the collection and return of checks, and establishing rights, liabilities and responsibilities of parties in electronic funds transfers. For example, some of our consulting services assist banks with minimizing their reserves while complying with requirements of the Board of Governors of the Federal Reserve System ("Federal Reserve"). In addition, the expedited availability and check return requirements imposed by funds availability regulations have increased fraud opportunities dramatically, and our Global Payments Technologies products and services address this concern while complying with such regulations.

        While we are not directly subject to federal or state regulations specifically applicable to financial institutions, such as banks, thrifts and credit unions, the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and various state regulatory authorities typically assert the right to observe the operations of companies to which certain functions of financial institutions (such as data processing) are outsourced. These regulators may from time to time also claim the right to observe the operations of companies like us that provide software to financial institutions. In addition, financial institutions with whom we do business may from time to time require, by contract or otherwise, that evaluations of our internal controls be performed by independent auditors or by the financial institutions themselves.

Proprietary Rights

        We rely upon a combination of patent, copyright, trademark and trade secret laws, including the use of confidentiality agreements with employees, independent contractors and third parties and physical security devices to protect our proprietary technology and information. We have a number of issued patents and registered trademarks and have filed applications for additional patents and trademarks in the United States. We defend our proprietary rights.

        We enter into invention assignment and confidentiality agreements with our employees and independent contractors and confidentiality agreements with certain customers. We also limit access to the source codes for our software and other proprietary information. We believe that due to the rapid pace of innovation within the software industry, factors such as the technological and creative expertise of our personnel, the quality of our solutions, the quality of our technical support and training services and the frequency of release of technology enhancements are important to establishing and maintaining a technology leadership in addition to the various legal protections available for our technology.

        We are not aware that we are infringing on any proprietary rights of third parties. We rely upon certain software that we license from third parties, including software that is integrated with our internally developed software and used in our solutions to perform key functions. We are not aware

13

that any third-party software being re-sold by us is infringing upon proprietary rights of other third parties.

Employees

        As of January 31, 2005, we had 541 employees. Of these employees, 106 provided consulting services, 212 provided technology and implementation functions, 114 performed sales and marketing, product management, customer relations and business development functions and 109 persons performed corporate, finance and administrative functions. We have no unionized employees, and we believe that our employee relations are good.

14

Executive Officers of the Company

        The following table sets forth information regarding the Company's current executive officers.

        John D. Carreker, Jr.    has served as Chairman of the Board of Directors and Chief Executive Officer since the Company's formation in 1978. John D. Carreker, Jr. and James D. Carreker, a director of the company, are brothers. John D. Carreker III is the son of John D. Carreker, Jr.

        Lisa K. Peterson has served as Executive Vice President, Treasurer and Chief Financial Officer since October 2003. From August 1999 to February 2003, Ms. Peterson served as Chief Financial and Administrative Officer for Monarch Dental Corporation, a dental group practice management company. Prior to that time, Ms. Peterson served as Chief Financial Officer for Viacom Retail Stores, Inc., a start-up division of Viacom, Inc. For the six years prior to that time, Ms. Peterson worked for Pearle Vision, Inc. in various capacities culminating in the position of Vice President and Controller.

        John D. Carreker III has served as Executive Vice President and President, Global Payments Technologies since November 2002. Since June 1991, Mr. Carreker has served in various management positions with the Company. John D. Carreker III is the son of John D. Carreker, Jr. and the nephew of James D. Carreker.

        Michael J. Inman has served as Executive Vice President of Relationship Management since September 2002 and as a corporate officer since December 2004. Mr. Inman has been with the Company for ten years in various management and consulting roles.

        Suzette L. Massie has served as Executive Vice President and President, Global Payments Consulting since December 2004. For the last five years, Ms. Massie was a partner with Accenture, a global management consulting company in the Financial Services practice focusing on Top 20 Banks in the U.S.

        Robert M. Olson, Jr.    has served as Executive Vice President since July 1998 and as President and CEO of Carretek since October 2004.

        Blake A. Williams has served as Executive Vice President and President, Revenue Enhancement since November 2002. Mr. Williams has been with the Company for 14 years in various management and consulting roles.

15

        Tod V. Mongan has served as Senior Vice President and Secretary since December 2001 and as General Counsel to the Company since February 2001. For the five years prior to that time Mr. Mongan served as Senior Vice President, General Counsel, Secretary and Chief Administrative Officer for BancTec, Inc., a worldwide systems integration, manufacturing and services company.

Forward Looking Statements and Risk Factors

Forward Looking Statements

        Statements in this Report and the Annual Report to the Stockholders that are not purely historical facts including statements about our expected future financial position, sales, results of operations, cash flows or backlog as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "should," "could," "goal," "target," "designated," "on track," "comfortable with," "optimistic" and other similar expressions, constitute forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results and the timing of some events could differ materially from those projected in or contemplated by the forward looking statements due to a number of factors, including, without limitation, those set forth below and elsewhere in this Report. Readers are cautioned not to place undue reliance on forward looking statements, for no assurances can be given with respect to any forward looking statements. In addition to the other information in this Report, the following factors, which may affect our current position and future prospects, should be considered carefully in evaluating us and an investment in our common stock.

Risk Factors

Our performance depends on the banking industry, and any change in the banking industry's demand for our solutions could reduce our revenues and have a material adverse effect on our business.

        We derive substantially all of our revenues from solutions provided to banks and other participants in the banking industry. Accordingly, our future success significantly depends upon this industry's continued demand for our solutions. We believe that an important factor in our growth has been substantial changes in the banking industry in recent years, as manifested by continuing consolidation, regulatory change, technological innovation, the emergence of the Internet and other trends. If this environment of change were to slow, we could experience reduced demand for our solutions. In addition, the banking industry is sensitive to changes in economic conditions and is highly susceptible to unforeseen events, such as domestic or foreign political instability, recession, inflation or other adverse occurrences that may result in a significant decline in the utilization of bank services. Furthermore, due to concerns regarding data security and other factors, banks have been and may in the future be hesitant to adopt electronic solutions, which can adversely affect the demand for our solutions. Any event that results in decreased consumer or corporate use of bank services, or increased pressures on banks towards the in-house development and implementation of revenue enhancement or cost reduction measures, could have a material adverse effect on our business, financial condition and results of operations.

Our inability to respond to a decline in check volumes could reduce our revenues and have a material adverse effect on our business.

        We have in the past derived a significant portion of our revenues from check related products and services. A decline in check volumes could have a material adverse effect on our business. If banks and merchants decide to use pricing incentives to further stimulate a decline in check usage, this decline in usage could accelerate. Our future success depends on our ability to leverage existing competencies to support emerging payments types, and to define and develop new solutions addressing those payment types. If we are unable to capitalize on these competencies to generate new revenues to offset any loss

16

of revenues arising as a result of a decline in check usage, then our business could be adversely affected.

Various factors, some beyond our control, could cause fluctuations in our operating results.

        We have experienced in the past, and expect to experience in the future, significant fluctuations in quarterly operating results. Such fluctuations may be caused by many factors, including but not limited to the timing of contract execution and revenue recognition and our mix of revenues derived from consulting and management service fees on the one hand, and software-related fees on the other.

        Risks over which we have little or no control, including customer budget cycles and priorities, can also significantly affect operating results. As a result of these factors, our quarterly revenues and operating results are difficult to forecast. It is possible that our future quarterly results of operations from time to time will not meet the expectations of securities analysts or investors, which could have a material adverse effect on the market price of our common stock.

We do not typically enter into long-term agreements with our customers, which makes it more difficult to plan and efficiently allocate our resources, and any deferral, modification or cancellation of a customer project can adversely affect our operating results.

        We typically provide services to customers on a project-by-project basis without long-term agreements. When a customer defers, modifies or cancels a project, we must be able to rapidly re-deploy our personnel to other projects in order to minimize the under-utilization of our personnel and the resulting adverse impact on operating results. In addition, our operating expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of projects in progress. As a result, any delay, modification or cancellation of a customer project, or any disruption of our business relationships with any of our significant customers or with a number of smaller customers could have a material adverse effect on our business, financial condition and results of operations.

Our future success significantly depends on the experience of our key personnel, and the loss of any one of them could impair our ability to do business.

        Our future success depends, in significant part, upon the continued services of John D. Carreker, Jr., our Chairman of the Board and Chief Executive Officer, as well as other executive officers and key personnel. The loss of services of Mr. Carreker or one or more of our other executive officers or key employees could have a material adverse effect on our business, financial condition and results of operations, and there can be no assurance that we will be able to retain our executive officers or key personnel. We do not maintain key-man life insurance covering any of our executive officers or other key personnel.

Our future success depends on our ability to develop new technologies and services to meet the changing needs of our current and future customers, and our inability to introduce new solutions could negatively impact our ability to do business and maintain our financial condition.

        We regularly undertake new projects and initiatives in order to meet the changing needs of our customers. In so doing, we invest substantial resources with no assurance of their ultimate success. We believe our future success will depend, in part, upon our ability to:

•

enhance our existing solutions;



•

design and introduce new solutions that address the increasingly sophisticated and varied needs of our current and prospective customers;



•

develop leading technology;

17

•

respond to technological advances and emerging industry standards on a timely and cost-effective basis; and



•

leverage existing customer relationships and the content knowledge we have developed as a by-product of our current legacy position to formulate and influence thought leadership in the Payments business.

        There can be no assurance that future advances in technology will be beneficial to, or compatible with, our business or that we will be able to incorporate such advances into our business. In addition, keeping abreast of technological advances in our business may require substantial expenditures and lead-time. There can be no assurance that we will be successful in using new technologies, adapting our solutions to emerging industry standards or developing, introducing and marketing solution enhancements or new solutions, or that we will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these solutions. If we incur increased costs or are unable, for technical or other reasons, to develop and introduce new solutions or enhancements of existing solutions in a timely manner in response to changing market conditions or customer requirements, our business, financial condition and results of operations could be materially and adversely affected.

Our focus on providing business process outsourcing, or BPO, with a significant offshore component subjects us to risks associated with new markets, new competition, cross border and geopolitical risks and a dependence on third-party providers.

        Our BPO business model gives rise to numerous risks, particularly risks related to our dependence on third party providers operating in distant geographic regions and those associated with entering a new market with competitors who may have significantly more resources than we do. The success of our BPO model partially depends on the performance of our offshore third party service provider partner's parent company with whom we have contracted to provide BPO services to our clients. In addition, we have to compete on the basis of a number of factors including the attractiveness and breadth of the business strategy and services that we offer, pricing, technological innovation, quality of service, ability to invest in or acquire assets of potential customers, and our scale in certain industries or geographic regions. Because some of these factors are outside of our control and because many of our competitors may have greater financial resources, larger customer bases, and larger technical, sales and marketing resources, we cannot be sure that we will compete successfully against them in the future. If we fail to compete successfully against our competitors with respect to these or other factors, our BPO business, financial condition, and results of operations could be materially and adversely affected.

There is competition in our industry for qualified banking professionals and technical and managerial personnel, and our failure to attract and retain these people could affect our ability to respond to banking and technological change and to increase our revenues.

        Our future success depends upon our continuing ability to attract and retain highly qualified banking, technical and managerial personnel. Competition for such personnel has at times caused difficulties in attracting the desired number of such individuals. Further, our employees have left us to work in-house with our customers and with our competitors. There can be no assurance that we will be able to attract or retain a sufficient number of highly qualified employees or independent contractors in the future. If we are unable to attract personnel in key positions, our business, financial condition and results of operations could be materially and adversely affected.

A small number of customers accounts for a substantial portion of our business, so the loss of any one of them could have an adverse impact on our business and financial condition.

        Our five largest customers accounted for approximately 31%, 28% and 34% of total revenues during the fiscal years ended January 31, 2005, 2004 and 2003, respectively. Our significant customers

18

have changed from period to period. However, a significant portion of our current revenues is derived from customers who were major customers in prior years, and we are therefore dependent to a significant degree on our ability to maintain our existing relationships with these customers. There can be no assurance that we will be successful in maintaining our existing customer relationships or in securing additional customers, and there can be no assurance that we can retain or increase the volume of business that we do with such customers. In particular, continuing consolidation within the banking industry may result in the loss of one or more significant customers. Any failure by us to retain one or more of our large customers, maintain or increase the volume of business done for such customers or establish profitable relationships with additional customers could have a material adverse effect on our business, financial condition and results of operations.

We face increased competition that could result in price reductions, fewer customer orders and loss of market share, any of which could materially and adversely affect our business.

        We compete with third-party providers of services and software products to the banking industry that include consulting firms and software companies. Some of our competitors have significantly greater financial, technical, marketing and other resources than we do. Our competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements or to devote greater resources to the development, promotion and sale of their products than we can. Also, some of our current and potential competitors have greater name recognition and larger customer bases that such competitors could leverage to increase market share at our expense. We expect to face increased competition as other established and emerging companies enter the banking services market. Increased competition could result in price reductions, fewer customer orders and loss of market share, any of which could materially and adversely affect our business, financial condition and results of operations. There can be no assurance that we will be able to compete successfully against current or future competitors, and the failure to do so would have a material adverse effect upon our business, financial condition and results of operations.

        In addition to competing with a variety of third parties, we experience competition from our customers and potential customers. From time to time, these potential customers develop, implement and maintain their own services and applications for revenue enhancements, cost reductions and/or enhanced customer services, rather than purchasing services and related products from third parties. There can be no assurance that these customers or other potential customers will perceive sufficient value in our solutions to justify investing in them. In addition, customers or potential customers could enter into strategic relationships with one or more of our competitors to develop, market and sell competing services or products.

Our inability to protect adequately our proprietary technology or to prevent its unauthorized use could divert our financial resources and cause significant expenditures, which could materially harm our business.

        Our success significantly depends upon our proprietary technology and information. We rely upon a combination of patent, copyright, trademark and trade secret laws and confidentiality procedures to protect our proprietary technology and information. We have a number of issued patents and registered trademarks. There can be no assurance that the steps we have taken to protect our services and products are adequate to prevent misappropriation of our technology or that our competitors independently will not develop technologies that are substantially equivalent or superior to our technology. Furthermore, it is very difficult to police unauthorized use of our software due to the nature of software. Any such misappropriation of our proprietary technology or information or the development of competitive technologies could have a material adverse effect on our business, financial condition and results of operations.

        In addition, the laws of some countries in which our software is distributed do not protect our intellectual property rights to the same extent as the laws of the United States. For example, the laws

19

of a number of foreign jurisdictions in which we license our software protect trademarks solely on the basis of the first to register. We currently do not possess any trademark registrations in foreign jurisdictions, although we do have copyright protection of our software under the provisions of various international conventions. Accordingly, intellectual property protection of our services and products may be ineffective in many foreign countries. In summary, there can be no assurance that the protection provided by the laws of the United States or such foreign jurisdictions will be sufficient to protect our proprietary technology or information.

Infringement claims by third parties can subject us to substantial liability and expenses and can impair our ability to sell our solutions.

        We may need to litigate claims against third parties to enforce our intellectual property rights, protect our trade secrets, determine the validity and scope of the proprietary rights of others or defend against claims of infringement or invalidity. We may be required to incur significant costs in reaching a resolution to the asserted claims, or any other claims that may be asserted against us. These types of claims commonly increase as technology providers develop new product offerings. There can be no assurance that the resolution of a claim would not require us to pay damages or obtain a license to the third party's intellectual property rights in order to continue licensing our software as currently offered or, if such a third-party license is required, that it would be available on terms acceptable to us. The resolution of claims may also divert our management resources. If we cannot adequately protect our proprietary rights, it could have a material adverse effect on our business, operating results and financial condition.

We depend on third parties for some of our technology licenses, and if we cannot obtain satisfactory licenses our business could suffer.

        Some technology used in our current software and software in development includes technology licensed from third parties. These licenses generally require us to pay royalties and to fulfill confidentiality obligations. The termination of any such licenses, or the failure of the third party licensors to adequately maintain or update their products, could result in delays in our ability to implement solutions or in delays in the introduction of our new or enhanced solutions while we search for similar technology from alternative sources, if any, which could prove costly. Any need to implement alternative technology could prove to be very expensive for us, and any delay in solution implementation could result in a material adverse effect on the business, financial condition and results of our operations. It may also be necessary or desirable in the future to obtain additional licenses for use of third-party products in our solutions, and there can be no assurance that we will be able to do so on commercially reasonable terms, if at all.

We may face liability claims related to the use of our solutions and the defense of these claims could have a negative effect on our business, results of operations or financial condition.

        As a result of our suite of solutions that address critical functions of bank operations, we are exposed to possible liability claims from banks and their customers. Although we attempt to mitigate liability in our contracts and have not experienced any material liability claims to date, there can be no assurance that we will not become subject to such claims in the future. A liability claim against us could have a material adverse effect on our business, financial condition and results of operations.

        In addition solutions at times in the past have been, and in the future may be, incompatible with the operating environments of our customers or inappropriate to address their needs, resulting in additional costs being incurred by us in rendering services to our customers. Further, like other software products, our software occasionally has contained undetected errors, or "bugs," which become apparent through use of the software. Because our new or enhanced software initially is installed at a limited number of sites and operated by a limited number of users, such errors and/or incompatibilities may not be detected for a number of months after delivery of the software. The foregoing errors in the

20

past have resulted in the deployment of our personnel and funds to cure errors, occasionally resulting in cost overruns and delays in solutions development and enhancement. Moreover, solutions with substantial errors could be rejected by or result in damages to customers, which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that errors or defects will not be discovered in the future, potentially causing delays in solution implementation or requiring design modifications that could adversely affect our business, financial condition and results of operations. It is also possible that errors or defects in our solutions could give rise to liability claims against us.

Information and data security requirements placed upon us by our customers necessitates investment and improvement in our information technology infrastructure and processes and a failure to adequately protect such information could adversely affect our business.

        Our business requires the storage and transmission of sensitive business information of our customers. Significant capital and investment in other resources is required to protect against the threat of security breaches or computer viruses, or to alleviate problems caused by breaches or viruses. To the extent that our activities or the activities of our customers require the storage and transmission of confidential information, such as banking records or credit information, security breaches and viruses could expose us to claims, litigation or other possible liabilities. Our inability to prevent security breaches or computer viruses could also cause our customers to lose confidence in our solutions and terminate their relationships with us.

We face risks in connection with the expansion of our international operations, which could have a negative impact on our business, financial condition and results of operations.

        We provide solutions to banks outside the United States, and a key component of our growth strategy is to broaden our international operations. In addition, our provision of business process outsourcing involves a significant offshore component. Our international operations are subject to risks inherent in the conduct of international business, including unexpected changes in regulatory requirements, fluctuations in exchange rates and devaluations of foreign currencies, export license requirements, restrictions on the export of critical technology, difficulties in staffing international projects, longer accounts receivable cycles and difficulties in collecting payments.

        Some of our international sales are denominated in local currencies, and the impact of future exchange rate fluctuations on our financial condition and results of operations cannot be accurately predicted. There can be no assurance that fluctuations in currency exchange rates in the future will not have a material adverse effect on revenue from international sales and thus our business, financial condition and results of operations.

Government regulation and legal uncertainties could force us to change our operations, which could have a material adverse effect on our ability to maintain our current business.

        Our primary customers are banks. Although the solutions that we currently offer have not been subject to any material, specific government regulation, the banking industry is regulated heavily, and we expect that such regulation will affect the relative demand for our solutions. While we are not directly subject to federal or state regulations specifically applicable to financial institutions, such as banks, thrifts and credit unions, the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and various state regulatory authorities typically assert the right to observe the operations of companies to which certain functions of financial institutions (such as data processing) are outsourced. These regulators may from time to time also claim the right to observe the operations of companies like us that provide software to financial institutions. In addition, financial institutions with whom we do business may from time to time require, by contract or otherwise, that evaluations of our internal controls be performed by independent auditors or by the financial institutions themselves.

21

There can be no assurance that federal, state or foreign governmental authorities will not adopt new regulations, and any adoption of new regulations could require us to modify our current or future solutions. The adoption of laws or regulations affecting us or our customers' businesses could reduce our growth rate or could otherwise have a material adverse effect on our business, financial condition and results of operations.

Our stock price has fluctuated significantly, sometimes for reasons unrelated to our performance.

        Historically there has been significant volatility in the market price of our common stock, as well as in the market price of securities of many companies in the technology sector.

        We believe that factors such as quarterly fluctuations in financial results or announcements by us, our competitors, banks and other bank industry participants could cause the market price of our common stock to fluctuate substantially. Other factors which may have a significant impact on the market price of our common stock include, but are not limited to; changes in earnings estimates or recommendations by securities analysts and the outcome of the securities litigation (see "Item 3. Legal Proceedings.)

        In addition, the stock market may experience extreme price and volume fluctuations that often are unrelated to the operating performance of specific companies. Market fluctuations or perceptions regarding the banking industry and general economic or political conditions may adversely affect the market price of the common stock.

Our intangible assets could become impaired and adversely affect our future results of operations and financial position.

        In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), effective for fiscal years beginning after December 15, 2001. Under SFAS 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statement. There can be no assurance that such tests will not result in a determination that these assets have been impaired. If at any time it is determined that an impairment has occurred, we will be required to reflect the impaired value as a charge resulting in a reduction in earnings in the quarter such impairment is identified and a corresponding reduction in the net asset value of the Company. The Company recorded a goodwill impairment charge of $46.0 million in the quarterly period ended January 31, 2003. The fair values used in this evaluation were estimated based upon the consideration of a number of fair value estimation techniques including a discounted cash flow analysis and consideration of the market price of the Company's stock. Goodwill that remains recorded at January 31, 2005 was $20.8 million. Declines in market conditions, increases in interest rates and changes in projections with respect to the Global Payments Technologies reporting unit in which goodwill is allocated could result in additional impairment charges in the future.

        In addition to the Goodwill discussed above, we have other intangible assets which are currently being amortized. These intangible assets are as follows:

•

Capitalized Software—We capitalize the development costs of software, other than internal-use software, in accordance with Statement of Financial Accounting Standards No. 86, "Accounting for Costs of Computer Software to be Sold, Leased or Otherwise Marketed," ("SFAS 86"). Capitalized software that is recorded at January 31, 2005 was $3.2 million.



•

Acquired Developed Technology—Acquired developed technology includes purchased technology intangible assets associated with acquisitions. These purchased technology intangibles are initially recorded based on the fair value ascribed at the time of acquisition. The acquired developed technology that is recorded at January 31, 2005 was $9.9 million.

22

•

Customer Relationships—Customer relationships includes an intangible asset with a definite useful life. The customer relationship intangible that is recorded at January 31, 2005 was $3.3 million.

        Declines in both current and projected demand for our software product offerings could result in impairment charges in the future.

The ultimate realization of revenue from contracted sales, potential sales and backlog cannot always be predicted with a high degree of accuracy.

        From time to time management provides information regarding our contracted sales, potential sales and our backlog for contracted services, contracted contingent services, contracted licenses and contracted maintenance. Management also provides our expectations with regard to the realization of revenue from such contracted sales, potential sales and backlog. These expectations can be influenced by many factors, some of which are beyond our control, and include but are not limited to the following:

•

Customer buying decisions and implementation timelines and schedules



•

Customer budget cycles and priorities



•

Our ability to develop new technologies and services in a timely manner



•

Customer acceptance of our new technologies or services



•

Receipt of cash payment

Changes in the Accounting Treatment of Stock Options and Other Share-Based Compensation Could Adversely Affect Our Results of Operations.

        We currently account for share-based payments to employees (which include stock options) using the intrinsic value method of APB No. 25, "Accounting for Stock Issued to Employees" and, as such, generally recognize no compensation cost for employee stock options. In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payments," ("SFAS 123(R)"). SFAS 123(R) requires companies to adopt the fair-value methodology of valuing stock options and other share-based compensation and recognize that valuation in the financial statements from the date of grant. Adoption is required for all interim and annual periods beginning after June 15, 2005. This change in accounting treatment of employee stock options will likely have a material and adverse effect on our results of operations, as the share-based compensation expense will be charged directly against our earnings. Furthermore, adoption of SFAS 123(R) will require us to make certain assumptions and judgments in the valuation of stock options that we may grant in the future. A change in any of those assumptions or judgments could change the compensation expense that is charged against our earnings and, consequently, adversely affect our results of operations.

The ultimate resolution of the class action lawsuits may have a material adverse effect on our business.

        We are unable to predict or determine the final outcome of the class action lawsuits described under "Item 3. Legal Proceedings," and the effect of these proceedings on our financial results, our business or our management. In addition, it is not feasible to estimate the amounts or potential range of losses with respect thereto. The potential outcomes or resolutions of the class action lawsuits could include judgments against us or settlements that could require substantial payments by us. In addition, the timing of the final resolution of these matters is uncertain. We believe that material adverse outcomes with respect to the class action lawsuits could have a material adverse effect on our financial results, our business or our management.

23

We cannot predict every event and circumstance which may impact our business and, therefore, the risks and uncertainties discussed above may not be the only ones you should consider.

        The risks and uncertainties discussed above are in addition to those that apply to most businesses generally. In addition, as we continue to grow our business, we may encounter other risks of which we are not aware at this time. These additional risks may cause serious damage to our business in the future, the impact of which we cannot estimate at this time.

24

Item 2. Properties.

        Our principal executive office is a leased facility with approximately 72,433 square feet of space in Dallas, Texas. The lease agreement for this space expires on May 31, 2010. We also lease approximately 22,491 square feet in Memphis, Tennessee pursuant to a lease agreement which expires August 31, 2010; approximately 40,307 square feet in Charlotte, North Carolina pursuant to a lease agreement which expires December 31, 2008 and 4,111 square feet in London, England pursuant to a lease agreement which expires September 30, 2006. We believe that our facilities are well maintained and in good operating condition and are adequate for our present and anticipated levels of operations.

Item 3. Legal Proceedings.

        On June 15, 2004, by mutual agreement between the parties, Civil Action No. 303CV1211-M was reinstated in the United States District Court for the Northern District of Texas, Dallas Division. This action was originally filed on May 29, 2003, in the United States District Court for the Northern District of Texas, Dallas Division as Civil Action no. 303CV1211-D. On January 15, 2004, the Court, acting upon the joint motion of the parties, dismissed the action without prejudice. This action was brought as a shareholders' derivative action pursuant to Rule 23.1, Fed.R.Civ.P. for the benefit of Nominal Defendant Carreker Corporation against certain of its current and former officers and directors, i.e., John D. Carreker, Jr., James D. Carreker, Richard R. Lee, Jr., James L. Fischer, Donald L. House, David K. Sias, Terry L. Gage, James R. Erwin, Ronald G. Steinhart and Ronald Antinori, seeking to remedy their individual breaches of fiduciary duty, including their knowing violations of Generally Accepted Accounting Principles ("GAAP"), knowing violations of federal and state securities laws, acts of bad faith and other breaches of fiduciary duty. The plaintiff seeks redress (the form of, among others, unspecified amounts of compensatory damages, interest and costs, including legal fees) for injuries to the Company and its shareholders caused by Defendants' misfeasance and/or malfeasance during the period from May 20, 1998 through December 10, 2002.

        On June 2, 2003, in the District Court, Dallas County, Texas, Walter Evans brought a shareholders' derivative action, for the benefit of Nominal Defendant Carreker Corporation against James D. Carreker, John D. Carreker, Jr., James R. Erwin, James L. Fischer, Michael D. Hansen, Donald L. House, Richard R. Lee, Jr., David K. Sias, Ronald J. Steinhart, and Ernst & Young, LLP and Carreker Corporation, Nominal Defendant (Cause No. 0305505). The complaint alleges that the director defendants breached their fiduciary duty to the company. In addition the complaint makes certain allegations against the Company's independent auditors Ernst & Young LLP. The complaint seeks unspecified amounts of compensatory damages, as well as interest and costs, including legal fees from the director defendants.

        On April 16, 2003 the United States District Court for the Northern District of Texas, Dallas Division, issued an order consolidating a number of purported class action lawsuits against the Company, John D. Carreker Jr. and Terry L. Gage into a Consolidated Action styled In re Carreker Corporation Securities Litigation, Civil Action No. 303CV0250-M. Also, on March 3, 2003, Claude Alton Coulter filed a purported class action lawsuit (Civil Action No. 503-CV-5-Q) against the Company, John D. Carreker Jr. and Terry L. Gage in the United States District Court for the Eastern District of Texas, Texarkana Division. These complaints, filed on behalf of purchasers of the Company's common stock between May 20, 1998 and December 10, 2002, inclusive, allege violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against all defendants and violations of Section 20(a) of the Exchange Act against the individual defendants. These complaints also allege, among other things, that defendants artificially inflated the value of the Company's stock by knowingly or recklessly misrepresenting the Company's financial results during the purported class period. The plaintiffs are seeking unspecified amounts of compensatory damages, interest and costs, including legal fees. On March 22, 2005, the Court dismissed claims by purchasers of the Company's common stock prior to July 30, 1999.

25

        The Company and individual defendants deny the allegations in these complaints and intend to defend themselves vigorously. It is not possible at this time to predict whether the Company will incur any liability or to estimate the damages, or the range of damages, if any, that the Company might incur in connection with these lawsuits. The ultimate resolution of these lawsuits could have a material adverse effect on the Company's business, results of operations, financial condition and cash flows.

        The Company is periodically involved in various other legal actions and claims which arise in the normal course of business. In the opinion of management, the final disposition of these matters are not expected to have a material adverse effect on the Company's financial position or results of operations.

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

        No matter was submitted to a vote of our stockholders during the quarterly period ended January 31, 2005.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our Common Stock has traded on the NASDAQ National Market under the symbol "CANI" since May 20, 1998, the date of our initial public offering. At March 31, 2005, there were approximately 413 record holders of our Common Stock, although we believe that the number of beneficial owners of our Common Stock is substantially greater. The table below sets forth for the fiscal quarters indicated the high and low closing prices for the Common Stock, as reported by the NASDAQ National Market.

(1)

On March 31, 2005 the closing price for our Common Stock was $5.61 per share.

        We have not paid a cash dividend on shares of our common stock since our incorporation. We currently intend to retain our earnings in the future to support operations and finance our growth and, therefore, do not intend to pay cash dividends on the common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of the board of directors and subject to some limitations under the Delaware General Corporation Law. However, our revolving credit agreement, which is described in Note 4 of our Notes to Consolidated Financial Statements, currently prohibits the payment of any cash dividends without approval from the banks from which the revolving credit agreement was entered into.

        Please see "Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for information about our equity compensation plans.

26

Item 6. Selected Financial Data.

SELECTED CONSOLIDATED FINANCIAL DATA

        The following consolidated statements of operations data for each of the three years in the period ended January 31, 2005 and the consolidated balance sheet data as of January 31, 2005 and 2004 have been derived from our audited consolidated financial statements which are included elsewhere in this Report. The consolidated balance sheet data as of January 31, 2003, 2002, and 2001, and the consolidated statement of operations data for the years ended January 31, 2002 and 2001, have been derived from our audited consolidated financial statements not included in this Report. The selected financial data set forth below should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report.

27

(1)

On June 6, 2001, we completed the acquisition of Check Solutions Company, a New York general partnership ("Check Solutions"). The operating results of Check Solutions are included in our results of operations from the date of acquisition.

(2)

These costs are summarized below (in thousands):

During the quarterly period ended July 31, 2001, in connection with our periodic impairment review of our portfolio of software products, the Vault software acquired in the X-Port business combination in May 2000 was deemed to be impaired. Based on our calculation of the expected cash flows of the product, a $2.9 million non-cash charge was recorded. The charge resulted from the loss of two key transactions and the projected changes in the approach to selling and delivering the software and related services under a time or usage model.

Effective March 31, 2001, we entered into an alliance with Exchange Applications, Inc. ("Xchange"). As part of this alliance we became the exclusive provider of the EnAct customer relationship software and methodology to the banking industry. Under the EnAct agreement, we became obligated for guaranteed royalty payments of $12.5 million. Based on our periodic evaluation of the future cash flows associated with this product, a liability for the remaining $2.5 million obligation was accrued at October 31, 2001, and the carrying value of the prepaid software royalties, at that time, of $9.6 million was reduced to zero. This resulted in a charge of $12.1 million to costs of revenue during the quarterly period ended October 31, 2001.

During the quarterly period ended January 31, 2003, in connection with our periodic impairment review of our portfolio of software products, the eiManager product acquired in the AIS business combination in January 2000 was deemed to be impaired. Based on the Company's calculation of the expected future cash flows of the product, a $586,000 non-cash charge was recorded.

Effective June 2001, we entered into a software license agreement with Actuate Corporation in which the Company would integrate Actuate Corporation's software with our Global Tracking and Cash Solutions within the Global Payments Technologies business segment. We prepaid $400,000 for 40 copies of the software. Based on the expected sales forecasts of this product a $368,000 non-cash charge was recorded in the quarterly period ended January 31, 2003.

28

(3)

The provision (benefit) for income taxes is based on the estimated annual effective tax rate, and includes federal, state and foreign income taxes. In fiscal 2004, the majority of our tax provision consisted of foreign taxes incurred that could not be offset with U.S. tax benefits. Our effective income tax rate was 5.1% in fiscal 2003, 4.2% in fiscal 2002, 3.3% in fiscal 2001 and 38.0% in fiscal 2000. The lower tax rate in fiscal 2003 was primarily due to net operating loss carryforwards offsetting the taxable income generated. The lower tax rate in fiscal 2002 and 2001 was due to losses we incurred from which we have not yet obtained a tax benefit.

On March 7, 2002, the federal tax law changed to allow net operating losses for taxable years ended in 2001 and 2002 to be carried back an additional three years. The impact from this change in tax law, including any reduction in the valuation allowance as a result of the expanded carryback period, was reflected in our tax provision for the quarterly period ended April 30, 2002. This resulted in a tax benefit of approximately $1.9 million in fiscal 2002 which was partially offset by state and foreign taxes.

At January 31, 2005, we had available net operating loss carryforwards of approximately $33.1 million, which begin to expire in 2022.

(4)

During the fourth quarter of the year ended January 31, 2003, the Company performed its annual evaluation for goodwill impairment resulting in a charge of $46.0 million. The impairment charge was recorded to the Global Payments Technologies ("GPT") segment as all of the Company's goodwill has been assigned to the GPT segment.

(5)

A complete description of the Restructuring and other charges for the years ended January 31, 2005, 2004 and 2003 is contained within Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. The Restructuring and other charges for the year ended January 31, 2002, related to our acquisition of Check Solutions, can be summarized as follows (in thousands):

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward looking statements as a result of various factors, including those set forth under "Business—Forward Looking Statements and Risk Factors," elsewhere in this Report or in the information incorporated by reference in this Report. You should read the following discussion and analysis in conjunction with "Selected Consolidated Financial Data" included in this Report, as well as our consolidated financial statements and related notes thereto appearing elsewhere in this Report.

        Our fiscal year ends on January 31. References contained in this Report to a given fiscal year refer to the twelve-month period ended January 31 of the succeeding year. For example, our fiscal year ended January 31, 2005 is referred to in this Report as "fiscal 2004."

29

Overview

        For the last 27 years Carreker Corporation has designed, developed, sold and delivered payments-related software and consulting solutions to financial institutions and financial service providers. Our products and services address a broad spectrum of payment activities and are designed to help our clients enhance the performance of their payments businesses; improve operational efficiency in payments processing; enhance revenue and profitability from payments-oriented products and services; reduce losses associated with fraudulent payment transactions; facilitate compliance with risk-related laws and regulations; and/or maximize clients' customer income streams by aligning their customer interactions and products with customer needs.

        We are organized into three primary operating divisions: Global Payments Technologies ("GPT"), Revenue Enhancement ("RevE") and Global Payments Consulting ("GPC"). These operating divisions are operated in discrete yet synergistic ways to bring value to our clients. In addition we have established a joint venture named Carretek LLC to address the payments outsourcing arena.

        Global Payments Technologies.    This division is responsible for design, development, sales, and support of our technology solutions. Revenue is primarily derived from license fees, implementation fees and maintenance fees.

        Revenue Enhancement.    This highly specialized practice group provides consulting and software solutions focused on increasing clients' revenue streams. Areas of expertise include fee income, market segmentation, management of customer price structures, account retention, acquisitions and profitability. A majority of the revenue generated by this division is through benefit-sharing agreements with our customers, recorded as consulting revenue along with license fees, maintenance fees and implementation fees from our CVE software offering.

        Global Payments Consulting.    The objective of this professional services division is to provide our clients with "applied thought leadership" related to the business of payments. Revenue in the GPC division is primarily derived through the delivery of consulting services offered primarily on a time and materials basis to our clients, along with the license fees, maintenance fees and services fees associated with our Float Pricing System software offering.

        In addition to these three divisions, in fiscal 2003 we formed Carretek LLC. Carretek is a transformational business outsourcer for payment and transaction processing jointly owned by Carreker Corporation and Majesco Software, Inc., the U.S. subsidiary of Mastek Limited, a leading Indian outsourcing company with global operations.

        Cost of Revenues and Gross Margins.    We strive to control our cost of revenues and thereby maintain or improve our gross margins. The major items impacting cost of consulting, cost of software maintenance and cost of software implementation are driven by personnel overhead and related expenses. The major items impacting cost of software licenses are amortization of both capitalized and acquired software and also software royalties for software from third parties. While the amortization expense is relatively fixed, the third party royalty expense can vary significantly based on the relative product mix.

        Operating Expenses.    Operating expenses, including selling, general and administrative and research and development, are substantially driven by personnel and overhead expenses. Other significant operating expenses that we monitor include professional fees, use of contractors, travel, insurance and office services expenses. Additionally in fiscal 2004, the settlement of the EPG legal action along with associated legal fees was recorded on the Restructuring and Other Charges financial statement caption on the Consolidated Statement of Operations.

30

        Liquidity and Cash Flows.    Cash and cash equivalents at January 31, 2005 and 2004 totaled $34.5 million and $28.6 million, respectively. During fiscal 2004, we generated $15.3 million in cash from operating activities, used $5.9 million of cash for investing activities and used $3.5 million for financing activities. Our primary utilization of cash in fiscal 2004 was to reduce our debt under our revolving credit agreement, and to invest in our development lab infrastructure along with the development costs associated with building several new product offerings, especially within our GPT business segment.

Executive Summary

        In fiscal 2004, we generated revenue of $118.9 million and a net loss of $1.2 million. Through continuing efforts to improve quality and efficiency throughout the company, we generated $15.3 million of cash from operating activities during fiscal 2004. This cash flow allowed us to pay down the remaining $6.3 million of our $30.0 million revolving credit agreement, along with making several investments which enhance and expand our current product offerings. Additionally, we have upgraded both the hardware and software within our development lab in Charlotte, North Carolina.

        While we have made progress in reducing both our cost of revenues and SG&A expenses, our profitability was hampered by the unfavorable jury verdict awarded to Earnings Performance Group ("EPG") in May 2004. The ultimate settlement and legal fees totaled approximately $3.4 million. In addition, we increased our level of Research and Development expenses approximately $1.2 million in fiscal 2004, as compared to fiscal 2003.

        Within our Revenue Enhancement ("RevE") segment, we experienced $1.8 million, or 5.5%, growth within our traditional RevE contingent consulting revenues; however, we experienced a decline of $2.7 million, or 57.9%, within our Customer Value Enhancement ("CVE") software and proprietary sales management revenue. Traditional consulting revenues increased in both the domestic and international markets. The CVE decline was primarily the result of the market softening for traditional Customer Relationship Management ("CRM") license sales, and in response we have reformulated the CVE business model to reflect term software license arrangements as opposed to traditional perpetual license arrangements. This change in strategy appears to be gaining acceptance, and in November 2004 the CVE group entered into a 6-year term license with a Top 15 U.S. bank that will increase software and maintenance revenue beginning in fiscal 2005. Additionally, in early fiscal 2005, we also contracted with a large international bank for a similar multi-year engagement.

        Fiscal 2004 was a year of transition for the Global Payments Technology ("GPT") segment. Several new products were launched such as ExchgLink, Image Inspector and IRD Author. However, we had to shift our image technology strategy during the middle of fiscal 2004 because of a change in our market's approach to image exchange and our target customers' timing on implementing these solutions. Additionally in fiscal 2004, we were late to market with our anti-money laundering technology. We just recently introduced the latest components of our CORE (Carreker Online Risk Expert) solution suite. CORE Fraud Manager is a platform that integrates enterprise level risk management for compliance monitoring and fraud detection. The new products are CORE Fraud Manager Wires and CORE Fraud Manager AML. These factors had a negative effect on GPT revenues. For fiscal 2004, total GPT revenues declined $9.7 million, or 11.2%, as compared to fiscal 2003.

        Our Global Payments Consulting ("GPC") segment experienced revenue growth of approximately $680,000, or 16.6%, in fiscal 2004. These results reflect an expanded sales focus in this segment as we repositioned this business to focus on Check 21 enterprise-wide payment electronification strategies; image enablement planning and integration and enterprise risk. New leadership has helped refine our consulting offerings with a clear value proposition.

31

        Finally, Carretek is our 51% owned business outsourcer for payment and transaction processing. Carretek was formed in fiscal 2003 and signed its first agreement in the second quarter of fiscal 2004. Fiscal 2004 revenues have been minimal, however in late January 2005, we expanded the scope of our outsourcing engagement with this single customer to include a second set of transaction processing functions. Even with this expanded scope, we do not expect this business to be profitable until the scope with this single customer is expanded to its full capacity or until additional customers are added.

        We have continued throughout fiscal 2004 to focus on reducing general and administrative costs to help fund increasing sales and marketing costs in both GPT and GPC, along with increasing research and development costs to enhance our existing product offerings and more importantly, develop new product offerings. We managed to these objectives, however with the increase in our Restructuring and Other Charges, which included the EPG settlement noted above, our total operating costs were essentially flat in fiscal 2004, as compared to fiscal 2003. We are continually evaluating overall expense levels and remain focused on cost containment initiatives.

32

Results of Operations

Comparison of Year Ended January 31, 2005 (Fiscal 2004) to Year Ended January 31, 2004 (Fiscal 2003) and Year Ended January 31, 2003 (Fiscal 2002)

Revenues

Revenues by Segment ($ in thousands):

        The decline in revenue within our RevE segment in fiscal 2004, as compared to fiscal 2003, was primarily the result of a $2.7 million, or 57.9%, decline in our CVE software and proprietary sales management revenue. In fiscal 2004, the market softened for traditional CRM license sales and in response we have reformulated the CVE business model to reflect term software license arrangements as opposed to traditional perpetual license arrangements. This change in strategy appears to be gaining acceptance as the CVE group signed one large term license engagement late in fiscal 2004 and have signed another similar engagement internationally in early fiscal 2005. The increase in revenue within the RevE segment in fiscal 2003, as compared to fiscal 2002, was the result of increased demand for our CVE software offering. CVE revenue increased $1.4 million, or 43.5%, in fiscal 2003. This demand was being driven by the trend among our customers to expend investments in branch locations, resulting in pressure to show greater returns on these branch investments through profitable sales growth, which our CVE solution helps generate.

        The declines in revenue within GPT that began in fiscal 2003 also carried over into fiscal 2004. The lack of a strong backlog of contracted sales from fiscal 2003 and reduced contracted sales activity in Q1 and Q3 2004 contributed to the reduced revenue. The decline in sales activity was primarily related to delays in our delivery of new solutions to the market and to unanticipated delays in technology investments by our customers. We also believe some of these delays are due to the fact that we bundle our solutions, which cause a slower sales cycle but typically provides a better value for our customers and the Company. The decline in revenue within the GPT segment in fiscal 2003, as compared to fiscal 2002, was primarily the result of four factors: (i) Fiscal 2002 had a number of transactions for software included in the results for the year that did not involve implementation services and hence revenue was recognized immediately increasing software license revenue in fiscal 2002; (ii) Decisions on technology investments and services projects were delayed out of fiscal 2003 by several of our customers due to the announcement of several mergers involving our customers; (iii) Customer decisions on technology investments were delayed generally out of fiscal 2003 as the industry, our customers, other key constituencies (e.g. Federal Reserve and key processors) and our competitors focused on Check 21 readiness and opportunities; and (iv) The loss of a few opportunities to competitors as these competitors dramatically improved their software offerings and services and offered aggressive pricing proposals.

        The increased revenues within GPC in fiscal 2004, as compared to fiscal 2003, reflects the result of expanded sales focus as we completed the repositioning of this business to focus on Check 21 enterprise-wide payment electronification strategies; image enablement planning and integration and enterprise risk. Additionally, new leadership in this business was introduced in Q4 2004 to capitalize on

33

the synergistic nature of the GPC and GPT business segments and refine our solutions with a clear value proposition. The decline in revenues within our GPC segment in fiscal 2003, as compared to fiscal 2002, was the result of three primary factors. In fiscal 2002, the majority of the consulting work performed by GPC was the result of bank consolidation and staff augmentation assignments. The demand for both of these types of work has declined significantly. Late in fiscal 2002, we began to reposition this segment to address enterprise-wide payment electronification strategies and image enablement planning and integration. The timeframe to accomplish these objectives has been longer than anticipated, and carried over into fiscal 2004.

        Our outsourcing revenue is derived through Carretek, our 51% owned business which offers outsourcing for payment and transaction processing. Carretek was formed in fiscal 2003 and signed its first agreement in the second quarter of fiscal 2004. The fiscal 2004 revenues have been minimal; however in late January 2005, we expanded our scope with this single customer to include a second set of transaction processing functions.

        Overall, as we look across our three major business segments along with Carretek, we believe that we are well positioned, and have a competitive advantage, to capitalize on the significant changes brought about by the Check 21 legislation, USA Patriot Act and Basel II through our subject matter expertise in the impacted areas. Based on this outlook, we anticipate contracted sales will improve in fiscal 2005 as an expanded array of new products are available and have solid references.

Consulting Fees ($ in thousands):

        Consulting revenues derived from our RevE segment increased 5.5% to $34.0 million in fiscal 2004 from $32.3 million in fiscal 2003, and increased 1.0% in fiscal 2003 from $31.9 million in fiscal 2002. Within RevE, we continue to focus on maximizing the value to our existing customer base while expanding our expertise to new customers, both domestically and internationally. In fiscal 2004, we had 31 revenue producing engagements of which 5 were international and these international engagements yielded 28.6% of RevE's consulting revenues. This compares to 22 active engagements of which 3 were international in fiscal 2003 and 28 active engagements of which 7 were international in fiscal 2002. Additionally, RevE consulting revenue derived from international customers increased to $9.7 million in fiscal 2004 from $8.1 million in fiscal 2003 and increased from $7.1 million in fiscal 2002. We anticipate that RevE consulting revenues in fiscal 2005 will be higher than fiscal 2004 levels.

        Consulting revenues derived from our GPC segment increased 72.6% to $2.8 million in fiscal 2004 from $1.6 million in fiscal 2003, and decreased 76.9% in fiscal 2003 from $6.9 million in fiscal 2002. The increase in consulting revenue in fiscal 2004 is attributable to the momentum gained as we completed our repositioning of this business to focus on Check 21 enterprise-wide payment strategies and image enablement planning and integration. The decline in consulting revenue in fiscal 2003, as compared to fiscal 2002, was due to the fact that the majority of work performed by GPC in fiscal 2002 and prior years was related to banks consolidating and reducing redundant operations, and to staff augmentation assignments. During fiscal 2002, the demand for this type of work declined significantly and in fiscal 2003 we took the necessary steps to reposition this business as described above. While we have gained some momentum in these areas, we continue to be cautiously optimistic about the future prospects of the GPC segment.

34

Software License Fees ($ in thousands):

        The majority of our software license revenues are derived from our GPT business segment. Software license revenues from our GPT business segment decreased 18.6% to $20.1 million in fiscal 2004 from $24.7 million in fiscal 2003 and decreased 31.7% in fiscal 2003 from $36.1 million in fiscal 2002.

        License revenues peaked during the first two quarters of fiscal 2002 due to sales of $7.5 million of software expansion licenses which did not require any implementation services and therefore were recognized immediately. In the latter half of fiscal 2002, the number and dollar amount of our software license arrangements began to decline. The decline was in part due to the uncertainty of our special review and ultimate financial statement restatement; however, our customers also began to delay their purchasing decisions due to both economic and legislative changes within the banking industry, namely Check 21, which was ultimately signed into law in October 2003 and went into effect in October 2004. Check 21 permits U.S. banks to accept digital images of checks the same way they accept a paper check. Several new product initiatives were launched in the latter half of fiscal 2003 and continued into fiscal 2004. While these products can operate independently and even with other vendor software, these products were developed to be bundled together to provide one total solution to our customers which we believe provides increased value. This bundling also tends to delay the sales cycle. We believe that our customers' investment decisions and the timing of these decisions have become increasingly visible in the latter half of fiscal 2004. Combining these factors, we are cautiously optimistic about deriving license revenue growth for fiscal 2005, as compared to fiscal 2004 levels.

        Software license revenues from our CVE product line, within the RevE business segment, decreased 87.5% to $326,000 in fiscal 2004 from $2.6 million in fiscal 2003 and increased 171.9% in fiscal 2003 from $959,000 in fiscal 2002. The decline in fiscal 2004 and the increase over fiscal 2002 was primarily the result of two large international engagements performed in fiscal 2003. Also in fiscal 2003 and carrying over until fiscal 2004, this group lacked sales leadership and capacity. Two new sales persons were hired in the quarterly period ended October 31, 2004, and in November 2004 the CVE group signed a multi-year contract to provide software, services and maintenance to a large domestic bank. However, the impact on fiscal 2004 was negligible.

Software Maintenance Fees ($ in thousands):

        As with software license fees the majority of our maintenance fees are derived from our GPT business segment. Software maintenance fees are paid pursuant to annually renewable product and telephone support agreements with our software customers. The annual maintenance fee is generally paid by the customer at the beginning of the maintenance period and we recognize this maintenance revenue ratably over the term of the related contract. If the annual maintenance fee is not paid at the beginning of the maintenance period, we defer revenue recognition until the time that the maintenance fee is paid by the customer. When the payment is received, maintenance revenue is recognized for the period that maintenance revenue was previously deferred. Also, maintenance contracts usually carry annual maintenance fee escalation clauses typically based on an index, such as the consumer price

35

index. While we did increase the maintenance fees for selected customers and products in fiscal 2004, these increases were offset by a major customer that gave notice of their intent to not renew their $2.5 million maintenance contract for fiscal 2004. The increase in maintenance fees in fiscal 2003 is due primarily to the expanded product installation base of the products acquired in the Check Solutions acquisition in fiscal 2001. We are projecting a flat to slightly higher maintenance revenue in fiscal 2005 over fiscal 2004 maintenance revenue levels.

Software Implementation Fees ($ in thousands):

        The majority of our software implementation fees are derived from our GPT business segment. In the majority of our customer arrangements, installation services are provided to the customer. In fiscal 2004 and 2003, the decline in software implementation fees paralleled the decline in software license fees. We estimate modest growth in fiscal 2005 for software implementation revenue consistent with our anticipated modest increase in software license revenue.

Outsourcing Service Fees ($ in thousands):

        Our outsourcing service revenue is derived through Carretek, our 51% owned business which outsources payment and transaction processing. Carretek was formed in fiscal 2003 and signed its first agreement in the second quarter of fiscal 2004. The fiscal 2004 revenues have been minimal; however in late January 2005, we expanded our scope of business with this customer to include a second set of transaction processing functions. Given our current outlook, we believe that the revenues derived from this business will increase significantly on a percentage basis over fiscal 2004 levels and increase modestly on an absolute dollar basis.

Out-of-Pocket Expense Reimbursements ($ in thousands):

        The decrease in these reimbursements in fiscal 2004, as compared to fiscal 2003, is the result of the decline in implementation engagements within the GPT business segment. The decrease in these reimbursements in fiscal 2003, as compared to fiscal 2002, is primarily due to the decline in the volume within our GPC business segment. The majority of these GPC engagements in fiscal 2002 was related to staff augmentation assignments which required our employees to be at the customer location for extended periods of time, which gives rise to higher out-of-pocket expense reimbursements. In fiscal 2005, we expect these reimbursements to increase modestly with our anticipated increases in both software implementation and consulting revenues.

36

Cost of Revenues

Cost of Revenues by Segment ($ in thousands):

        The decrease in total cost of revenues in absolute dollars of $4.0 million in fiscal 2004, as compared to fiscal 2003, was primarily the result of lower personnel and personnel related costs within all three of our major business segments. These savings were partially offset by the costs of Carretek, our 51% owned business process outsourcer which only has one customer and has not achieved the anticipated economies of scale. The total cost of revenues was 50.6% of total revenue in fiscal 2004. In fiscal 2005, we expect cost of revenues in absolute dollars to increase slightly; however, the total cost of revenues as a percentage of total revenues is expected to decline.

        The decrease in total cost of revenues in absolute dollars of $7.1 million in fiscal 2003, as compared to fiscal 2002, was primarily the result of lower personnel and outside independent contractor and consulting costs within the GPC business segment.

Cost of Consulting ($ in thousands):

        The cost of consulting consists primarily of personnel costs related to our consulting engagements within both our Revenue Enhancement and GPC business segments. The decline in absolute dollars of $1.5 million, along with the decline in consulting costs as a percentage of consulting revenue in fiscal 2004, as compared to fiscal 2003, was primarily the result of a $1.3 million, or 25.8%, decline in the cost of consulting within our GPC business segment. The cost reduction efforts within our GPC business segment that began in late fiscal 2002 continued into fiscal 2004 to bring costs, especially personnel and related costs, more in line with the expected consulting revenues. RevE's cost of consulting remained flat in fiscal 2004, as compared to fiscal 2003. The decline in absolute dollars of $4.6 million along with the decline in consulting costs as a percentage of consulting revenue in fiscal 2003 as compared to fiscal 2002 is the result of a $4.7 million or 48.2% decline in the consulting costs within the GPC business segment. These cost reduction efforts were primarily lower personnel and independent contractor costs in response to less demand for our bank consolidation and staff augmentation services.

37

Cost of Software Licenses ($ in thousands):

        The cost of software licenses consists principally of amortization of capitalized and acquired software costs along with royalties payable to third parties. The cost of software licenses was relatively flat in fiscal 2004, as compared to fiscal 2003. The decrease in royalty expense, due to a lower volume of software contracts, was offset by increased amortization expense related to our ExchgLink product offering and the acquired developed technology related to the purchase of an anti-money laundering software solution purchased for $1.5 million in the third quarter of fiscal 2003. The increase in absolute dollars of $319,000 in fiscal 2003, as compared to fiscal 2002, is primarily the result of increased royalty expense. The increase in the cost of software licenses, as a percentage of software license revenue, is primarily the result of a 27.9% decline in software license revenue experienced in fiscal 2003.

        In connection with software license, maintenance and certain consulting agreements entered into with certain banks and purchase agreements with vendors under which we acquired software technology used in products sold to our customers, we are required to pay royalties on sales of certain software products. Under these arrangements, we recognize royalty expense when the associated revenue is recognized. The royalty percentages generally range from 20% to 50% of the associated revenue. Approximately $1.9 million, $2.5 million and $2.5 million of royalty expense was recorded under these agreements and charged to cost of software licenses in the fiscal years ended January 31, 2005, 2004 and 2003, respectively. Depending on our future product mix, our margins from software license fees may be negatively impacted by increased software royalty expense.

        Write-off of Capitalized Software Costs and Prepaid Software Royalties:    During the quarterly period ended January 31, 2003, in connection with our periodic impairment review of our portfolio of software products, the eiManager product acquired in the AIS business combination in January 2000 was deemed to be impaired. Based on the Company's calculation of the expected future cash flows of the product, a $586,000 non-cash charge was recorded.

        Effective June 2001, we entered into a software license agreement with Actuate Corporation in which the Company would integrate Actuate Corporation's software with our Global Tracking and Cash Solutions within the Global Payments Technologies business segment. We prepaid $400,000 for 40 copies of the software. Based on the expected sales forecasts of this product a $368,000 non-cash charge was recorded in the quarterly period ended January 31, 2003.

        These costs are summarized below (in thousands):

        In fiscal 2005, we do not expect any additional impairments of capitalized software or prepaid software royalties. However, if market conditions deteriorate or demand for software solutions in which we have capitalized software, or acquired developed technology is not what we expected, these assets may become impaired and subject to a charge to earnings.

38

Cost of Software Maintenance ($ in thousands):

        Cost of maintenance consists primarily of personnel and facility costs to provide telephone support, product defect support and other enhancements to our existing products which are not significant enough to extend the product's life cycle, or substantially increase its marketability. These costs are primarily contained within our GPT business segment. The increase in costs of maintenance in absolute dollars of $1.4 million and $2.6 million in fiscal 2004 and 2003 is the result of traditional research and development employees working on software maintenance projects that integrated and enhanced our legacy products in preparation for new technology and new product offerings. The annual maintenance fee is generally paid by the customer at the beginning of the maintenance period and we recognize this maintenance revenue ratably over the term of the related contract. If the annual maintenance fee is not paid at the beginning of the maintenance period, we defer revenue recognition until the time that the maintenance fee is paid by the customer. When the payment is received, maintenance revenue is recognized for the period that maintenance revenue was previously deferred. As a result, our cost of software maintenance as a percentage of related maintenance revenue will also fluctuate.

Cost of Software Implementation ($ in thousands):

        Costs of software implementation consist primarily of personnel and facility costs to provide software implementation and project management support to customer software implementations primarily within our GPT business segment. The decline in costs of software implementation in absolute dollars of $3.2 million in fiscal 2004, as compared to fiscal 2003, was primarily driven by a $2.1 million, or 13.8%, decline in these costs within the GPT business segment and a $1.2 million decline within the CVE software group contained in the RevE business segment. In both cases, the decline in these costs was the result of a reduction in new software license and implementation projects contracted in fiscal 2004. The decline in costs is mostly attributable to a reduction in personnel who were either terminated or reassigned within the Company. The decline in costs of software implementation in absolute dollars of $1.6 million in fiscal 2003, as compared to fiscal 2002, was primarily driven by a $1.0 million decline in the fourth quarter of fiscal 2003, as a result of the decline in new software license and implementation projects contracted and also the completion of an implementation project at the Federal Reserve. The increase in the percentage of software implementation costs, as a percentage of software implementation revenue, is the result of the decline of software implementation revenue discussed above.

Cost of Outsourcing Services Fees ($ in thousands):

39

        The increase in the cost of outsourcing service fees is due to the creation of Carretek, our 51% owned business outsourcer for payment and transaction processing. In fiscal 2004, this business only had a single customer. In fiscal 2005, we anticipate the outsourcing service fees cost of revenues, on an absolute dollar basis to increase and as a percentage of outsourcing service fee revenue, to decline as we expand the scope of this work.

Out-of-Pocket Expenses ($ in thousands):

        These costs represent travel, meals and other sundry expenses incurred by our employees. These costs are invoiced to the customer, without mark-up, usually on a monthly basis. Certain customer contracts do contain expense maximums, so in certain cases not all expenses incurred can be passed along to the customer. The declines in these costs for both fiscal 2004 and fiscal 2003 are primarily the result of the decline in new consulting projects contracted for within the GPC business segment and the decline in new implementation projects contracted for within the GPT business segment. In fiscal 2005, we anticipate these costs to increase consistent with the expected increase in out-of-pocket expense reimbursement revenue.

Operating Costs and Expenses ($ in thousands):

Selling, General and Administrative Expenses ($ in thousands):

        Selling, general and administrative expenses generally consist of personnel costs such as salaries, commissions and other incentive compensation along with travel associated with selling, marketing, general management and software management. Additionally, the provision for doubtful accounts, insurance, including directors and officers insurance, as well as professional services, such as legal and accounting expenses, and other related costs are classified within selling, general and administrative expense. The fiscal 2004 selling, general and administrative costs declined $3.2 million, as compared to fiscal 2003, as we lowered our expense base to better align our cost structure with our current revenue levels. In fiscal 2004, we expanded our sales capacity in all three business segments and sales costs increased approximately $1.4 million. These increased sales costs were offset by a decline in general and administrative expenses of $4.6 million achieved through operating efficiencies and consolidation efforts. Some of the major declines were personnel and contract labor reductions of $2.6 million, office service and facilities reductions of $2.0 million and better accounts receivable management which reduced our bad debt charges by $724,000. These general and administrative savings were partially offset by $903,000 of professional services related to increased accounting and third party consulting fees for Sarbanes-Oxley compliance. Even with the decreased expense levels, the selling, general and administrative expenses, as a percentage of revenue, increased in fiscal 2004 to 39.1%, from 38.6%, due to the decline in total revenue.

        The fiscal 2003 selling, general and administrative costs remained relatively flat, as compared to fiscal 2002. The increase in the selling, general and administrative expenses, as a percentage of total

40

revenue, was primarily the result of the decrease in total revenue from fiscal 2003, as compared to fiscal 2002.

        In fiscal 2005, we expect to continue to increase our selling expenses; however, we anticipate that any increases in selling expenses should be balanced with planned continued decreases within our general and administrative areas to maintain overall selling, general and administrative costs at a level that is expected to be consistent with fiscal 2004 levels, exclusive of any expenses related to the expensing of stock options.

Research and Development ($ in thousands):

        Research and development expenses consist primarily of personnel, contract labor, travel and facilities expenses incurred by our research and development organization. In fiscal 2004, research and development costs increased as a result of increased new product development. In fiscal 2003, research and development costs decreased as compared to fiscal 2002 as a result of a concentration of projects classified as cost of software maintenance which integrated and enhanced our legacy products in preparation for new technology and new product offerings. Research and development costs are typically limited to development of new software products, or enhancements to existing software products, which extend the product's life cycle and/or substantially increase its marketability.

        In accordance with SFAS No. 86, "Accounting for Costs of Software to be Sold, Leased or Otherwise Marketed," we capitalized $2.6 million in fiscal 2004 as compared to $1.0 million in fiscal 2003 and $103,000 in fiscal 2002. In fiscal 2004 and 2003, the majority of our capitalization is related to the development of products needed to address the changing market environment due to the Check 21 legislation which went into effect in October 2004. These development initiatives consisted of ExchgLink, an application to send and receive check images, Express Research, an image-enabled back office application, Source Capture which enables customers to capture check images at corporate sites, bank branches and ATM's, an anti-money laundering application and other fraud detection products.

        Software development costs of a product are capitalized from the time technological feasibility is reached until the general release of the product. We establish technological feasibility through the process of creating a detailed program design and reviewing the detailed program design for any high risk development issues or through the creation of a working model. Capitalization only occurs if we believe costs capitalized are recoverable through future sales of the software product under development.

        In fiscal 2005, we expect this volume of development activity to continue and anticipate that research and development expense will be slightly higher on an absolute dollar basis.

        Amortization of Intangible Assets:    Amortization of intangible assets was $1.4 million in each of fiscal 2004, 2003 and 2002. The amortization results from the periodic recognition of amortization expense of intangible customer relationships acquired in the Check Solutions acquisition in fiscal 2001.

        Goodwill Impairment:    During the fourth quarter of fiscal 2002, we performed our annual evaluation for goodwill impairment resulting in a charge of $46.0 million. The impairment charge was recorded to the Global Payments Technologies ("GPT") segment as all of the Company's goodwill has been assigned to the GPT segment. The fair value of the reporting unit to which goodwill is assigned was determined to be less than its carrying amount. Thus, an allocation of the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting unit was made to determine the

41

excess of fair value over amounts allocated to net assets. The excess represents the estimated fair value of the goodwill which was compared to recorded goodwill as of the evaluation date of November 1, 2002 and resulted in an impairment charge of $46.0 million. The fair values used in this evaluation were estimated based upon the consideration of a number of fair value estimation techniques including a discounted cash flow analysis and consideration of the market price of our stock. The assumptions in the discounted cash flow analysis include future revenue volume levels, price levels and rates of increases in operating expenses to compute projected cash flows for the reporting unit and other intangible assets within the reporting unit. A discount rate of 26% was applied to determine discounted cash flows.

        During the fourth quarter of fiscal 2004 and 2003, we performed our annual evaluation for goodwill impairment. No impairment resulted from these assessments. We believe that our assumptions used to estimate future cash flows for these evaluations are reasonable. However, if market conditions deteriorate or if changes occur in the estimated projections with respect to GPT business, we may be required to record additional impairment charges in the future, the amount of which could be material to our results of operations.

        Restructuring and Other Charges:    We recorded various restructuring and other charges during the fiscal years ended January 31, 2005, 2004 and 2003 as follows (in thousands):