EURONET WORLDWIDE, INC. - Annual Report: 2007 (Form 10-K)

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 the 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 a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See the definitions of “large accelerated filer,” ''accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o  No þ

As of June 30, 2007, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $1,275 million. The aggregate market value was determined based on the closing price of the Common Stock on June 30, 2007. At February 22, 2008, the registrant had 48,955,047 shares of common stock (the “Common Stock”) outstanding.

Portions of the registrant’s Proxy Statement for its Annual Meeting of Shareholders in 2008, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2007, are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 

Additionally, our software products are an integral part of the EFT Segment product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base both internal and external. Our ITM software is used by our Budapest, Mumbai, Athens, Beijing and Belgrade operations centers in our EFT Processing Segment, including our Euronet Middle East JV processing center in Bahrain, resulting in cost savings and added value compared to third-party license and maintenance options. Furthermore, we have identified opportunities to provide processing services to our software solutions customers and our ability to develop, adapt and control our own software gains us credibility with our processing services customers. We have been able to enter into agreements under which we use our ITM software in lieu of cash as our initial capital contributions to new transaction processing joint ventures. Such contribution permits us to enter new markets without significant cash outlay.

Seasonality

Our business is significantly impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels after the holiday season. We have estimated that, absent unusual circumstances (such as the impact of new acquisitions or unusually high levels of growth due to market factors), the overall revenue realized in the EFT Processing Segments is likely to be approximately 5% to 10% lower during the first quarter of each year than in the fourth quarter of the year. We have historically experienced minimal differences between the second and third quarters of each year.

Segment Significant Customers and Government Contracts

No individual customer makes up greater than 10% of consolidated total revenue, and we do not have any government contracts in the EFT Processing Segment. Our outsourcing contracts generally provide for a term of three to seven years and are automatically renewed unless either party provides written notice of non-renewal prior to the termination date. In some cases, the contracts are terminable by either party upon six months notice.

Competition

Our principal EFT Processing competitors include ATM networks owned by financial institutions and national switches consisting of consortiums of local banks that provide outsourcing and transaction services to financial institutions and independent ATM deployers in a particular country. Additionally, large, well-financed companies that operate ATMs offer ATM network and outsourcing services, and those that provide card outsourcing, POS processing and merchant acquiring services also compete with us in various markets. None of these competitors have a dominant market share in any of our markets. Competitive factors in our EFT Processing Segment include breadth of service offering network availability and response time, price to both the financial institution and to its customers, ATM location and access to other networks.

Certain independent (non bank-owned) companies provide electronic recharge on ATMs in individual markets in which we provide this service. We are not aware of any independent companies providing electronic recharge on ATMs across multiple markets in which we provide this service. In this area, we believe competition will come principally from banks providing such services on their own ATMs through relationships with mobile operators or from card transaction switching networks that add recharge transaction capabilities to their offerings (as is the case in the U.K. through the LINK network).

PREPAID PROCESSING SEGMENT

Overview

We currently offer prepaid mobile phone top-up services and certain other prepaid products in the U.S., Europe, Africa, Asia Pacific and Middle-East. We are one of the largest providers of prepaid processing, or “top-up” services, for prepaid mobile airtime. We provide electronic top-up services for prepaid mobile airtime primarily in the U.K., Germany, Austria, Spain, Poland, Ireland, Australia, New Zealand, Malaysia, Indonesia, Romania, Italy, India and the U.S. on a network of approximately 396,000 POS terminals across more than 193,000 retailer locations. Our processing centers for the Prepaid Processing Segment are located in Basildon, U.K.; Martinsried, Germany; Madrid, Spain; and Leawood, Kansas.

As discussed above, we have continually expanded this business and plan to further expand our top-up business in our existing markets and other markets by taking advantage of our existing expertise together with relationships with mobile operators and retailers. In addition, we distribute other prepaid products across our retail networks, including prepaid debit cards, gift cards, prepaid long distance and bill payment.

Sources of Revenue

The major source of revenue generated by our Prepaid Processing Segment is commissions or processing fees received from telecommunications service providers for the sale and distribution of prepaid mobile airtime. We also generate revenue from commissions earned from the distribution of other prepaid products.

Customers using mobile phones generally pay for their usage in two ways:

	•		through “postpaid” accounts, where usage is billed at the end of each billing period, and
	•		through “prepaid” accounts, where customers pay in advance by crediting their accounts prior to usage.

Although mobile operators in the U.S. and certain European countries have provided service principally through postpaid accounts, the trend in many other countries in Europe and the rest of the world is to offer wireless service on a prepaid basis. This shift is driven, according to Ofcom, formerly Oftel (the U.K. telecommunications regulator), surveys, by customers’ belief that prepaid products better meet their needs and enable them to better control their monthly wireless expenditures.

Currently, two principal methods are available to credit prepaid accounts (referred to as “top-up” of accounts). The first is through the purchase of “scratch cards” bearing a PIN (personal identification number) that, when entered into a customer’s mobile phone account, credits the account by the value of airtime purchased. Scratch cards are sold predominantly through retail outlets. The second is through various electronic means of crediting accounts using POS terminals. Electronic top-up (or “e-top-up”) methods have several advantages over scratch cards, primarily because electronic methods do not require the cost of creation, distribution and management of a physical inventory of cards or involve the risk of losses stemming from fraud, theft and mismanagement. Prior to 2004, scratch cards were the predominant method of crediting mobile phone accounts in most developed markets. However, a shift has occurred in these markets away from usage of scratch cards to more efficient e-top-up methods.

Our Prepaid Processing Segment processes the sale of prepaid mobile phone minutes to consumers through networks of POS terminals and direct connections to the electronic payment systems of retailers. Our distribution of mobile phone airtime electronically through POS terminals varies by market. In some markets, we connect directly to the mobile operators’ back-office system, which enables us to process a direct top-up credit from the mobile operator to the customer’s mobile phone. In other markets, we distribute airtime via the sales of PINs purchased from the mobile operators. The business has grown rapidly over the past few years as new retailers have been added and prepaid airtime distribution has switched from scratch cards to electronic means.

In our prepaid markets, we expand our distribution networks through the signing of new contracts with retailers, and in some markets, through acquisition of existing networks. We also seek to improve the results of our existing networks through the addition of new mobile operators in markets where we do not already distribute all of the available prepaid time and the addition of other prepaid products not necessarily related to the mobile operators. In addition, in the U.S. we are expanding our sales presence in all sales segments. We are continuing to focus on our growing network of distributors, generally referred to as Independent Sales Organizations (“ISOs”) that contract with retailers in their network to distribute PINs from their terminals. We continue to increase our focus on direct relationships with chains of independent convenience stores and other larger scale retailers, where we can negotiate agreements with the merchant on a multiyear basis.

To distribute PINs, we establish an electronic connection with the POS terminals and maintain systems that monitor transaction levels at each terminal. As sales to customers of mobile airtime are completed, the customer pays the retailer and the retailer becomes obligated to make settlement to us of the principal amount of the phone time sold. We maintain systems that enable us to monitor the payment practices of each retailer.

Prepaid Processing Products and Services

Prepaid Mobile Airtime Transaction Processing

We process prepaid mobile airtime top-up transactions on our POS network across the U.S., Europe, Africa, the Middle-East and Asia Pacific for two types of clients: distributors and retailers. Both types of client transactions start with a consumer in a retail store. The retailer uses a specially programmed POS terminal in the store or the retailer’s electronic cash register (“ECR”) system that is connected to our network to buy prepaid airtime. The customer will select a predefined amount of prepaid airtime from the carrier of his choice, and the retailer enters the selection into the POS terminal. The consumer will pay that amount to the retailer (in cash or other payment methods accepted by the retailer). The POS device then transmits the selected transaction to our processing center. Using the electronic connection we maintain with the mobile operator or drawing from our inventory of PINs, the purchased amount of airtime will be either credited to the consumer’s account or delivered via a PIN printed by the terminal and given to the consumer. In the case of PINs printed by the terminal, the consumer must then call a mobile operator’s toll free number to activate the purchased airtime to this consumer’s mobile account.

One difference in our relationships with various retailers and distributors is how we charge for our services. For distributors and certain very large retailers we charge a processing fee. However, the majority of our transactions occur with smaller retailer clients. With these clients, we receive a commission on each transaction that is withheld from the payments made to the mobile operator, and we share that commission with the retailers.

We monitor the number of transactions made on our prepaid networks. The number of transactions processed on our entire POS network has increased over the last five years as indicated in the following table:

(in millions)		2003				2004				2005				2006				2007
Prepaid processing transactions per year			102.1				228.6				348.0				457.8				634.8

Retailer and Distributor Contracts

We provide our prepaid services through POS terminals installed in retail outlets or, in the case of major retailers, through direct connections between their ECR systems and our processing centers. In markets where we operate e-pay technology (the U.K., Australia, Poland, Ireland, New Zealand and the U.S.), we generally own and maintain the POS terminals. In Germany, Austria and Romania, the terminals are sold to the retailers or to distributors who service the retailer. Our agreements with major retailers for the POS services typically have one to three-year terms. These agreements include terms regarding the connection of our networks to the respective retailer’s registers or payment terminals or the maintenance of POS terminals, and obligations concerning settlement and liability for transactions processed. Generally, our agreements with individual or small retailers have shorter terms and provide that either party can terminate the agreement upon three to six months’ notice.

In Germany, distributors have historically controlled the sale of mobile phone scratch cards, and they now are key intermediaries in the sale of e-top-up. Our business in Germany is substantially concentrated in, and dependent upon, relationships with our major distributors. The termination of any of our agreements with major distributors could materially and adversely affect our business in Germany. However, we have been establishing agreements with independent retailers in order to diversify our exposure to such distributors.

Other Products and Services

Our POS network can be used for the distribution of other products and services. Although prepaid mobile airtime is the primary product distributed through our Prepaid Processing Segment, additional products include prepaid long distance calling card plans, prepaid internet plans, prepaid debit cards, prepaid gift cards, bill payment, money transfer and prepaid mobile content such as ring tones and games. In certain locations, the terminals used for prepaid services can also be used for electronic funds transfer (“EFT”) to process credit and debit card payments for retail merchandise.

Prepaid Processing Segment Strategy

We plan to expand our prepaid processing business in our existing markets and new markets by taking advantage of our expansive distribution network and existing relationships with mobile phone operators and retailers. Although all of these markets present opportunities for expanding the sales of our services, we believe opportunities for transaction growth in the Prepaid Processing Segment are greater in Poland, Germany, Italy, Romania and India, where there is organic growth of prepaid products in the prepaid markets.

Seasonality

Our prepaid business is significantly impacted by seasonality during the fourth quarter and first quarter of each year due to the higher transaction levels during the holiday season and lower levels following the holiday season. We expect that, absent unusual circumstances (such as the impact of new acquisitions or unusually high levels of growth due to market factors), the overall revenue realized is likely to be 5% to 10% lower during the first quarter than in the fourth quarter of the year. We have historically experienced minimal differences between the second and third quarters of each year. To date, the impact of seasonality has generally been masked in the Prepaid Processing Segment by growth rates resulting from continued shifts from scratch cards to electronic top-up and acquisitions. There can be no assurance that this will be the case for future years.

Significant Customers and Government Contracts

No individual customer makes up greater than 10% of consolidated total revenue, and we do not have any government contracts in any country within the Prepaid Processing Segment.

Competition

We face competition in the prepaid business in all of our markets. We compete with a few multinational companies that operate in several of our markets. In other markets, our competition is from smaller, local companies. None of these companies is dominant in any of the markets where we do business.

We believe, however, that we currently have a competitive advantage due to various factors. First, in the U.K., Germany and Australia, our acquired subsidiaries have been concentrating on the sale of electronic prepaid mobile airtime for longer than most of our competitors and have significant market presence in those markets. In addition, we offer complementary ATM and mobile recharge solutions through our EFT processing centers. We believe this improves our ability to solicit the use of networks of devices owned by third parties (for example, banks and switching networks) to deliver recharge services. In selected developing markets, we expect to establish a first to market advantage by rolling out terminals rapidly before competition is established. We also have an extremely flexible technical platform that enables us to tailor POS solutions to individual merchant and mobile operator requirements where appropriate. The GPRS (wireless) technology, designed by our Transact subsidiary, will also give us an advantage in remote areas where landline phone lines are of lesser quality or nonexistent.

The principal competitive factors in this area include price (that is, the level of commission paid to retailers for each recharge transaction), breadth of mobile operator product and up-time offered on the system. Major retailers with high volumes are in a position to demand a larger share of the commission, which increases the amount of competition among service providers. Recently, we are seeing signs that mobile operators may wish to take over and expand their own distribution networks of prepaid time, and in doing so, they may become our competitors.

MONEY TRANSFER SEGMENT

Overview

We began reporting the results of this segment in the second quarter 2007 after we completed the acquisition of RIA Envia, Inc. (“RIA”). This acquisition makes Euronet the third-largest global money transfer company. The Money Transfer segment also includes the Company’s pre-existing money transfer business, Euronet Payments & Remittance, Inc. (formerly TelecommUSA), which was previously included in the Prepaid Processing Segment due to its relative insignificance.

Our Money Transfer Segment processes more than $5.0 billion in money transfers annually. We originate transfers through a network of sending agents, including Company-owned stores located in the U.S., Canada, Puerto Rico, the U.K., Ireland, Spain, Italy, France, Germany, Sweden, Switzerland and Australia and disburse money transfers through an extensive payer network in approximately 100 countries.

Our sending agent network includes convenience stores, bodegas, multi-service shops and phone centers, which are predominantly found in areas with a large immigrant population. Each money transfer transaction is processed using the Company’s proprietary software system and checked for security, completeness and compliance with federal regulations at every step of the process. The sender can track the progress of their transfer either online or through RIA’s customer service representatives, and funds are delivered quickly to their beneficiary via our extensive payout/correspondent network, which includes large banks and non-bank financial institutions. As of December 31, 2007, we provided consumer-to-consumer money transfer services through a network of more than 71,000 locations. Our processing center for the Money Transfer Segment is located in Cerritos, California and we operate call centers in the United States and Spain and provide multi-lingual customer service for both our agents and consumers.

Our money transfer sending network can be used to offer other products and services. Additional product offerings through our sending agents include bill payment services enabling over-the-counter payments for utilities, wireless and cable bills; money orders; prepaid debit cards; comprehensive check cashing service for a wide variety of issued checks; and foreign currency exchange services.

Money Transfer Services

We offer consumer-to-consumer money transfer services primarily through two channels at agent locations: by phone (“TeleRIA”), or via computer (“RIA Online”). Both types of transactions start with a consumer in an agent location or owned store. Through our TeleRIA service, customers connect to our call center from a telephone available at an agent location or RIA store and a representative will collect the information over the telephone and enter it directly into our secure proprietary system. As soon as the data capture is complete, our central system automatically faxes a confirmation receipt to the agent location for the customer to review and sign and the customer pays the agent the money to be transferred, together with a fee. In an online transaction, customer provides the required information to the agent who enters the data into our online platform via a computer using a unique username and password. The real-time online connection we maintain with the agent enables the agent to generate a receipt and complete the transaction.

We are also piloting our card-based money transfer system, which allows transactions to be initiated primarily through POS terminals at agent locations.

Sources of Revenue

Revenue in the Money Transfer Segment is primarily derived through the charging of a transaction fee, as well as the difference between purchasing foreign currency at wholesale exchange rates and selling the foreign currency to consumers at retail exchange rates. We have an origination network in place comprised of agents and Company-owned stores in North America, the Caribbean, Europe and Asia-Pacific and a worldwide network of distribution agents, consisting primarily of financial institutions in the transfer destination countries. Origination and correspondent agents each earn fees for cash collection and distribution services. These fees are recognized as direct operating costs at the time of sale.

Money Transfer Segment Strategy

We completed the acquisition of RIA in April 2007, which significantly expanded our money transfer business. RIA has established high-potential money transfer corridors from the U.S. and internationally beyond the traditional U.S. to Mexico corridor. In 2007, the Company started to leverage synergies and cross-selling opportunities between business segments to further expand RIA’s global money transfer send and receive network. Based on the successful outcome of the cross-sell initiatives, our key focus in 2008 and beyond is to continue to take advantage of cross-selling opportunities with our Prepaid and EFT Segments by providing prepaid services through RIA’s stores and agents in multiple countries; offering our money transfer services at ethnically-focused prepaid retail locations in key markets; and leveraging our banking and merchant/retailer relationships to expand our agent network in high-growth corridors in Europe and Asia to further grow our market share in the multi-billion dollar money transfer industry.

Seasonality

Our money transfer business is significantly impacted by seasonality that varies by region. In most of our markets we experience increased money transfer transaction levels during the month of May and in the fourth quarter of each year, coinciding with various holidays. Additionally, in the U.S. to Mexico corridor, we usually experience our heaviest volume during the May through October timeframe, coinciding with the increase in worker migration patterns, and our lowest volumes during the first quarter. During the first quarter of each year we have historically experienced a 5% to 10% decrease in overall transactions when compared to the fourth quarter.

Significant Customers and Government Contracts

No individual consumer makes up greater than 10% of consolidated total revenue, and there are no government contracts with any country within the Money Transfer Segment.

Competition

Our primary competitors in the money transfer and bill payment business include other independent processors and electronic money transmitters, as well as certain major national and regional banks, financial institutions and independent sales organizations. Our competitors include Western Union, MoneyGram, Global Payments and many other smaller competitors, some of which are larger than we are and have greater resources and access to capital for expansion than we have. This may allow them to offer better pricing terms to customers, agents or correspondents, which may result in a loss of our current or potential customers or could force us to lower our prices. In addition to traditional money payment services, new technologies are emerging that may effectively compete with traditional money payment services, such as stored-value cards, debit networks and web-based services. Our continued growth also depends upon our ability to compete effectively with these alternative technologies.

PRODUCT RESEARCH, DEVELOPMENT AND ENHANCEMENT

In the EFT Processing Segment, development has historically focused on expanding the range of services offered to our bank customers from ATM and POS outsourcing to card processing and software services. In 2007, we made significant investments to develop new cross-border merchant acquiring capabilities that we are offering to multinational merchants. We hope to capitalize on the Single Euro Payments Area (“SEPA”) that is being implemented by European financial community.

In our Prepaid Processing Segment, development has focused on expanding the types of prepaid products and services available to consumers over our network to include, for example, prepaid gift and debit cards, and bill payment capabilities. This is intended to make our offerings more attractive to retailers.

We have made an ongoing commitment to the maintenance and improvement of our software products. We regularly engage in software product development and enhancement activities aimed at the development and delivery of new products, services and processes to our customers. Our research and development costs for software products to be sold, leased or otherwise marketed totaled $6.5 million, $7.3 million and $2.7 million in 2007, 2006 and 2005, respectively. Amounts capitalized were $2.9 million, $3.2 million and $0.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. The increase in 2007 and 2006 as compared to

2005 are primarily a result of our acquisition of Essentis in January 2006, as discussed in Note 5, Acquisitions, to the Consolidated Financial Statements. The increase related to Essentis is primarily the result of development resources required to replicate its mainframe product in the Unix platform. Amounts capitalized are included on our Consolidated Balance Sheets in other long-term assets. These costs were capitalized under our accounting policy requiring the capitalization of development costs on a product-by-product basis once technological feasibility is established through the completion of a detailed program design or the creation of a working model of the product. Technological feasibility of computer software products is established when we have completed all planning, designing, coding, and testing activities necessary to establish that the product can be produced to meet its design specifications including functions, features and technical performance requirements. See Note 20, Computer Software to be Sold, to the Consolidated Financial Statements for a more detailed summary of the prior three years research and development capitalized costs and related amortization expense.

FINANCIAL INFORMATION BY GEOGRAPHIC AREA

For a discussion of results from operations, property and equipment, and total assets by geographic location, please see Note 18, Business Segment Information, to the Consolidated Financial Statements.  

EMPLOYEES

We had approximately 2,500, 1,100 and 900 employees as of December 31, 2007, 2006 and 2005, respectively. The increase during 2007 is primarily the result of the acquisition of RIA, which has a large call center staff, discussed in Note 5, Acquisitions, to the Consolidated Financial Statements. We believe our future success will depend in part on our ability to continue to recruit, retain and motivate qualified management, technical and administrative employees. Currently, no union represents any of our employees, and we have never experienced any work stoppages or strikes by our workforce and we consider relations with our employees to be good.  

GOVERNMENT REGULATION

With the exception of the Money Transfer Segment business discussed below, our business activities do not constitute “financial activities” subject to licensing in any of our current markets. Under German law, only licensed financial institutions may operate ATMs in Germany. Therefore, we may not operate our own ATM network in Germany without a sponsor, which is Bankhaus August Lenz (“BAL”). In that market, we act only as a subcontractor providing certain ATM-related services to a sponsor financial institution. As a result, our activities in the German market currently are entirely dependent upon the continuance of our agreement with BAL, or the ability to enter into a similar agreement with another institution in the event of the termination of such agreement. While we believe, based on our experience, we should be able to find a replacement for BAL if the agreement with BAL is terminated for any reason, the inability to maintain the BAL agreement or to enter into a similar agreement with another institution upon a termination of the BAL agreement could have a material adverse effect on our operations in Germany. For further information, see Item 1A – Risk Factors. Any expansion of our activity into areas that are qualified as “financial activity” under local legislation may subject us to licensing and we may be required to comply with various conditions to obtain such licenses. Moreover, the interpretations of bank regulatory authorities as to the activity we currently conduct might change in the future. We monitor our business for compliance with applicable laws or regulations regarding financial activities.

In the Money Transfer Segment we are subject to a wide variety of laws and regulations of the individual U.S., states, foreign markets and other governmental jurisdictions where we operate. These include international, federal and state anti-money laundering laws and regulations; money transfer and payment instrument licensing laws, escheat laws, laws covering consumer privacy, data protection and information security and consumer disclosure and consumer protection laws. Our operations have also been subject to increasingly strict requirements intended to help prevent and detect a variety of illegal financial activity, including money laundering, terrorist financing, unauthorized access to personal customer data and other illegal activities. Noncompliance with these laws and requirements could result in the loss or suspension of licenses or registrations required to provide money transfer services by either RIA or its agents. For more discussion, see Item 1A – Risk Factors.

Money Transfer and Payment Instrument Licensing

Licensing requirements in the U.S. are generally driven by the various state banking departments regulating the businesses of money transfers and issuance of payment instruments. Typical requirements include the meeting of minimum net worth requirements, maintaining permissible investments (e.g., cash, agent receivables, and government –backed securities) at levels commensurate with outstanding payment obligations, and the filing of a security instrument (typically in the form of a surety bond) to offset the risk of default of trustee obligations by the licensee. We are required by many regulators to file interim reports of licensed activity, most often on a quarterly basis, that address changes to agent and branch locations, operating and financial performance, permissible investments, and outstanding transmission liabilities. These periodic reports are utilized by the regulator to monitor ongoing compliance with state licensing laws. A number of major state regulators also conduct periodic examinations of licensees and their authorized delegates, generally with a frequency of every one to two years. Examinations are most often comprehensive in nature, addressing both the safety and soundness and overall compliance by the licensee with regard to state and federal regulations. Such examinations are typically performed on-site at the licensee’s headquarters or operations center; however, a number of states will choose to perform

examinations off-site. Many states also require money transmitters, issuers of payment instruments, and their agents to comply with federal and/or state anti-money laundering laws and regulations. In summary, our Money Transfer Segment, as well as our agent network, is subject to regulations issued by the different state regulators who license us, Office of Foreign Assets Control (“OFAC”), Bank Secrecy Act as amended by the USA PATRIOT ACT (“BSA”), the Financial Crimes Enforcement Network (“FINCEN”), as well as, any existing or future regulations that impact any aspect of our money transfer business.

Our Money Transfer Segment is also subject to laws, regulations, including anti-money laundering laws and regulations, and licensing requirements outside the U.S. These laws and regulations include limits on the type of entities that may provide money transfer services, monetary limits for money transfers into or out of a country, rules regarding the foreign currency exchange rates offered, as well as other limitations or rules for which we must maintain compliance.

Regulatory bodies in the U.S. and abroad may impose additional rules on the conduct of our Money Transfer Segment that could have a significant impact on our operations and our agent network.

Escheat Regulations

Our Money Transfer Segment is subject to the unclaimed or abandoned property (i.e. “escheat”) regulations of the U.S. and certain foreign countries in which we operate. These laws require us to turn over property held by the company on behalf of others remaining unclaimed after specified periods of time (i.e., “dormancy” or “escheat” periods). Such abandoned property is generally attributable to the failure of beneficiary parties to claim money transfers or the failure to negotiate money orders, a form of payment instrument. We have policies and programs in place to help us monitor the required relevant information relating to each money transfer or payment instrument for possible eventual reporting to the jurisdiction from which the order was originally received. In the U.S., reporting of unclaimed property by money service companies is performed annually, generally with a due date of on or before November 1. State banking department regulators will typically include a review of Company escheat procedures and related filings as part of their examination protocol.

Privacy and Information Security Regulations

Our Money Transfer Segment operations involve the collection and storage of certain types of personal customer data that are subject to privacy and security laws in the U.S. and abroad. In the United States, we are subject to the Gramm-Leach-Bliley Act (“GLBA”), which requires that financial institutions have in place policies regarding the collection, processing, storage and disclosure of information considered nonpublic personal information. Laws in other countries include those adopted by the member states of the European Union under Directive 95/46 EC of the European Parliament and of the Council of 24 October 1995 (the “Directive”), as well as the laws of other countries. The Directive prohibits the transfer of personal data to non-European Union member nations that do not provide adequate protection for personal data. In some cases, the privacy laws of an EU member state may be more restrictive than the Directive and may impose additional requirements that we must comply with to operate in the respective country. Generally, these laws restrict the collection, processing, storage, use and disclosure of personal information and require that we safeguard personal customer data to prevent unauthorized access.

We comply with the GLBA and any state privacy provision by posting a privacy notice on the receipts provided to the consumers upon completion of a transaction. In addition, we comply with the Directive using the safe harbor permitted by the Directive by filing with the U.S. Department of Commerce, publicly declaring our privacy policy for information collected outside of the U.S., posting our privacy policy on our website and requiring our agents in the European Union to notify customers of the privacy policy.

Recently, as identity theft has been on the rise, there has been increased public attention to concerns about information security and consumer privacy, accompanied by laws and regulations addressing the issue. We believe we are compliant with these laws and regulations; however, this is an area that is rapidly evolving and there can be no assurance that we will continue to meet the existing and new regulations, which could have a material, adverse impact on our Money Transfer Segment business.

Money Transfer Compliance Policies and Programs

We have developed risk-based policies and programs to comply with the existing, new or changed laws, regulations and other requirements outlined above, including having dedicated compliance personnel, training programs, automated monitoring systems, and support functions for our offices and agents. To assist in managing and monitoring our money laundering and terrorist financing risks, we continue to have our compliance program independently examined on an annual basis. In addition, we continue to enhance our anti-money laundering and anti-terrorist financing compliance policy, procedures, monitoring systems, and staffing levels.

INTELLECTUAL PROPERTY

Each of our three operating segments utilizes intellectual property which is protected in varying degrees by a combination of trademark, patent and copyright laws, as well as trade secret protection, license and confidentiality agreements.

The brand names of “RIA”, “RIA Envia” and “AFEX”, derivations of those brand names and certain other brand names are material to our Money Transfer Segment and are registered trademarks and/or service marks in most of the markets in which our Money Transfer Segment operates. Consumer perception of these brand names is important to the growth prospects of our money transfer business. We also hold a U.S. patent on a card-based money transfer and bill payment system that allows transactions to be initiated primarily through POS terminals and integrated cash register systems.

With respect to our EFT Processing Segment, we have registered or applied for registration of our trademarks including the names “Euronet” and “Bankomat” and/or the blue diamond logo as well as other trade names in most markets in which these trademarks are used. Certain trademark authorities have notified us that they consider these trademarks to be generic and therefore not protected by trademark laws. This determination does not affect our ability to use the Euronet trademark in those markets but it would prevent us from stopping other parties from using it in competition with Euronet. We have purchased a registration of the “Euronet” trademark in the class of ATM machines in Germany, the U.K. and certain other Western European countries. We have filed pending patent applications for a number of our new software products and our new processing technology, including our recharge services.

With respect to our Prepaid Processing Segment, we have registered the “e-pay” logo trademark in the U.K. and Australia. We also hold trademarks for our prepaid operating subsidiaries in other jurisdictions, including PaySpot in the U.S. We cannot be certain that we will be entitled to use the e-pay trademark in any markets other than those in which we have registered the trademark. In 2003, we filed a U.S. patent application for our POS recharge products in support of e-pay and PaySpot technology. As of the date of this report, these patents are still pending. We also hold a patent license covering certain of PaySpot’s operations in the U.S.

Technology in the areas in which we operate is developing very rapidly, and we are aware that many other companies have filed patent applications for products, processes and services similar to those we provide. The procedures of the U.S. patent office make it impossible for us to predict whether our patent applications will be approved or will be granted priority dates that are earlier than other patents that have been filed for similar products or services. Moreover, the Prepaid Processing business is an area in which many “process patents” have been filed in the U.S. over recent years covering processes that are in wide use in the industry. If their patents are considered to cover technology that has been incorporated into our systems, we may be required to obtain additional licenses and pay royalties to the holders of such patents to continue to use the affected technology or be prohibited from continuing the offering of such services if licenses are not obtained. This could materially and adversely affect our business.

EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age, period of service and position held by each of our Executive Officers as of February 28, 2008 are as follows:

Name		Age				Served Since		Position Held
Michael J. Brown			51			July 1994		Chairman and Chief Executive Officer
Kevin J. Caponecchi			41			July 2007		President
Jeffrey B. Newman			53			December 1996		Executive Vice President — General Counsel
Rick L. Weller			50			November 2002		Executive Vice President — Chief Financial Officer
Miro I. Bergman			45			January 2001		Executive Vice President — Chief Operations Officer, Prepaid Processing Segment
Juan C. Bianchi			37			April 2007		Executive Vice President — Managing Director, Money Transfer Segment

MICHAEL J. BROWN is one of the founders of Euronet and has served as our Chairman of the Board and Chief Executive Officer since 1996. He also co-founded our predecessor in 1994. Mr. Brown has been a Director of Euronet since our incorporation in December 1996 and previously served on the boards of Euronet’s predecessor companies. Mr. Brown was our President from December 11, 2006 to June 19, 2007. In 1979, Mr. Brown founded Innovative Software, Inc., a computer software company that was merged in 1988 with Informix. Mr. Brown served as President and Chief Operating Officer of Informix from February 1988 to January 1989. He served as President of the Workstation Products Division of Informix from January 1989 until April 1990. In 1993, Mr. Brown was a founding investor of Visual Tools, Inc. Visual Tools, Inc. was acquired by Sybase Software in 1996. Mr. Brown received a B.S. in Electrical Engineering from the University of Missouri — Columbia in 1979 and a M.S. in Molecular and Cellular Biology at the University of Missouri — Kansas City in 1997.

KEVIN J. CAPONECCHI, President. Mr. Caponecchi joined Euronet as President in July 2007. Prior to joining Euronet, Mr. Caponecchi served in various capacities with subsidiaries of General Electric Company for 17 years. From 2003 until June 2007, Mr. Caponecchi served as President of GE Global Signaling, a provider of products and services to freight, passenger and mass transit systems, which had annual sales of nearly $600 million and employed approximately 1,500 people in over 10 countries. From 1998

through 2002, Mr. Caponecchi served as General Manager – Technology for GE Consumer & Industrial, a provider of consumer appliances, lighting products and electrical products, and in that position, he supervised product development for dishwashers, ranges and new product innovations. Mr. Caponecchi holds degrees in physics from Franklin and Marshall College and industrial engineering from Columbia University.

JEFFREY B. NEWMAN, Executive Vice President, General Counsel. Mr. Newman has been Executive Vice President and General Counsel of Euronet since January 2000. He joined Euronet in December 1996 as Vice President and General Counsel. Prior to this, he practiced law with the Washington D.C. based law firm of Arent Fox Kintner Plotkin & Kahn and the Paris based law firm of Salans Hertzfeld & Heilbronn. He is a member of the District of Columbia and Paris bars. He received a B.A. in Political Science and French from Ohio University in 1976 and law degrees from Ohio State University and the University of Paris.

RICK L. WELLER, Executive Vice President, Chief Financial Officer. Mr. Weller has been Executive Vice President and Chief Financial Officer of Euronet since he joined Euronet in November 2002. From January 2002 to October 2002, he was the sole proprietor of Pivotal Associates, a business development firm. From November 1999 to December 2001, Mr. Weller held the position of Chief Operating Officer of ionex telecommunications, inc., a local exchange company. He is a certified public accountant and received his B.S. in Accounting from University of Central Missouri.

MIRO I. BERGMAN, Executive Vice President, Chief Operating Officer — Prepaid Processing Segment. Mr. Bergman joined the company in March 1997 and has been Executive Vice President and Chief Operating Officer — Prepaid Processing Division since April 2005. He has been an Executive Vice President since January 2001. He served as Country Manager for the Czech Republic from 1997 to 1999 and then became area manager responsible for our operations in Central Europe. From 2000 until 2005, he served as Managing Director of the EFT Division for the Europe, Middle East, and Africa (EMEA) region. Mr. Bergman received his B.S. in Business Administration from the University of New York at Albany and M.B.A. from Cornell University.

JUAN C. BIANCHI, Executive Vice President, Managing Director — Money Transfer Segment. Mr. Bianchi joined Euronet through the acquisition of RIA Envia, Inc. (“RIA”). Prior to the acquisition, Mr. Bianchi served as the Chief Executive Officer of RIA and has spent his entire career at either RIA or AFEX Money Express, a money transfer company purchased by RIA’s founders. Mr. Bianchi began his career at AFEX in Chile in 1992, joined AFEX USA’s operations in 1996, and became chief operating officer of AFEX-RIA in 2003. Mr. Bianchi studied business at the Universidad Andres Bello in Chile and completed the Executive Program in Management at UCLA’s John E. Anderson School of Business.

AVAILABILITY OF REPORTS, CERTAIN COMMITTEE CHARTERS AND OTHER INFORMATION

Our website addresses are www.euronetworldwide.com and www.eeft.com. We make all Securities and Exchange Commission (“SEC”) public filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Exchange Act available on our website free of charge as soon as reasonably practicable after these documents are electronically filed with, or furnished to, the SEC. The information on our website is not, and shall not be deemed to be a part of this report or incorporated into any other filings we make with the SEC. In addition, the SEC maintains an internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding Euronet.

The charters for our Audit, Compensation, and Corporate Governance and Nominating Committees, as well as the Code of Business Conduct & Ethics for our employees, including our Chief Executive Officer and Chief Financial Officer, are available on our website at www.euronetworldwide.com in the “Investors” section.

We will also provide printed copies of these materials to any stockholders, upon request to Euronet Worldwide, Inc., 4601 College Boulevard, Suite 300, Leawood, Kansas, U.S.A. 66211, Attention: Investor Relations.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

If any of the following risks actually occurs, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline substantially.

This Annual Report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below and elsewhere in this Annual Report.  

Risks Related to Our Business

We have a substantial amount of debt and other contractual commitments, and the cost of servicing those obligations could adversely affect our business, and such risk could increase if we incur more debt. We may be required to prepay our obligations under the $290 million secured syndicated credit facility.

We have a substantial amount of indebtedness. As of December 31, 2007, total liabilities were $1,162.3 million, of which $539.3 million represents long-term debt obligations and total assets were $1,886.2 million. Of our total long-term debt obligations, $315.0 million is comprised of contingently convertible debentures that may be settled in stock. We may not have sufficient funds to satisfy all such obligations as a result of a variety of factors, some of which may be beyond our control. If the opportunity of a strategic acquisition arises or if we enter into new contracts that require the installation or servicing of infrastructure, such as processing centers, ATM machines or POS terminals on a faster pace than anticipated, we may be required to incur additional debt for these purposes and to fund our working capital needs, which we may not be able to obtain. The level of our indebtedness could have important consequences to investors, including the following:

	•		our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements or other purposes may be limited or financing may be unavailable;
	•		a substantial portion of our cash flows must be dedicated to the payment of principal and interest on our indebtedness and other obligations and will not be available for use in our business;
	•		our level of indebtedness could limit our flexibility in planning for, or reacting to, changes in our business and the markets in which we operate;
	•		our high degree of indebtedness will make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby making it more difficult for us to satisfy our obligations; and
	•		because a portion of our indebtedness and other obligations are denominated in foreign currencies, and because a portion of our debt bears interest at a variable rate of interest, our actual debt service obligations could increase as a result of adverse changes in foreign currency exchange rates and/or interest rates.

If we fail to make required debt payments, or if we fail to comply with other covenants in our debt service agreements, we would be in default under the terms of these agreements. This default would permit the holders of the indebtedness to accelerate repayment of this debt and could cause defaults under other indebtedness that we have.

Prepayment in full of the obligations under the $290 million secured syndicated credit facility (the “Credit Facility”) may be required six months prior to any required repurchase date under our $140 million 1.625% Convertible Senior Debentures Due 2024 or our $175 million 3.5% Convertible Debentures Due 2025, unless we are able to demonstrate that either: (i) we could borrow unsubordinated funded debt equal to the principal amount of the applicable convertible debentures while remaining in compliance with the financial covenants in the Credit Facility, or (ii) we will have sufficient liquidity (as determined by the administrative agent and the lenders). Holders of the $140 million 1.625% debentures have the option to require us to purchase their debentures at par on December 15, 2009, 2014 and 2019, and upon a change in control of the Company. Holders of the $175 million 3.5% debentures have the option to require us to purchase their debentures at par on October 15, 2012, 2015 and 2020, or upon a change in control of the Company.

Restrictive covenants in our credit facilities may adversely affect us. The Credit Facility contains three financial covenants that become more restrictive between now and September 30, 2008, including: (1) total debt to EBITDA ratio, (2) senior secured debt to EBITDA ratio and (3) EBITDA to fixed charge coverage ratio. Because these covenant thresholds will become more restrictive through September 30, 2008, to remain in compliance with our debt covenants, we may be required to increase EBITDA, repay debt, or both. We cannot assure you that we will have sufficient assets, liquidity or EBITDA to meet or avoid these obligations, which could have an adverse impact on our financial condition.

Our ability to secure additional financing for growth or to refinance any of our existing debt is also dependent upon the availability of credit in the marketplace, which has recently come under pressure due in part to credit concerns related to subprime mortgage-backed securities and related debt obligations. If we are unable to secure additional financing or such financing is not available at acceptable terms, we may be unable to secure financing for growth or refinance our debt obligations, if necessary.

Increases in interest rates will adversely impact our results from operations.

We have entered into interest rate swap agreements covering the period from June 1, 2007 through May 29, 2009 for a notional amount of $50 million that effectively converts that portion of our $190 million variable rate term loan to a fixed interest rate of 7.3% per annum. For the remaining outstanding balance of the term loan, as well as borrowings incurred under our revolving credit facility and other variable rate borrowing arrangements, increases in variable interest rates will increase the amount of interest expense that we pay for our borrowings and have a negative impact on our results from operations.

Our business may suffer from risks related to our recent acquisitions and potential future acquisitions, including our acquisition of RIA during 2007.

A substantial portion of our recent growth is due to acquisitions, and we continue to evaluate and engage in discussions concerning potential acquisition opportunities, some of which could be material. During 2007, we acquired RIA, which was our largest acquisition to date. We cannot assure you that we will be able to successfully integrate, or otherwise realize anticipated benefits from, our recent acquisitions or any future acquisitions. Failure to successfully integrate or otherwise realize the anticipated benefits of these acquisitions could adversely impact our long-term competitiveness and profitability. The integration of our recent acquisitions and any future acquisitions will involve a number of risks that could harm our financial condition, results of operations and competitive position. In particular:

	•		The integration plans for our acquisitions are based on benefits that involve assumptions as to future events, including leveraging our existing relationships with mobile phone operators and retailers, as well as general business and industry conditions, many of which are beyond our control and may not materialize. Unforeseen factors may offset components of our integration plans in whole or in part. As a result, our actual results may vary considerably, or be considerably delayed, compared to our estimates;
	•		The integration process could disrupt the activities of the businesses that are being combined. The combination of companies requires, among other things, coordination of administrative and other functions. In addition, the loss of key employees, customers or vendors of acquired businesses could materially and adversely impact the integration of the acquired business;
	•		The execution of our integration plans may divert the attention of our management from other key responsibilities;
	•		We may assume unanticipated liabilities and contingencies; or
	•		Our acquisition targets could fail to perform in accordance with our expectations at the time of purchase.

Future acquisitions may be affected through the issuance of our Common Stock or securities convertible into our Common Stock, which could substantially dilute the ownership percentage of our current stockholders. In addition, shares issued in connection with future acquisitions could be publicly tradable, which could result in a material decrease in the market price of our Common Stock.

We may be required to recognize impairment charges related to long-lived assets and goodwill recorded in connection with our acquisitions.

Our total assets include approximately $919.5 million, or 49% of total assets, in goodwill and acquired intangible assets recorded as a result of acquisitions. We assess our goodwill, intangible assets and other long-lived assets as and when required by accounting principles generally accepted in the U.S. to determine whether they are impaired. If operating results in any of our key markets, including the U.S., U.K., Germany, Spain and Australia, deteriorate or our plans do not progress as expected when we acquired these entities, we may be required to record an impairment write-down of goodwill, intangible assets or other long-lived assets. As previously disclosed, we have experienced a loss of revenues and profits in Spain due to a reduction of certain exclusive commission arrangements that were in effect until May 2006. Also, during the second quarter 2006, we entered into distribution agreements for additional products and prepaid airtime from the two other primary mobile operators in Spain. The projections that support goodwill from our Spanish acquisitions include growth in profitability that is dependent on a number of factors. These factors include: our ability to maintain or increase the level of gross margin that we earn with each transaction; our ability to increase transaction levels through the sale of the prepaid mobile airtime of the two other major mobile operators; our ability to increase the quantity of product offerings included on our network of POS terminals; and our ability to avoid additional investments. If operating results do not progress as expected, or if we are required to make additional investments, we may be required to record an impairment write-down of goodwill, intangible assets or other long-lived assets associated with our Spanish business. Impairment charges would reduce reported earnings for the periods in which they are recorded. This could have a material adverse effect on our results of operations and financial condition.

Like other participants in the money transfer industry, as a result of immigration developments, downturns in certain labor markets and/or other economic factors, growth rates in money transfers from the U.S. to Mexico have slowed. This slowing of growth began during the middle of 2006 and continues to impact money transfer revenues for transactions from the U.S. to Mexico. Despite recent improvement in this trend, we believe that it is too early to conclude on the impact, if any, to our results of operations. These issues have also resulted in certain competitors lowering transaction fees and foreign currency exchange spreads in certain markets where we do business in an attempt to limit the impact on money transfer volumes. For 2007, money transfer transactions to Mexico, which represented approximately 38% of total money transfer transactions, decreased by 1.1%. If this trend continues or worsens, or we experience similar trends in our international business, we may be required to record an impairment write-down of our goodwill, intangible assets or other long lived assets associated with the Money Transfer Segment.

A lack of business opportunities or financial or other resources may impede our ability to continue to expand at desired levels, and our failure to expand operations could have an adverse impact on our financial condition.

Our expansion plans and opportunities are focused on four separate areas: (i) our network of owned and operated ATMs; (ii) outsourced ATM management contracts; (iii) our prepaid mobile airtime services; and (iv) our money transfer and bill payment services. The continued expansion and development of our ATM business will depend on various factors including the following:

	•		the demand for our ATM services in our current target markets;
	•		the ability to locate appropriate ATM sites and obtain necessary approvals for the installation of ATMs;
	•		the ability to install ATMs in an efficient and timely manner;
	•		the expansion of our business into new countries as currently planned;
	•		entering into additional card acceptance and ATM outsourcing agreements with banks;
	•		the ability to renew existing agreements with customers;
	•		the ability to obtain sufficient numbers of ATMs on a timely basis; and
	•		the availability of financing for the expansion.

We cannot predict the increase or decrease in the number of ATMs we manage under outsourcing agreements because this depends largely on the willingness of banks to enter into or maintain outsourcing contracts with us. Banks are very deliberate in negotiating these agreements, and the process of negotiating and signing outsourcing agreements typically takes six to twelve months or longer. Moreover, banks evaluate a wide range of matters when deciding to choose an outsource vendor and generally this decision is subject to extensive management analysis and approvals. The process is also affected by the legal and regulatory considerations of local countries, as well as local language complexities. These agreements tend to cover large numbers of ATMs, so significant increases and decreases in our pool of managed ATMs could result from entry into or termination of these management contracts. In this regard, the timing of both current and new contract revenues is uncertain and unpredictable. Increasing consolidation in the banking industry could make this process less predictable.

We currently offer prepaid mobile airtime top-up services in the U.S., Europe, Africa, Asia Pacific and the Middle-East and we currently offer money transfer services from the U.S. to Latin America and from the U.K. to India, and bill payment services within the U.S. We plan to expand in these and other markets by taking advantage of our existing relationships with mobile phone operators, banks and retailers. This expansion will depend on various factors, including the following:

	•		the ability to negotiate new agreements, and renew existing agreements, in these markets with mobile phone operators, banks and retailers;
	•		the continuation of the trend of increased use of electronic prepaid mobile airtime among mobile phone users;
	•		the continuation of the trend of increased use of electronic money transfer and bill payment among immigrant workers;
	•		the increase in the number of prepaid mobile phone users; and
	•		the availability of financing for the expansion.

In addition, our continued expansion may involve acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services and could require financing that we may not be able to obtain. Our ability to manage our rapid expansion effectively will require us eventually to expand our operating systems and employee base. An inability to do this could have a material adverse effect on our business, growth, financial condition or results of operations.

We are subject to business cycles, seasonality and other outside factors that may negatively affect our business.

A recessionary economic environment or other outside factors could have a negative impact on mobile phone operators, retailers and our customers and could reduce the level of transactions, which could, in turn, negatively impact our financial results. If mobile phone operators and financial institutions experience decreased demand for their products and services, or if the locations where we provide

services decrease in number, we will process fewer transactions, resulting in lower revenue. In addition, a recessionary economic environment could reduce the level of transactions taking place on our networks, which will have a negative impact on our business.

Our experience is that the level of transactions on our networks is also subject to substantial seasonal variation. Transaction levels have consistently been much higher in the fourth quarter of the fiscal year due to increased use of ATMs, prepaid mobile airtime top-ups and money transfer services during the holiday season. Generally, the level of transactions drops in the first quarter, during which transaction levels are generally the lowest we experience during the year, which reduces the level of revenues that we record. Additionally, in the Money Transfer Segment, we experience increased money transfer transaction levels during the month of May and in the fourth quarter of each year, coinciding with various holidays. In the U.S. to Mexico corridor, we usually experience our heaviest volume during the May through October timeframe, coinciding with the increase in worker migration patterns, and our lowest volumes during the first quarter. During the first quarter of each year we have historically experienced a 5% to 10% decrease in overall transactions when compared to the fourth quarter. As a result of these seasonal variations, our quarterly operating results may fluctuate materially and could lead to volatility in the price of our shares.

Additionally, economic or political instability, civil unrest, terrorism and natural disasters may make money transfers to, from or within a particular country more difficult. The inability to timely complete money transfers could adversely affect our business.

The growth and profitability of our prepaid business is dependent on certain factors that vary from market to market.

Our Prepaid Processing Segment derives revenues based on processing fees and commissions from mobile and other telecommunication operators and distributors of prepaid wireless products. Growth in our prepaid business in any given market is driven by a number of factors, including the extent to which conversion from scratch cards to electronic distribution solutions is occurring or has been completed, the overall pace of growth in the prepaid mobile phone market, our market share of the retail distribution capacity and the level of commission that is paid to the various intermediaries in the prepaid mobile airtime distribution chain. In mature markets, such as the U.K., Australia, Spain and Ireland, the conversion from scratch cards to electronic forms of distribution is either complete or nearing completion. Therefore, these factors will cease to provide the organic increases in the number of transactions per terminal that we have experienced historically. Also, competition among prepaid distributors results in retailer churn and the reduction of commissions paid by mobile operators, although a portion of such reductions can be passed along to retailers. In the last year, processing fees and commissions per transaction have declined in most markets, and we expect that trend to continue. We have been able to improve our results despite that trend due to substantial growth in the number of transactions, driven by acquisitions and organic growth. We do not expect to continue this rate of growth. If we cannot continue to increase our transaction levels and per-transaction fees and commissions continue to decline, the combined impact of these factors could adversely impact our financial results.

Our prepaid mobile airtime top-up and money transfer businesses may be susceptible to fraud and/or credit risks occurring at the retailer and/or consumer level.

In our Prepaid Processing Segment, we contract with retailers that accept payment on our behalf, which we then transfer to a trust or other operating account for payment to mobile phone operators. In the event a retailer does not transfer to us payments that it receives for mobile airtime, we are responsible to the mobile phone operator for the cost of the airtime credited to the customer’s mobile phone. We can provide no assurance that retailer fraud will not increase in the future or that any proceeds we receive under our credit enhancement insurance policies will be adequate to cover losses resulting from retailer fraud, which could have a material adverse effect on our business, financial condition and results of operations.

With respect to our money transfer business, our business is primarily conducted through our agent network, which provides money transfer services directly to consumers at retail locations. Our agents collect funds directly from consumers and in turn we collect from the agents the proceeds due to us resulting from the money transfer transactions. Therefore, we have credit exposure to our agents. The failure of agents owing us significant amounts to remit funds to us or to repay such amounts could adversely affect our business, financial condition and results of operations.

Because we typically enter into short-term contracts with mobile phone operators and retailers, our top-up business is subject to the risk of non-renewal of those contracts, or renewal under less favorable terms.

Our contracts with mobile phone operators to process prepaid mobile airtime recharge services typically have terms of less than three years. Many of those contracts may be canceled by either party upon three months’ notice. Our contracts with mobile phone operators are not exclusive, so these operators may enter into top-up contracts with other service providers. In addition, our top-up service contracts with major retailers typically have terms of one to three years, and our contracts with smaller retailers typically may be canceled by either party upon three to six months’ notice. The cancellation or non-renewal of one or more of our significant mobile phone operator or retail contracts, or of a large enough group of our contracts with smaller retailers, could have a material adverse effect on our business, financial condition and results of operations. The renewal of contracts under less favorable payment terms, commission terms or other terms could have a material adverse impact on our working capital requirements and/or results from operations. In addition, our contracts generally permit operators to reduce our fees at any time. Commission revenue or fee reductions

by any of the mobile phone operators could also have a material adverse effect on our business, financial condition or results of operations.

The processes and systems we employ may be subject to patent protection by other parties.

In certain countries, including the U.S., patent protection legislation permits the protection of processes and systems. We employ processes and systems in various markets that have been used in the industry by other parties for many years, and which we or other companies that use the same or similar processes and systems consider to be in the public domain. However, we are aware that certain parties believe they hold patents that cover some of the processes and systems employed in the prepaid processing industry in the U.S. and elsewhere. We believe the processes and systems we use have been in the public domain prior to the patents we are aware of. The question of whether a process or system is in the public domain is a legal determination, and if this issue is litigated we cannot be certain of the outcome of any such litigation. If a person were to assert that it holds a patent covering any of the processes or systems we use, we would be required to defend ourselves against such claim. If unsuccessful, we may be required to pay damages for past infringement, which could be trebled if the infringement was found to be willful. We may also be required to seek a license to continue to use the processes or systems. Such a license may require either a single payment or an ongoing license fee. No assurance can be given that we will be able to obtain a license which is reasonable in fee and scope. If a patent owner is unwilling to grant such a license, or we decide not to obtain such a license, we may be required to modify our processes and systems to avoid future infringement. Any such occurrences could materially and adversely affect our prepaid processing business in any affected markets and could result in our reconsidering the rate of expansion of this business in those markets.

The stability and growth of our EFT Processing Segment depend on maintaining our current card acceptance and ATM management agreements with banks and international card organizations, and on securing new arrangements for card acceptance and ATM management.

The stability and future growth of our EFT Processing Segment depends in part on our ability to sign card acceptance and ATM management agreements with banks and international card organizations. Card acceptance agreements allow our ATMs to accept credit and debit cards issued by banks and international card organizations. ATM management agreements generate service income from our management of ATMs for banks. These agreements are the primary source of our ATM business.

These agreements have expiration dates, and banks and international card organizations are generally not obligated to renew them. In some cases, banks may terminate their contracts prior to the expiration of their terms. We cannot assure you that we will be able to continue to sign or maintain these agreements on terms and conditions acceptable to us or whether those international card organizations will continue to permit our ATMs to accept their credit and debit cards. The inability to continue to sign or maintain these agreements, or to continue to accept the credit and debit cards of local banks and international card organizations at our ATMs in the future, could have a material adverse effect on our business, growth, financial condition or results of operations.

Retaining the founder and key executives of our company, and of companies that we acquire, and finding and retaining qualified personnel is important to our continued success.

The development and implementation of our strategy has depended in large part on the co-founder of our company, Michael J. Brown. The retention of Mr. Brown is important to our continued success. In addition, the success of the expansion of businesses that we acquire may depend in large part upon the retention of the founders of those businesses. Our success also depends in part on our ability to hire and retain highly skilled and qualified management, operating, marketing, financial and technical personnel. The competition for qualified personnel in the markets where we conduct our business is intense and, accordingly, we cannot assure you that we will be able to continue to hire or retain the required personnel.

Our officers and some of our key personnel have entered into service or employment agreements containing non-competition, non-disclosure and non-solicitation covenants, which grant incentive stock options and/or restricted stock with long-term vesting requirements. However, most of these contracts do not guarantee that these individuals will continue their employment with us. The loss of our key personnel could have a material adverse effect on our business, growth, financial condition or results of operations.

Our operating results depend in part on the volume of transactions on ATMs in our network and the fees we can collect from processing these transactions.

Transaction fees from banks and international card organizations for transactions processed on our ATMs have historically accounted for a substantial majority of our revenues. These fees are set by agreement among all banks in a particular market. The future operating results of our ATM business depend on the following factors:

	•		the increased issuance of credit and debit cards;
	•		the increased acceptance of our ATM processing and management services in our target markets;

	•		the maintenance of the level of transaction fees we receive;
	•		the installation of larger numbers of ATMs; and
	•		the continued use of our ATMs by credit and debit cardholders.

Although we believe that the volume of transactions in developing countries may increase due to growth in the number of cards being issued by banks in these markets, we anticipate that transaction levels on any given ATM in developing markets will not increase significantly. We can attempt to improve the levels of transactions on our ATM network overall by acquiring good sites for our ATMs, eliminating poor locations, entering new less-developed markets and adding new transactions to the sets of transactions that are available on our ATMs. However, we may not be successful in materially increasing transaction levels through these measures. Per-transaction fees have declined in certain markets in recent years. If we cannot continue to increase our transaction levels and per-transaction fees generally decline, our results would be adversely affected.

Our operating results in the money transfer business depend in part on continued worker immigration patterns, our ability to expand our share of the existing electronic market and to expand into new markets and our ability to continue complying with regulations issued by the Office of Foreign Assets Control (“OFAC”), Bank Secrecy Act (“BSA”), Financial Crimes Enforcement Network (“FINCEN”), PATRIOT Act regulations or any other existing or future regulations that impact any aspect of our money transfer business.

Our money transfer business primarily focuses on workers who migrate to foreign countries in search of employment and then send a portion of their earnings to family members in their home countries. Our ability to continue complying with the requirements of OFAC, BSA, FINCEN, the PATRIOT Act and other regulations (both U.S. and foreign) is important to our success in achieving growth and an inability to do this could have an adverse impact on our revenues and earnings. Changes in U.S. and foreign government policies or enforcement toward immigration may have a negative affect on immigration in the U.S. and other countries, which could also have an adverse impact on our money transfer revenues.

Future growth and profitability depend upon expansion within the markets in which we currently operate and the development of new markets for our money transfer services. Our expansion into new markets is dependent upon our ability to successfully integrate RIA into our existing operations, to apply our existing technology or to develop new applications to satisfy market demand. We may not have adequate financial and technological resources to expand our distribution channels and product applications to satisfy these demands, which may have an adverse impact on our ability to achieve expected growth in revenues and earnings.

Changes in state, federal or foreign laws, rules and regulations could impact the money transfer industry, making it more difficult for our customers to initiate money transfers.

We are subject to regulation by the U.S. states in which we operate, by the U.S. federal government and by the governments of the other countries in which we operate. Changes in the laws, rules and regulations of these governmental entities could have a material adverse impact on our results of operations, financial condition and cash flow.

Changes in banking industry regulation and practice could make it more difficult for us and our agents to maintain depository accounts with banks.

The banking industry, in light of increased regulatory oversight, is continually examining its business relationships with companies who offer money transfer services and with retail agents who collect and remit cash collected from end consumers. Should banks decide to not offer depository services to companies engaged in processing money transfer transactions, or to retail agents who collect and remit cash from end customers, our ability to administer and collect fees from money transfer transactions could be adversely impacted.

Developments in electronic financial transactions could materially reduce our transaction levels and revenues.

Certain developments in the field of electronic financial transactions may reduce the need for ATMs, prepaid mobile phone POS terminals and money transfer agents. These developments may reduce the transaction levels that we experience on our networks in the markets where they occur. Financial institutions, retailers and agents could elect to increase fees to their customers for using our services, which may cause a decline in the use of our services and have an adverse effect on our revenues. If transaction levels over our existing network of ATMs, POS terminals, agents and other distribution methods do not increase, growth in our revenues will depend primarily on increased capital investment for new sites and developing new markets, which reduces the margin we realize from our revenues.

The mobile phone industry is a rapidly evolving area, in which technological developments, in particular the development of new methods or services, may affect the demand for other services in a dramatic way. The development of any new technology that reduces the need or demand for prepaid mobile phone time could materially and adversely affect our business.

We generally have little control over the ATM transaction fees established in the markets where we operate, and therefore, cannot control any potential reductions in these fees.

The amount of fees we receive per transaction is set in various ways in the markets in which we do business. We have card acceptance agreements or ATM management agreements with some banks under which fees are set. However, we derive the bulk of our revenues in most markets from ''interchange fees’’ that are set by the central ATM processing switch. The banks that participate in these switches set the interchange fee, and we are not in a position in any market to greatly influence these fees, which may increase or decrease over time. A significant decrease in the interchange fee in any market could adversely affect our results in that market.

In some cases, we are dependent upon international card organizations and national transaction processing switches to provide assistance in obtaining settlement from card issuers of funds relating to transactions on our ATMs.

Our ATMs dispense cash relating to transactions on credit and debit cards issued by banks. We have in place arrangements for the settlement to us of all of those transactions, but in some cases, we do not have a direct relationship with the card-issuing bank and rely for settlement on the application of rules that are administered by international card associations (such as Visa or MasterCard) or national transaction processing switching networks. If a bankcard association fails to settle transactions in accordance with those rules, we are dependent upon cooperation from such organizations or switching networks to enforce our right of settlement against such banks or card associations. Failure by such organizations or switches to provide the required cooperation could result in our inability to obtain settlement of funds relating to transactions and adversely affect our business.

We derive a significant amount of revenue in our business from service agreements signed with financial institutions to own and/or operate their ATM machines.

Certain contracts have been, and in the future may be, terminated by the financial institution resulting in a substantial reduction in revenue. Contract termination payments, if any, may be inadequate to replace revenues and operating income associated with these contracts.

Because our business is highly dependent on the proper operation of our computer network and telecommunications connections, significant technical disruptions to these systems would adversely affect our revenues and financial results.

Our business involves the operation and maintenance of a sophisticated computer network and telecommunications connections with financial institutions, mobile operators, retailers and agents. This, in turn, requires the maintenance of computer equipment and infrastructure, including telecommunications and electrical systems, and the integration and enhancement of complex software applications. Our ATM segment also uses a satellite-based system that is susceptible to the risk of satellite failure. There are operational risks inherent in this type of business that can result in the temporary shutdown of part or all of our processing systems, such as failure of electrical supply, failure of computer hardware and software errors. Excluding Germany, transactions in the EFT Processing Segment are processed through our Budapest, Belgrade, Athens, Beijing and Mumbai operations centers. Transactions in the Prepaid Processing Segment are processed through our Basildon, Martinsried, Madrid and Leawood, Kansas operations centers. Transactions in our Money Transfer Segment are processed through our Cerritos, California operations center. Any operational problem in these centers may have a significant adverse impact on the operation of our networks. Even with disaster recovery procedures in place, these risks cannot be eliminated entirely, and any technical failure that prevents operation of our systems for a significant period of time will prevent us from processing transactions during that period of time and will directly and adversely affect our revenues and financial results.

We are subject to the risks of liability for fraudulent bankcard and other card transactions involving a breach in our security systems, breaches of our information security policies or safeguards, as well as for ATM theft and vandalism.

We capture, transmit, handle and store sensitive information in conducting and managing electronic, financial and mobile transactions, such as card information and PIN numbers. These businesses involve certain inherent security risks, in particular: the risk of electronic interception and theft of the information for use in fraudulent or other card transactions by persons outside the Company or by our own employees; and the use of fraudulent cards on our network of owned or outsourced ATMs and POS devices. We incorporate industry-standard encryption technology and processing methodology into our systems and software, and maintain controls and procedures regarding access to our computer systems by employees and others, to maintain high levels of security. Although this technology and methodology decrease security risks, they cannot be eliminated entirely, as criminal elements apply increasingly sophisticated technology to attempt to obtain unauthorized access to the information handled by ATM and electronic financial transaction networks. In addition, the cost and timeframes required for implementation of new technology may result in a time lag between availability of such technology and our adoption of it.

Any breach in our security systems could result in the perpetration of fraudulent financial transactions for which we may bear the liability. We are insured against various risks, including theft and negligence, but such insurance coverage is subject to deductibles, exclusions and limitations that may leave us bearing some or all of any losses arising from security breaches.

We also collect, transfer and retain consumer data as part of our money transfer business. These activities are subject to certain consumer privacy laws and regulations in the U.S. and in other jurisdictions where our money transfer services are offered. We maintain technical and operational safeguards designed to comply with applicable legal requirements. Despite these safeguards, there remains a risk that these safeguards could be breached resulting in improper access to, and disclosure of, sensitive consumer information. Breaches of our security policies or applicable legal requirements resulting in a compromise of consumer data could expose us to regulatory enforcement action, subject us to litigation, limit our ability to provide money transfer services and/or cause harm to our reputation.

In addition to electronic fraud issues and breaches of our information security policies and safeguards, the possible theft and vandalism of ATMs present risks for our ATM business. We install ATMs at high-traffic sites and consequently our ATMs are exposed to theft and vandalism. Although we are insured against such risks, deductibles, exclusions or limitations in such insurance may leave us bearing some or all of any losses arising from theft or vandalism of ATMs. In addition, we have experienced increases in claims under our insurance, which has increased our insurance premiums.

We are required under German law and the rules of financial transaction switching networks in all of our markets to have ''sponsors’’ to operate ATMs and switch ATM transactions. Our failure to secure ''sponsor’’ arrangements in Germany or any other market could prevent us from doing business in that market.

Under German law, only a licensed financial institution may operate ATMs. Because we are not a licensed financial institution we are required to have a ''sponsor’’ bank to conduct our German ATM operations. In addition, in all of our markets, our ATMs are connected to national financial transaction switching networks owned or operated by banks, and to other international financial transaction switching networks operated by organizations such as Citibank, Visa and MasterCard. The rules governing these switching networks require any company sending transactions through these switches to be a bank or a technical service processor that is approved and monitored by a bank. As a result, the operation of our ATM network in all of our markets depends on our ability to secure these ''sponsor’’ arrangements with financial institutions.

To date, we have been successful in reaching contractual arrangements that have permitted us to operate in all of our target markets. However, we cannot assure you that we will continue to be successful in reaching these arrangements, and it is possible that our current arrangements will not continue to be renewed. If we are unable to secure “sponsor” arrangements in Germany or any other market, we could be prevented from doing business in the applicable market.

If we are unable to maintain our money transfer agent and correspondent networks, our business may be adversely affected.

Our money transfer based revenue is primarily generated through the use of our agent and correspondent networks. Transaction volumes at existing locations may increase over time and new agents provide us with additional revenue. If agents or correspondents decide to leave our network or if we are unable to sign new agents or correspondents, our revenue and profit growth rates may be adversely affected. Our agents and correspondents are also subject to a wide variety of laws and regulations that vary significantly, depending on the legal jurisdiction. Changes in these laws and regulations could adversely affect our ability to maintain the networks or the cost of providing money transfer services. In addition, agents may generate fewer transactions or less revenue due to various factors, including increased competition. Because our agents and correspondents are third parties that may sell products and provide services in addition to our money transfer services, they may encounter business difficulties unrelated to the provision of our services, which may cause the agents or correspondents to reduce their number of locations or hours of operation, or cease doing business altogether.

If consumer confidence in our money transfer business or brands declines, our business may be adversely affected.

Our money transfer business relies on consumer confidence in our brands and our ability to provide efficient and reliable money transfer services. A decline in consumer confidence in our business or brands, or in traditional money transfer providers as a means to transfer money, may adversely impact transaction volumes which would in turn be expected to adversely impact our business.

Our money transfer service offerings are dependent on financial institutions to provide such offerings.

Our money transfer business involves transferring funds internationally and is dependent upon foreign and domestic financial institutions, including our competitors, to execute funds transfers and foreign currency transactions. Changes to existing regulations of financial institution operations, such as those designed to combat terrorism or money laundering, could require us to alter our operating procedures in a manner that increases our cost of doing business or to terminate certain product offerings. In addition, as a

result of existing regulations and/or changes to those regulations, financial institutions could decide to cease providing the services on which we depend, requiring us to terminate certain product offerings.

Our competition in the EFT Processing Segment, Prepaid Processing Segment and Money Transfer Segment include large, well financed companies and financial institutions larger than us with earlier entry into the market. As a result, we may lack the financial resources and access to capital needed to capture increased market share.

EFT Processing Segment— Our principal EFT Processing competitors include ATM networks owned by banks and national switches consisting of consortiums of local banks that provide outsourcing and transaction services only to banks and independent ATM deployers in that country. Large, well-financed companies offer ATM network and outsourcing services that compete with us in various markets. In some cases, these companies also sell a broader range of card and processing services than we, and are in some cases, willing to discount ATM services to obtain large contracts covering a broad range of services. Competitive factors in our EFT Processing Segment include network availability and response time, breadth of service offering, price to both the bank and to its customers, ATM location and access to other networks.

For our ITM product line, we are a leading supplier of electronic financial transaction processing software for the IBM iSeries platform in a largely fragmented market, which is made up of competitors that offer a variety of solutions that compete with our products, ranging from single applications to fully integrated electronic financial processing software. Additionally, for ITM, other industry suppliers service the software requirements of large mainframe systems and UNIX-based platforms, and accordingly are not considered competitors. We have specifically targeted customers consisting of financial institutions that operate their back office systems with the IBM iSeries. For Essentis, we are a strong supplier of electronic payment processing software for card issuers and merchant acquirers on a mainframe platform. Our competition includes products owned and marketed by other software companies as well as large, well financed companies that offer outsourcing and credit card services to financial institutions. We believe our Essentis offering is one of the few software solutions in this product area that has been developed as a completely new system, as opposed to a re-engineered legacy system, taking full advantage of the latest technology and business strategies available.

Our software solutions business has multiple types of competitors that compete across all EFT software components in the following areas: (i) ATM, network and POS software systems, (ii) Internet banking software systems, (iii) credit card software systems, (iv) mobile banking systems, (v) mobile operator solutions, (vi) telephone banking and (vii) full EFT software. Competitive factors in the software solutions business include price, technology development and the ability of software systems to interact with other leading products.

Prepaid Processing Segment— We face competition in the prepaid business in all of our markets. A few multinational companies operate in several of our markets, and we therefore compete with them in a number of countries. In other markets, our competition is from smaller, local companies. Major retailers with high volumes are in a position to demand a larger share of commissions, which may compress our margins.

Money Transfer Segment— Our primary competitors in the money transfer and bill payment business include other independent processors and electronic money transmitters, as well as certain major national and regional banks, financial institutions and independent sales organizations. Our competitors include Western Union, MoneyGram, Global Payments and others, some of which are larger than we are and have greater resources and access to capital for expansion than we have. This may allow them to offer better pricing terms to customers, which may result in a loss of our current or potential customers or could force us to lower our prices. Either of these actions could have an adverse impact on our revenues. In addition, our competitors may have the ability to devote more financial and operational resources than we can to the development of new technologies that provide improved functionality and features to their product and service offerings. If successful, their development efforts could render our product and services offerings less desirable, resulting in the loss of customers or a reduction in the price we could demand for our services. In addition to traditional money payment services, new technologies are emerging that may effectively compete with traditional money payment services, such as stored-value cards, debit networks and web-based services. Our continued growth depends upon our ability to compete effectively with these alternative technologies.

We conduct a significant portion of our business in Central and Eastern European countries, and we have subsidiaries in the Middle East and Asia, where the risk of continued political, economic and regulatory change that could impact our operating results is greater than in the U.S. or Western Europe.

We have subsidiaries in Hungary, Poland, the Czech Republic, Romania, Slovakia, Spain, Greece, Croatia, India, Serbia, Bulgaria, Egypt and China, and have operations in other countries in Central Europe, the Middle East and Asia. We expect to continue to expand our operations to other countries in these areas. We sell software in many other markets in the developing world. Some of these countries have undergone significant political, economic and social change in recent years and the risk of new, unforeseen changes in these countries remains greater than in the U.S. or Western Europe. In particular, changes in laws or regulations or in the

interpretation of existing laws or regulations, whether caused by a change in government or otherwise, could materially adversely affect our business, growth, financial condition or results of operations.

For example, currently there are no limitations on the repatriation of profits from any of the countries in which we have subsidiaries (although U.S. tax laws discourage repatriation), but foreign currency exchange control restrictions, taxes or limitations may be imposed or increased in the future with regard to repatriation of earnings and investments from these countries. If exchange control restrictions, taxes or limitations are imposed, our ability to receive dividends or other payments from affected subsidiaries could be reduced, which may have a material adverse effect on us.

In addition, corporate, contract, property, insolvency, competition, securities and other laws and regulations in Hungary, Poland, the Czech Republic, Romania, Slovakia, Croatia, Bulgaria and other countries in Central Europe have been, and continue to be, substantially revised during the completion of their transition to the European Union. Therefore, the interpretation and procedural safeguards of the new legal and regulatory systems are in the process of being developed and defined, and existing laws and regulations may be applied inconsistently. Also, in some circumstances, it may not be possible to obtain the legal remedies provided for under these laws and regulations in a reasonably timely manner, if at all.

Transmittal of data by electronic means and telecommunications is subject to specific regulation in most Central European countries. Although these regulations have not had a material impact on our business to date, changes in these regulations, including taxation or limitations on transfers of data across national borders, could have a material adverse effect on our business, growth, financial condition or results of operations.

We conduct business in many international markets with complex and evolving tax rules, including value added tax rules, which subjects us to international tax compliance risks.

While we obtain advice from legal and tax advisors as necessary to help assure compliance with tax and regulatory matters, most tax jurisdictions that we operate in have complex and subjective rules regarding the valuation of intercompany services, cross-border payments between affiliated companies and the related effects on income tax, value-added tax (“VAT”), transfer tax and share registration tax. Our foreign subsidiaries frequently undergo VAT reviews, and from time to time undergo comprehensive tax reviews and may be required to make additional tax payments should the review result in different interpretations, allocations or valuations of our services.

As allowable under the Internal Revenue Code (the “Code”), the interest deduction from our convertible debentures are based on a comparable interest rate for a traditional, nonconvertible, fixed rate debt instrument with similar terms. This allowable deduction is in excess of the stated interest rate. This deduction may be deferred, limited or eliminated under certain conditions.

The U.S Treasury regulations contain an anti-abuse regulation, set forth in Section 1.1275-2(g), that grants the Commissioner of the Internal Revenue Service authority to depart from the regulations if a result is achieved which is unreasonable in light of the original issue discount provisions of the Code, including Section 163(e). The anti-abuse regulation further provides that the Commissioner may, under this authority, treat a contingent payment feature of a debt instrument as if it were a separate position. If such an analysis were applied to our convertible debentures and ultimately sustained, our deductions attributable to the convertible debentures could be limited to the stated interest thereon. The scope of application of the anti-abuse regulations is unclear. However, we are of the view that application of the contingent payment debt instrument regulations to our convertible debentures is a reasonable result such that the anti-abuse regulation should not apply. If a contrary position were asserted and ultimately sustained, our tax deductions would be severely diminished with a resulting adverse effect on our cash flow and ability to service the convertible debentures.

Under the Code, no deduction is allowed for interest expense in excess of $5 million on convertible subordinated indebtedness incurred to acquire stock or assets of another corporation reduced by any interest paid on other obligations which have provided consideration for an acquisition of stock in another corporation. If a significant portion of the proceeds from the issuance of the convertible debentures, either alone or together with other debt proceeds, were used for a domestic acquisition and the convertible debentures and other debt, if any, were deemed to be corporate acquisition indebtedness as defined in Section 279, interest deductions for tax purposes in excess of $5 million on such debt reduced by any interest paid on other obligations which have provided consideration for an acquisition of stock in another corporation would be disallowed. This would adversely impact our cash flow and our ability to pay down the convertible debentures. We previously applied a significant portion of the proceeds from our December 2004 issuance of 1.625% Convertible Senior Debentures Due 2024 to acquisitions of foreign corporations. The interest expense attributable to these acquisitions exhausted all of the $5 million annual interest expense deduction permitted under the Code for certain convertible subordinated debt incurred for corporation acquisitions. Accordingly, if this limitation were to apply, no interest deductions would be allowed with respect to our October 2005 3.5% Convertible Debentures Due 2025. However, if the comparable interest deduction were eliminated our future payment of U.S. Federal and state income taxes, if any, could be accelerated.

In the past, the U.S. Senate has drafted proposed tax relief legislation that contained a provision that would eliminate the comparable interest rate deduction on future issuances of convertible debentures such as ours. Legislation containing this provision has not been passed, however, we cannot predict if there will be future tax legislation proposed and approved that would eliminate the comparable interest rate deduction.

Because we are an international company conducting a complex business in many markets worldwide, we are subject to legal and operational risks related to staffing and management, as well as a broad array of local legal and regulatory requirements.

Operating outside of the U.S. creates difficulties associated with staffing and managing our international operations, as well as complying with local legal and regulatory requirements. Because we operate financial transaction processing networks that offer new products and services to customers, the laws and regulations in the markets in which operate are subject to rapid change. Although we have local staff in countries in which we deem it appropriate, we cannot assure you that we will continue to be found to be operating in compliance with all applicable customs, currency exchange control regulations, data protection, transfer pricing regulations or any other laws or regulations to which we may be subject. We also cannot assure you that these laws will not be modified in ways that may adversely affect our business.

Because we derive our revenues from a multitude of countries with different currencies, our business is affected by local inflation and foreign currency exchange rates and policies.

We attempt to match any assets denominated in a currency with liabilities denominated in the same currency. However, the majority of our debt obligations are denominated in U.S. dollars, while a significant amount of our cash outflows, including the acquisition of ATMs, executive salaries, certain long-term contracts and a significant portion of our debt obligations, are made in U.S. dollars, most of our revenues are denominated in other currencies. As exchange rates among the U.S. dollar, the euro, and other currencies fluctuate, the translation effect of these fluctuations may have a material adverse effect on our results of operations or financial condition as reported in U.S. dollars. Moreover, exchange rate policies have not always allowed for the free conversion of currencies at the market rate. Future fluctuations in the value of the dollar could have an adverse effect on our results.

Our Money Transfer Segment is subject to foreign currency exchange risks because our customers deposit funds in one currency at our retail and agent locations worldwide and we typically deliver funds denominated in a different, destination country currency. Although we use foreign currency forward contracts to mitigate a portion of this risk, we cannot eliminate all of the exposure to the impact of changes in foreign currency exchange rates for the period between collection and disbursement of the money transfers.

We have various mechanisms in place to discourage takeover attempts, which may reduce or eliminate our stockholders’ ability to sell their shares for a premium in a change of control transaction.

Various provisions of our certificate of incorporation and bylaws and of Delaware corporate law may discourage, delay or prevent a change in control or takeover attempt of our company by a third party that is opposed to by our management and board of directors. Public stockholders who might desire to participate in such a transaction may not have the opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change of control or change in our management and board of directors. These provisions include:

	•		preferred stock that could be issued by our board of directors to make it more difficult for a third party to acquire, or to discourage a third party from acquiring, a majority of our outstanding voting stock;
	•		classification of our directors into three classes with respect to the time for which they hold office;
	•		supermajority voting requirements to amend the provision in our certificate of incorporation providing for the classification of our directors into three such classes;
	•		non-cumulative voting for directors;
	•		control by our board of directors of the size of our board of directors;
	•		limitations on the ability of stockholders to call special meetings of stockholders; and
	•		advance notice requirements for nominations of candidates for election to our board of directors or for proposing matters that can be acted upon by our stockholders at stockholder meetings.

We have also approved a stockholders’ rights agreement (the ''Rights Agreement’’) between Euronet and EquiServe Trust Company, N.A., (subsequently renamed Computershare Limited) as Rights Agent. Pursuant to the Rights Agreement, holders of our common stock are entitled to purchase one one-thousandth (1/1,000) of a share (a ''Unit’’) of Junior Preferred Stock at a price of $57.00 per Unit upon certain events. The purchase price is subject to appropriate adjustment for stock splits and other similar events. Generally,

in the event a person or entity acquires, or initiates a tender offer to acquire, at least 15% of Euronet’s then outstanding common stock, the Rights will become exercisable for common stock having a value equal to two times the exercise price of the Right, or effectively at one-half of Euronet’s then-current stock price. The existence of the Rights Plan may discourage, delay or prevent a change of control or takeover attempt of our company by a third party that is opposed to by our management and board of directors.

Our directors and officers, together with the entities with which they are associated, owned approximately 10% of our Common Stock as of December 31, 2007, giving them significant control over decisions related to our Company.

This control includes the ability to influence the election of other directors of our Company and to cast a large block of votes with respect to virtually all matters submitted to a vote of our stockholders. This concentration of control may have the effect of delaying or preventing transactions or a potential change of control of our Company.

We are authorized to issue up to a total of 90 million shares of Common Stock, potentially diluting equity ownership of current holders and the share price of our Common Stock.

We believe that it is necessary to maintain a sufficient number of available authorized shares of our Common Stock in order to provide us with the flexibility to issue Common Stock for business purposes that may arise as deemed advisable by our Board. These purposes could include, among other things, (i) to declare future stock dividends or stock splits, which may increase the liquidity of our shares; (ii) the sale of stock to obtain additional capital or to acquire other companies or businesses, which could enhance our growth strategy or allow us to reduce debt if needed; (iii) for use in additional stock incentive programs and (iv) for other bona fide purposes. Our Board of Directors may issue the available authorized shares of Common Stock without notice to, or further action by, our stockholders, unless stockholder approval is required by law or the rules of the NASDAQ Stock Market. The issuance of additional shares of Common Stock may significantly dilute the equity ownership of the current holders of our Common Stock. Further, over the course of time, all of the issued shares have the potential to be publicly traded, perhaps in large blocks. This may result in dilution of the market price of the Common Stock.

An additional 12.5 million shares of Common Stock, representing 26% of the shares outstanding as of December 31, 2007, could be added to our total Common Stock outstanding through the exercise of options or the issuance of additional shares of our Common Stock pursuant to existing convertible debt and other agreements. Once issued, these shares of Common Stock could be traded into the market and result in a decrease in the market price of our Common Stock.

As of December 31, 2007, we had an aggregate of 3.1 million options and restricted stock awards outstanding held by our directors, officers and employees, which entitles these holders to acquire an equal number of shares of our Common Stock upon exercise. Of this amount, 1.3 million options are vested and exercisable as of December 31, 2007. Approximately 0.2 million additional shares of our Common Stock may be issued in connection with our employee stock purchase plan. Another 8.5 million shares of Common Stock could be issued upon conversion of the Company’s Convertible Debentures issued in December 2004 and October 2005. Additionally, based on current trading prices for our Common Stock, we expect to issue approximately 0.7 million shares of our Common Stock to the sellers of RIA in settlement of the contingent value and stock appreciation rights.

Accordingly, based on current trading prices of our Common Stock, approximately 12.5 million shares could potentially be added to our total current Common Stock outstanding through the exercise of options or the issuance of additional shares, which could adversely impact the trading price for our stock. The actual number of shares issuable could be higher depending upon our stock price at the time of payment (i.e., more shares could be issuable if our share price declines).

Of the 3.1 million total options and restricted stock awards outstanding, an aggregate of 1.4 million options and restricted shares are held by persons who may be deemed to be our affiliates and who would be subject to Rule 144. Thus, upon exercise of their options or sale of shares for which restrictions have lapsed, these affiliates’ shares would be subject to the trading restrictions imposed by Rule 144. The remainder of the common shares issuable under option and restricted stock arrangements would be freely tradable in the public market. Over the course of time, all of the issued shares have the potential to be publicly traded, perhaps in large blocks.

During 2007, we purchased 1.3 million shares of MoneyGram common stock that had a value of $4.9 million as of February 28, 2008. If MoneyGram’s financial situation deteriorates further, we could lose all or a portion of the remaining $4.9 million investment.

During 2007, in connection with our interest in acquiring MoneyGram, we made an initial investment in MoneyGram by purchasing 1.3 million shares of common stock at a cost basis of $20.0 million. Subsequent to December 31, 2007, the market price of MoneyGram common stock declined significantly as a result of MoneyGram’s announcement of investment portfolio losses and its intention to recapitalize the company. Based on trading prices for MoneyGram common stock on February 28, 2008, the value of our investment decreased to $4.9 million. On February 27, 2008, we decided not to submit a proposal to acquire MoneyGram. In connection with this decision, we expect to record expense before income tax benefit of approximately $15 million to $20 million during the first quarter 2008, representing the decline in value of MoneyGram stock, together with acquisition related expenses. The actual loss could be larger if the market price of MoneyGram common stock deteriorates further.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our executive offices are located in Leawood, Kansas. As of December 31, 2007, we also maintain principal operational offices in Little Rock, Arkansas, Leawood, Kansas; Cerritos, California; Budapest, Hungary; Warsaw, Poland; Zagreb, Croatia; Prague, Czech Republic; Berlin and Martinsried, Germany; Bucharest, Romania; Bratislava, Slovakia; Athens, Greece; Madrid, Spain; Belgrade, Serbia; Sofia, Bulgaria; Basildon and Watford, U.K.; Kiev, Ukraine; Rome and Milan, Italy; Paris, France; Geneva, Switzerland; Stockholm, Sweden; Cairo, Egypt; Mumbai, India; Sydney and Liverpool, Australia; Auckland, New Zealand; Beijing, China; and Antiguo Cuscatlan, El Salvador. Our office leases generally provide for initial terms ranging from two to twelve years.

Our processing centers for the EFT Processing Segment are located in Budapest, Hungary; Belgrade, Serbia; Athens, Greece; Beijing, China; and Mumbai, India. Our processing centers for the Prepaid Processing Segment are located in Basildon, U.K.; Martinsried, Germany; Madrid, Spain; and Leawood, Kansas. Our processing center for the Money Transfer Segment is located in Cerritos, California.

Our processing centers in Budapest, Basildon, Martinsried, Mumbai, Beijing and Cerritos have off-site real time backup processing centers that are capable of providing full or partial processing capability in the event of failure of the primary processing centers. The Belgrade processing center and the real-time backup processing center are located at the same site and the backup processing center is expected to be relocated offsite during 2008. Our processing centers in Athens, Madrid and Leawood have on-site backup systems designed to prevent the loss of transaction records due to power and/or equipment failure. The backup processing centers for our processing centers in Madrid and Leawood will be relocated offsite during 2008.

ITEM 3. LEGAL PROCEEDINGS

The Company is, from time to time, a party to litigation arising in the ordinary course of its business.

The discussion in Part II, Item 8 — Financial Statements and Supplementary Data and Note 22, Litigation and Contingencies, to the Consolidated Financial Statements included elsewhere in this report, regarding litigation is incorporated herein by reference.

Currently, there are no other legal proceedings that management believes, either individually or in the aggregate, would have a material adverse effect upon the consolidated results of operations or financial condition of the Company.

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

There were no matters submitted during the three months ended December 31, 2007, to a vote of security holders, through the solicitation of proxies or otherwise.

PART II

MARKET INFORMATION

Our common stock, $0.02 par value per share, (“Common Stock”) was quoted on the Nasdaq Global Select Market under the symbol EEFT. The following table sets forth the high and low daily sales prices during the quarter for our Common Stock for the quarters ended:

		2007								2006
For the quarters ended		High				Low				High				Low
December 31		$	33.25			$	26.83			$	35.14			$	24.06
September 30		$	31.00			$	24.64			$	38.70			$	23.34
June 30		$	30.55			$	25.64			$	38.64			$	32.20
March 31		$	30.57			$	25.08			$	39.78			$	27.70

DIVIDENDS

Since our inception, no dividends have been paid on our Common Stock or Preferred Stock. We do not intend to distribute dividends for the foreseeable future. Certain of our credit facilities contain restrictions on the payment of dividends.

HOLDERS

At December 31, 2007, we had 120 stockholders of record of our Common Stock and none of our Preferred Stock.

PRIVATE PLACEMENTS AND ISSUANCES OF EQUITY

During 2007, we did not issue any equity securities that were not registered under the Securities Act of 1933, which have not been previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K.

STOCK REPURCHASES

The following table sets forth information with respect to shares of Company Common Stock purchased by us during the three months ended December 31, 2007 (all purchases occurred during November 2007).

Total Number

of Shares

Total

Purchased as

Maximum Number

Number of

Average

Part of Publicly

of Shares that May

Shares

Price Paid

Announced

Yet Be Purchased

Purchased

Per Share

Plans or

Under the Plans or

Period

(1)

(2)

Programs

Programs

November 1 - November 30

1,146

$

32.03

—

—

Total

1,146

$

32.03

—

—

STOCK PERFORMANCE GRAPH

Set forth below is a graph comparing the total cumulative return on the Common Stock from December 31, 2002 through December 31, 2007 with the Center for Research in Security Prices (“CRSP”) Total Returns Index for U.S. companies traded on the Nasdaq Global Select Market (the “Market Group”) and an index group of peer companies, the CRSP Total Returns Index for U.S. Nasdaq Financial Stocks (the “Peer Group”). The companies in each of the Market Group and the Peer Group were weighted by market

capitalization. Returns are based on monthly changes in price and assume reinvested dividends. These calculations assume the value of an investment in the Common Stock, the Market Group and the Peer Group was $100 on December 31, 2002. Our Common Stock is traded on the Nasdaq Global Select Market under the symbol EEFT.

Comparison of Five–Year Cumulative Total Returns
Performance Graph for
Euronet Worldwide, Inc.

Produced on 02/07/2008 including data to 12/31/2007

Prepared by CRSP (www.crsp.uchicago.edu), Center for Research in Security Prices, Graduate School of Business, The University of Chicago. Used with permission. All rights reserved.

14099		©Copyright 2008

EQUITY COMPENSATION PLAN INFORMATION  

The table below sets forth information with respect to shares of Common Stock that may be issued under our equity compensation plans as of December 31, 2007.

Number of

securities

remaining

available for

future issuance

Number of

under equity

securities to be

compensation

issued upon

Weighted average

plans (excluding

exercise of

exercise price of

securities

outstanding

outstanding

reflected in

options and rights

options and rights

column (a))

Plan category

(a)

(b)

(c)

Equity compensation plans approved by security holders:

3,170,843

Stock option awards

1,685,102

$

13.64

Restricted share unit awards

1,258,957

—

Equity compensation plans not approved by security holders

—

—

—

Total

2,944,059

$

7.81

3,170,843

ITEM 6. SELECTED FINANCIAL DATA  

The summary consolidated financial data set forth below has been derived from, and is qualified by reference to, our audited Consolidated Financial Statements and the notes thereto, prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which have been audited by KPMG LLP, and should not be relied upon as an indication of future performance. We believe that the period-to-period comparisons of our financial results are not necessarily meaningful due to certain significant transactions, including numerous acquisitions (See Note 5, Acquisitions, to the Consolidated Financial Statements) and the 2003 sale of our U.K. subsidiary. The following information should be read in conjunction with Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations.    

		Year Ended December 31,
(dollar amounts in thousands, except as noted)		2007				2006				2005				2004				2003
Consolidated statements of income data:
Revenues		$	917,574			$	629,181			$	531,159			$	381,080			$	204,407
Operating expenses			792,066				547,833				461,007				335,550				184,219
Depreciation and amortization			48,331				29,494				22,800				16,216				12,124
Operating income			77,177				51,854				47,352				29,314				8,064
Other income (expenses)		$	5,171				9,169				(10,080	)			(5,646	)			(15,649	)
Gain on sale assets			—				—				—				—				18,045
Income from unconsolidated affiliates			908				660				1,185				345				518
Income from continuing operations before income taxes and minority interest			83,256				61,683				38,457				24,013				10,978
Income tax benefit (expense)			(28,056	)			(14,704	)			(14,843	)			(11,389	)			(4,230	)
Minority interest			(2,040	)			(977	)			(916	)			(58	)			—
Income from continuing operations		$	53,160			$	46,002			$	22,698			$	12,566			$	6,748
Earnings per share from continuing operations:
Basic		$	1.18			$	1.24			$	0.65			$	0.40			$	0.25
Diluted		$	1.11			$	1.16			$	0.62			$	0.38			$	0.24
Consolidated balance sheet data:
Assets		$	1,886,156			$	1,129,640			$	898,692			$	642,315			$	317,246
Debt obligations, long-term portion			539,303				349,073				315,000				140,000				55,792
Capital lease obligations, long-term portion			11,520				13,409				12,229				16,894				3,240
Summary network data:
Number of operational ATMs at end of period			11,347				8,885				7,211				5,742				3,350
EFT processing transactions during the period (millions)			603.8				463.6				361.5				232.5				114.7
Number of operational prepaid processing POS terminals at end of period (rounded)			396,000				296,000				237,000				175,000				126,000
Prepaid processing transactions during the period (millions)			634.8				457.8				348.0				228.6				102.1
Money transfer transactions during the period (millions)			12.0				0.3				0.1				—				—

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES

Euronet Worldwide, Inc. (together with our subsidiaries, “we,” “us,” “Euronet” or the “Company”) is a leading electronic payments provider, offering automated teller machine (“ATM”) and point-of-sale (“POS”) and card outsourcing services, card issuing and merchant acquiring services, integrated electronic financial transaction (“EFT”) software, network gateways, electronic distribution of top-up services for prepaid mobile airtime and other prepaid products, electronic consumer money transfer and bill payment services to financial institutions, mobile operators, retailers and individual customers.

Effective January 1, 2007, we began reporting and managing the operations of the EFT Processing Segment and the former Software Solutions Segment on a combined basis. Additionally, as a result of the acquisition of RIA in April 2007, we added the Money Transfer Segment. Previously reported amounts have been adjusted to reflect these changes, which did not impact our Consolidated Financial Statements. As a result of these changes, we operate in the following three principal business segments.

	•		An EFT Processing Segment, which processes transactions for a network of 11,347 ATMs and approximately 50,000 POS terminals across Europe, Asia and the Middle-East. We provide comprehensive electronic payment solutions consisting of ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing and electronic recharge services for prepaid mobile airtime. Through this segment, we also offer a suite of integrated EFT software solutions for electronic payment, merchant acquiring, card issuing and transaction delivery systems.
	•		A Prepaid Processing Segment, which provides distribution of prepaid mobile airtime and other prepaid products and collection services for various prepaid products, cards and services. Including terminals operated by unconsolidated subsidiaries, we operate a network of approximately 396,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services in the U.S., Europe, Africa, Asia Pacific and the Middle-East.
	•		A Money Transfer Segment, which provides global money transfer and bill payment services through a sending network of agents and Company-owned stores primarily in North America, the Caribbean, Europe and Asia-Pacific, disbursing money transfers through a worldwide payer network. Bill payment services are offered primarily in the U.S. The Money Transfer Segment originates and terminates transactions through a network of more than 71,000 locations, which include sending agents and Company-owned stores, and an extensive payer network across 100 countries.

We have six processing centers in Europe, two in Asia and two in the U.S. We have 23 principal offices in Europe, five in the Asia-Pacific region, three in the U.S. and one each in the Middle East and Latin America. Our executive offices are located in Leawood, Kansas, USA. With approximately 76% of our revenues denominated in currencies other than the U.S. dollar, any significant changes in currency exchange rates will likely have a significant impact on our growth in revenues, operating income and diluted earnings per share (for more discussion, see Item 1A – Risk Factors and Item 7A – Quantitative and Qualitative Disclosure About Market Risk).  

SOURCES OF REVENUES AND CASH FLOW

Euronet earns revenues and income based on ATM management fees, transaction fees and commissions, professional services, software licensing fees and software maintenance agreements. Each business segment’s sources of revenue are described below.   EFT Processing Segment – Revenue in the EFT Processing Segment, which represented approximately 21% of total consolidated revenue for the year ended December 31, 2007, is derived from fees charged for transactions effected by cardholders on our proprietary network of ATMs, as well as fixed management fees and transaction fees we charge to banks for operating ATMs and processing credit cards under outsourcing agreements. Through our proprietary network, we generally charge fees for four types of ATM transactions: i) cash withdrawals, ii) balance inquiries, iii) transactions not completed because the relevant card issuer does not give authorization, and iv) prepaid telecommunication recharges. Revenue in this segment is also derived from license fees, professional services and maintenance fees for software and sales of related hardware. Software license fees are the fees we charge to license our proprietary application software to customers. Professional service fees consist of charges for customization, installation and consulting services to customers. Software maintenance revenue represents the ongoing fees charged for maintenance and support for customers’ software products. Hardware sales are derived from the sale of computer equipment necessary for the respective software solution.

Prepaid Processing Segment – Revenue in the Prepaid Processing Segment, which represented approximately 62% of total consolidated revenue for the year ended December 31, 2007, is primarily derived from commissions or processing fees received from telecommunications service providers for the sale and distribution of prepaid mobile airtime. We also generate revenue from commissions earned from the distribution of other prepaid products. Due to certain provisions in our mobile phone operator agreements, the operators have the ability to reduce the overall commission paid on each top-up transaction. However, by virtue of our

agreements with retailers (distributors where POS terminals are located) in certain markets, not all of these reductions are absorbed by us because we are able to pass a significant portion of the reductions to retailers. Accordingly, under certain retailer agreements, the effect is to reduce revenues and reduce our direct operating costs resulting in only a small impact on gross margin and operating income. In some markets, reductions in commissions can significantly impact our results as it may not be possible, either contractually or commercially in the concerned market, to pass a reduction in commissions to the retailers. In Australia, certain retailers negotiate directly with the mobile phone operators for their own commission rates, which also limits our ability to pass through reductions in commissions. Agreements with mobile operators are important to the success of our business. These agreements permit us to distribute prepaid mobile airtime to the mobile operators’ customers. Other products offered by this segment include prepaid long distance calling card plans, prepaid internet plans, prepaid debit cards, prepaid gift cards and prepaid mobile content such as ring tones and games.

Money Transfer Segment – Revenue in the Money Transfer Segment, which represents approximately 17% of total consolidated revenue for the year ended December 31, 2007, is primarily derived through the charging of a transaction fee, as well as the difference between purchasing foreign currency at wholesale exchange rates and selling the foreign currency to consumers at retail exchange rates. We have an origination network in place comprised of agents and company-owned stores primarily in North America, the Caribbean, Europe and Asia-Pacific and a worldwide network of distribution agents, consisting primarily of financial institutions in the transfer destination countries. Origination and distribution agents each earn fees for cash collection and distribution services. These fees are recognized as direct operating costs at the time of sale.

OPPORTUNITIES AND CHALLENGES  

Our expansion plans and opportunities are focused on five primary areas:

	•		outsourced ATM and POS terminal management contracts;
	•		transactions processed on our network of owned and operated ATMs;
	•		our prepaid mobile airtime top-up processing services;
	•		our money transfer and bill payment services; and
	•		development of our credit and debit card outsourcing business.

EFT Processing Segment - The continued expansion and development of our EFT Processing Segment business will depend on various factors including, but not necessarily limited to, the following:

	•		the impact of competition by banks and other ATM operators and service providers in our current target markets;
	•		the demand for our ATM outsourcing services in our current target markets;
	•		the ability to develop products or services to drive increases in transactions;
	•		the expansion of our various business lines in markets where we operate and in new markets;
	•		the entrance into additional card acceptance and ATM management agreements with banks;
	•		the ability to obtain required licenses in markets we intend to enter or expand services;
	•		the availability of financing for expansion;
	•		the ability to efficiently install ATMs contracted under newly awarded outsourcing agreements;
	•		the successful entry into the cross-border merchant processing and acquiring business;
	•		the successful entry into the card issuing and outsourcing business; and
	•		the continued development and implementation of our software products and their ability to interact with other leading products.

We consistently evaluate and add prospects to our list of potential ATM outsource customers. However, we cannot predict the increase or decrease in the number of ATMs we manage under outsourcing agreements because this depends largely on the willingness of banks to enter into outsourcing contracts with us. Due to the thorough internal reviews and extensive negotiations conducted by existing and prospective banking customers in choosing outsource vendors, the process of entering into or renewing outsourcing agreements can take approximately six to twelve months or longer. The process is further complicated by the legal and regulatory considerations of local countries. These agreements tend to cover large numbers of ATMs, so significant increases and decreases in our pool of managed ATMs could result from acquisition or termination of these management contracts. Therefore, the timing of both current and new contract revenues is uncertain and unpredictable.

Software products are an integral part of our product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base. We have been able to enter into agreements under which we use our software in lieu of cash as our initial capital contributions to new transaction processing joint ventures. Such contributions sometimes permit us to enter new markets without significant capital investment.

During 2006, we established Jiayintong (Beijing) Technology Development Co. Ltd., our 75% owned joint venture with Ray Holdings in China (“Euronet China”), to enter ATM outsourcing and management in China. As of December 31, 2007, we have deployed and are providing all of the day-to-day outsourcing services for over 250 ATMs through this joint venture. Under current agreements, during the next 12 to 18 months, we expect that the total number of ATMs in China, for which we will be providing all of the day-to-day outsourcing services, to increase to over 800 ATMs. We have established a technical processing and operations center in Beijing to operate these ATMs, and we believe we are the first, and currently the only, provider of end-to-end ATM outsourcing services in China.

We have entered the cross-border merchant processing and acquiring business through the execution of an agreement with a large petrol retailer in Central Europe. Since the beginning of 2007, we have devoted significant resources to the development of the necessary processing systems and capabilities to enter this business, which involves the purchase and design of hardware and software. Merchant acquiring involves processing credit and debit card transactions that are made on POS terminals, including authorization, settlement, and processing of settlement files. It generally involves the assumption of credit risk, as the principal amount of transactions is usually settled to merchants before settlements are received from card associations.

Prepaid Processing Segment – The continued expansion and development of the Prepaid Processing Segment business will depend on various factors, including, but not necessarily limited to, the following:

	•		the ability to negotiate new agreements in additional markets with mobile phone operators, agent financial institutions and retailers;
	•		the ability to use existing expertise and relationships with mobile operators and retailers to our advantage;
	•		the continuation of the trend towards conversion from scratch card solutions to electronic processing solutions for prepaid mobile airtime among mobile phone users, and the continued use of third party providers such as ourselves to supply this service;
	•		the development of mobile phone networks in these markets and the increase in the number of mobile phone users;
	•		the overall pace of growth in the prepaid mobile phone market;
	•		our market share of the retail distribution capacity;
	•		the level of commission that is paid to the various intermediaries in the prepaid mobile airtime distribution chain;
	•		our ability to add new and differentiated prepaid products in addition to those offered by mobile operators;
	•		the ability to take advantage of cross-selling opportunities with our Money Transfer Segment, including providing money transfer services through our prepaid locations;
	•		the availability of financing for further expansion; and
	•		our ability to successfully integrate newly acquired operations with our existing operations.

During the first quarter 2007, we completed the acquisitions of the stock of Omega Logic, Ltd. (“Omega Logic”) and Brodos SRL in Romania (“Brodos Romania”). Omega Logic is a prepaid top-up company based, and primarily operating, in the U.K. that enhanced our Prepaid Processing Segment business in the U.K. Brodos Romania is a leading electronic prepaid mobile airtime processor in Romania.

In mature markets, such as the U.K., New Zealand and Spain, the conversion from scratch cards to electronic forms of distribution is either complete or nearing completion. Because of this factor, we are likely to cease experiencing the organic increases in the number of transactions per terminal that we have experienced historically. Also in mature markets, competition among prepaid distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates. The combined impact of these factors in developed markets is a flattening of growth in the revenues and profits that we earn. In other markets in which we operate, such as Poland, Germany and the U.S., many of the factors that may contribute to rapid growth (conversion from scratch cards to electronic distribution, growth in the prepaid market, expansion of our network of retailers and access to all mobile operators’ products) remain present.

Money Transfer Segment – We completed the acquisition of RIA in April 2007, which expanded our money transfer and bill payment services business and makes Euronet the third-largest global money transfer company, based upon revenues and volumes. The Money Transfer Segment provides us with additional expansion opportunities. The expansion and development of our money transfer business will depend on various factors, including, but not necessarily limited to, the following:

	•		the continued growth in worker migration and employment opportunities;
	•		the mitigation of economic and political factors that have had an adverse impact on money transfer volumes, such as the immigration developments occurring in the U.S. during 2006 and 2007;
	•		the continuation of the trend of increased use of electronic money transfer and bill payment services among immigrant workers and the unbanked population in our markets;
	•		the ability to maintain our agent and correspondent networks;

	•		the ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;
	•		the expansion of our services in markets where we operate and in new markets;
	•		the ability to strengthen our brands;
	•		our ability to fund working capital requirements;
	•		our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
	•		the ability to take advantage of cross-selling opportunities with our Prepaid Processing Segment, including providing prepaid services through our stores and agents worldwide;
	•		the ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to Europe and Asia, including high growth corridors to Central and Eastern European countries; and
	•		our ability to continue to successfully integrate RIA with our existing operations.

Like other participants in the money transfer industry, as a result of immigration developments, downturns in certain labor markets and/or other economic factors, growth rates in money transfers from the U.S. to Mexico have slowed. This slowing of growth began during the middle of 2006 and continues to impact money transfer revenues for transactions from the U.S. to Mexico. Despite recent improvement in this trend, we believe that it is too early to conclude on the impact, if any, to our results of operations.

Corporate Services, Eliminations and Other – In addition to operating in our principal business segments described above, our “Corporate Services, Elimination and Other” division includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the business segments, including share-based compensation expense related to most stock option and restricted stock grants. These services are not directly identifiable with our business segments.

The accounting policies of each segment are the same as those referenced in the summary of significant accounting policies (see Note 3, Summary of Significant Accounting Policies and Practices, to the Consolidated Financial Statements). We evaluate performance of our segments based on income or loss from continuing operations before income taxes, foreign currency exchange gain (loss), minority interest and other nonrecurring gains and losses.

For all segments, our continued expansion may involve additional acquisitions that could divert our resources and management time and require integration of new assets with our existing networks and services. Our ability to effectively manage our rapid growth has required us to expand our operating systems and employee base, particularly at the management level, which has added incremental operating costs. An inability to continue to effectively manage expansion could have a material adverse effect on our business, growth, financial condition or results of operations. Inadequate technology and resources would impair our ability to maintain current processing technology and efficiencies, as well as deliver new and innovative services to compete in the marketplace.  

SEGMENT REVENUES AND OPERATING INCOME FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 

		Revenues												Operating Income
(in thousands)		2007				2006				2005				2007				2006				2005
EFT Processing		$	188,957			$	158,320			$	119,880			$	37,090			$	35,360			$	29,084
Prepaid Processing			569,858				467,651				409,575				52,813				37,622				35,313
Money Transfer			158,759				3,210				1,704				7,130				(3,295	)			(1,027	)
Total			917,574				629,181				531,159				97,033				69,687				63,370
Corporate services			—				—				—				(19,856	)			(17,833	)			(16,018	)
Total		$	917,574			$	629,181			$	531,159			$	77,177			$	51,854			$	47,352

Operating income amounts shown above for 2005 and 2006 have been adjusted for the impact of the correction for an immaterial error related to foreign currency translation adjustments for goodwill and acquired intangible assets. See Note 2, Basis of Presentation, for further discussion.

SUMMARY  

Our annual consolidated revenues increased by 46% for 2007 over 2006, and 18% for 2006 over 2005. These increases reflect acquisitions, primarily RIA during 2007, as well as growth in our existing business resulting from increases in the number of ATMs managed and transactions processed. For further discussion regarding acquisitions, see Note 5, Acquisitions, to the Consolidated Financial Statements.

Our operating income increased 49% for 2007 over 2006, and 10% for 2006 over 2005. These increases were the result of growth in revenues generated by existing business and newly acquired businesses, the impact of acquisitions and leveraging the Company’s cost structure, particularly in the EFT Processing Segment. The results for 2007 also include an increase in operating income of $12.2 million for a federal excise tax refund discussed in Note 23, Federal Excise Tax Refund, to the Consolidated Financial Statements.

Net income for 2007 was $53.5 million, or $1.11 per diluted share, compared to net income for 2006 of $46.0 million, or $1.16 per diluted share, and net income of $22.1 million, or $0.60 per diluted share for 2005. In addition to the explanations above, net income for 2007 and 2006 included foreign currency exchange translation gains of $15.5 million and $10.2 million, respectively. Net income for 2005 included foreign currency exchange translation losses of $7.5 million. Net income for 2007 includes a gain from discontinued operations of $0.3 million, or $0.01 per diluted share, and net income for 2005 includes a loss from discontinued operations of $0.6 million, or $0.02 per diluted share.

Impact of changes in foreign currency exchange rates

Beginning in 2006 and continuing into 2007, the U.S. dollar has weakened compared to most of the currencies of the countries in which we operate. Because our revenues and local expenses are recorded in the functional currencies of our operating entities, amounts we earned for 2007 are positively impacted by the weakening of the U.S. dollar. We estimate that, depending on the mix of countries and currencies, our 2007 results benefited by approximately 5% to 10% when compared to 2006.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005 – BY BUSINESS SEGMENT

EFT PROCESSING SEGMENT

As discussed previously, effective January 1, 2007, we began reporting and managing the operations of the EFT Processing Segment and the former Software Solutions Segment on a combined basis. Previously reported amounts have been adjusted to reflect these changes.

2007 Compared to 2006  

The following table summarizes the results of operations for the EFT Processing Segment for the years ended December 31, 2007 and 2006:

		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2007				2006				Amount				Percent
Total revenues		$	188,957			$	158,320			$	30,637				19%
Operating expenses:
Direct operating costs			75,241				57,215				18,026				32%
Salaries and benefits			41,282				36,057				5,225				14%
Selling, general and administrative			17,813				14,884				2,929				20%
Depreciation and amortization			17,531				14,804				2,727				18%
Total operating expenses			151,867				122,960				28,907				24%
Operating income		$	37,090			$	35,360			$	1,730				5%
Transactions processed (millions)			603.8				463.6				140.2				30%
ATMs as of December 31			11,347				8,885				2,462				28%
Average ATMs			10,025				8,066				1,959				24%

Revenues

Our revenue for 2007 increased when compared to 2006 primarily due to increases in the number of ATMs operated and, for owned ATMs, the number of transactions processed. These increases were attributable to most of our operations, but primarily our operations in Poland, India and Greece and our software operations. Additionally, beginning in 2006 and continuing into 2007, the U.S. dollar has weakened compared to the currencies of most of the countries in which we operate. Because our revenues are recorded in the functional currencies of our operating entities, amounts we earn in foreign currencies are positively impacted by the weakening of the U.S. dollar.

Partially offsetting these increases was a reduction in revenues associated with the extension of certain customer contracts for several years beyond their original terms. In exchange for these extensions, we paid or received up-front payments and agreed on gradually declining fee structures. As prescribed by U.S. GAAP, revenue under these contracts is recognized based on proportional performance of services over the term of the contract, which generally results in “straight-line” (i.e., consistent value per period) revenue recognition of the contracts’ total cash flows, including any up-front payment. This straight-line revenue recognition results in revenue that is less than contractual invoices and cash receipts in the early periods of the agreement and revenue that is greater than the contractual invoices and cash receipts in the later years of the agreement. As a result of the revenue recognition under these contracts, amounts invoiced under the contracts exceeded the amount of revenue that we recognized by about $2.7 million for 2007, compared to approximately $1.6 million for 2006. We may decide to enter into similar arrangements with other EFT Processing Segment customers.

Average monthly revenue per ATM was $1,571 for 2007, compared to $1,636 for 2006 and revenue per transaction was $0.31 for 2007, compared to $0.34 for 2006. The decrease in revenues per ATM and revenues per transaction was due to the addition of ATMs where related revenue has not yet developed to mature levels, the impact of the contract extensions discussed above and the addition of ATMs in India where revenues per ATM have been historically lower than Central and Eastern Europe generally due to lower labor costs.

Direct operating costs

Direct operating costs consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications and the cost of data center operations-related personnel, as well as the processing centers’ facility related costs and other processing center related expenses. The increase in direct operating cost for 2007, compared to 2006, is attributed to the increase in the number of ATMs under operation. Additionally, 2007 includes losses of approximately $1.9 million, primarily in Poland and Hungary, as a result of certain fraudulent transactions on our network. We are taking remedial action to prevent similar transactions and expect the amounts to be reduced significantly in the first quarter 2008 and eliminated in the second quarter 2008. As of December 31, 2007, the losses include an estimated $0.9 million in amounts related to 2007 transactions that have not yet been reported.

Gross margin

Gross margin, which is calculated as revenues less direct operating costs, increased to $113.7 million for 2007 from $101.1 million for 2006. This increase is attributable to the increase in revenues discussed above. Gross margin as a percentage of revenues was 60% for 2007 compared to 64% for 2006. The decrease in gross margin as a percentage of revenues is due to the impact of accounting for certain contract renewals, the fraudulent transaction losses and other fluctuations in revenues and direct operating costs discussed above, as well as the increased contributions of our subsidiary in India, which has historically earned a lower gross margin than our other operations.

Salaries and benefits

The increase in salaries and benefits for 2007 compared to 2006 was due to staffing costs to expand in emerging markets, such as India, China and new European markets, and additional products, such as POS, card processing and cross-border merchant processing and acquiring. Salaries and benefits also increased as a result of general merit increases awarded to employees and certain additional staffing requirements due to the larger number of ATMs under operation and transactions processed. As a percentage of revenue, however, these costs remained relatively flat at 22% of revenues for 2007 compared to 23% for 2006.

Selling, general and administrative

The increase in selling, general and administrative expenses for 2007 compared to 2006 is due to costs to expand in emerging markets, such as India, China and new European markets, and additional products, such as POS, card processing and cross-border merchant processing and acquiring. Additionally, during 2007, we recorded a loss of $1.2 million under an arbitral award granted by a tribunal in Budapest, Hungary arising from a claim by a former cash supply contractor in Central Europe. The cash supply contractor claimed it provided us with cash during the fourth quarter 1999 and first quarter 2000 that was not returned. As a percentage of revenue, selling, general and administrative expenses were flat at 9% for both 2007 and 2006.

Depreciation and amortization

The increase in depreciation and amortization expense for 2007 compared to 2006 is due primarily to additional equipment and software for the expansion of our Hungarian processing center incurred during 2006, additional ATMs in Poland and India and additional software amortization recorded related to our Essentis software product. As a percentage of revenue, these expenses remained flat at 9% of revenues for both 2007 and 2006.

Operating income

The increase in operating income was primarily due to the increases in revenues described above, offset by the $1.1 million decrease in revenues related to certain contract renewals, the $1.9 million fraudulent card losses and the arbitration loss described in the sections above. Operating income as a percentage of revenues was 20% for 2007 compared to 22% for 2006 and $0.06 per transaction for 2007 compared to $0.08 per transaction for 2006. Adjusting for the impact of the fraudulent card losses and the arbitration loss, operating income as a percentage of revenue would have been 21% and operating income per transaction would have been $0.07.

Operating income for 2007 and 2006 also includes $1.2 million and $1.3 million, respectively, in losses associated with expanding operations for the Company’s 75% owned joint venture in China. As of December 31, 2007, we have deployed and are providing all of the day-to-day outsourcing services for over 250 ATMs. Under current agreements, we expect that the total number of ATMs in China deployed and for which we will be providing day-to-day outsourcing services will increase to over 800 during the next 12 to 18 months.

Software sales backlog

As of December 31, 2007, the EFT Segment had a software contract backlog of approximately $7.9 million compared to approximately $9.2 million as of December 31, 2006. Such backlog represents software sales based on signed contracts under which we continue to have performance milestones before the sale will be completed. We recognize revenue on a percentage of completion method, based on certain milestone conditions, for our software solutions. As a result, we have not recognized all the revenues associated with these sales contracts. We cannot give assurances that the milestones under the contracts will be completed or that we will be able to recognize the related revenue within the next year.

2006 Compared to 2005  

The following table summarizes the results of operations for the EFT Processing Segment for the years ended December 31, 2006 and 2005:   

		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2006				2005				Amount				Percent
Total revenues		$	158,320			$	119,880			$	38,440				32%
Operating expenses:
Direct operating costs			57,215				45,164				12,051				27%
Salaries and benefits			36,057				25,399				10,658				42%
Selling, general and administrative			14,884				9,708				5,176				53%
Depreciation and amortization			14,804				10,525				4,279				41%
Total operating expenses			122,960				90,796				32,164				35%
Operating income		$	35,360			$	29,084			$	6,276				22%
Transactions processed (millions)			463.6				361.5				102.1				28%
ATMs as of December 31			8,885				7,211				1,674				23%
Average ATMs			8,066				6,585				1,481				22%

Revenues

Our revenue for 2006 increased when compared to 2005 primarily due to increases in the number of ATMs operated and, for owned ATMs, the number of transactions processed, primarily in Poland and India. Additionally, 2006 results include the full year impact of the acquisitions of Instreamline (now Euronet Card Services Greece), Europlanet and Essentis, which contributed incremental revenues of $24.3 million in 2006, compared to 2005. See Note 5, Acquisitions to the Consolidated Financial Statements for further discussion about these acquisitions. Instreamline, acquired in October 2005, provides credit card and POS outsourcing services and transaction gateway switching services in Greece and the Balkan region. Our ownership in Europlanet was increased through two transactions: one in April 2005, in which we increased our ownership from 36% to 66%; and one in December 2005, in which we acquired the final 34% ownership. We began consolidating Europlanet after acquiring a controlling interest in April 2005. Europlanet provides debit card processing services and manages a network of ATMs and POS terminals in Serbia. Essentis is a U.K. company that owns a leading card issuing and merchant acquiring software package that allows us to add additional outsourcing and software offerings to financial institutions.

Partially offsetting these increases was a reduction in revenue associated with the extension of certain customer contracts for several years beyond their original terms. In exchange for these extensions, we paid or received an up-front payment and agreed on a gradually declining fee structure. Revenue under these contracts is recognized based on proportional performance of services over the term of the contract, which generally results in “straight-line” (i.e., consistent value per period) revenue recognition of the contracts’ total cash flows, including any up-front payment. This straight-line revenue recognition results in revenue recognized in an amount less than contractual cash receipts in the early periods of the agreement and revenue recognized in an amount greater than the contractual cash receipts in the later years of the agreement. As a result of the revenue recognition under these contracts, amounts invoiced under the contracts exceeded the amount of revenue that we recognized by about $1.6 million for 2006.

Average monthly revenue per ATM was $1,636 for 2006, compared to $1,517 for 2005 and revenue per transaction was $0.34 for 2006, compared to $0.33 for 2005. These increases are, in part, due to increases in non-ATM revenues, primarily associated with

Essentis, which records revenue from the sale of software, and Euronet Card Services Greece, which provides POS and credit card outsourcing services and debit card transaction gateway switching services. Under outsourcing agreements, we primarily earn revenue based on a fixed recurring monthly management fee, with less dependence on transaction-based fees.

Direct operating costs

The increase in direct operating costs for 2006, compared to 2005, is attributed to the acquisitions described above and an increase in the number of ATMs under operation. Direct operating costs as a percentage of revenues was relatively flat at 36% for 2006, compared to 38% for 2005.

Gross margin

Gross margin increased to $101.1 million for 2006 from $74.7 million for 2005. Average monthly gross margin per ATM increased to $1,045 for 2006, compared to $946 for 2005, and gross margin per transaction was relatively flat at $0.22 for 2006, compared to $0.21 for 2005. These increases were primarily due to increases in non-ATM revenues related to Essentis and Euronet Card Services Greece described above.

Salaries and benefits

The increase in salaries and benefits for 2006, compared to 2005 is due to the acquisition of Instreamline, Europlanet and Essentis, staffing costs to expand in emerging markets, such as India, China and new European markets, and additional products, such as POS and card processing. Salaries and benefits also increased as a result of general merit increases awarded to employees and certain additional staffing requirements due to the larger number of ATMs under operation and transactions processed. As a percentage of revenue, these costs increased slightly to 23% for 2006 from 21% for 2005, primarily due to the acquisition of Essentis, which is generally a more labor intensive business than the other EFT Processing Segment entities.

Selling, general and administrative

Similar to the increase in salaries and benefits, the increase in selling, general and administrative expenses for 2006, compared to 2005 is also due primarily to the acquisitions of Instreamline, Europlanet and Essentis and costs incurred to expand in emerging markets and additional products. As a percentage of revenue, these costs increased slightly to 9% of revenue for 2006, compared to 8% of revenue for 2005. Offsetting these costs for 2005 was $0.5 million for an insurance recovery that related to a loss recorded in the fourth quarter 2003 on certain ATM disbursements resulting from a card association’s change in their data exchange format.

Depreciation and amortization

The increase in depreciation and amortization expense for 2006, compared to 2005 is due primarily to depreciation and intangible amortization related to the acquisitions of Instreamline and, to a lesser extent, Essentis and Europlanet, as well as depreciation on additional ATMs under capital lease arrangements related to outsourcing agreements in India. As a percentage of revenue, these expenses were 9% of revenue for both 2006 and 2005. Approximately $1.7 million of depreciation and amortization for 2006 represents amortization of acquired intangible assets related to the acquisitions of Instreamline, Essentis and Europlanet, compared to $0.3 million recorded during 2005.

Operating income

The increase in operating income for the segment is generally the result of increased revenue and the related gross margins described above, combined with leveraging certain management cost structures. Operating income as a percentage of revenue was 22% for 2006, compared to 24% for 2005 and operating income per transaction was $0.08 for both 2006 and 2005. The slight decrease in operating income as a percentage of revenues was primarily due to Essentis, which recorded an 8% operating income margin during 2006. Average monthly operating income per ATM was $365 for 2006, compared to $368 for 2005. Operating income is partially offset by losses related to our 75% owned joint venture in China of $1.3 million for 2006 and $1.2 million in 2005.

PREPAID PROCESSING SEGMENT  

Effective in the second quarter 2007, as a result of the acquisition of RIA, we established the Money Transfer Segment. Our previous money transfer business was relatively insignificant and was reported and managed as part of the Prepaid Processing Segment. We have adjusted previously reported amounts to reflect the reclassification of the money transfer business from the Prepaid Processing Segment to Money Transfer Segment for all periods presented.

2007 Compared to 2006

The following table summarizes the results of operations for the Prepaid Processing Segment for the years ended December 31, 2007 and 2006:  

		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2007				2006				Amount				Percent
Total revenues		$	569,858			$	467,651			$	102,207				22%
Operating expenses:
Direct operating costs			464,874				376,329				88,545				24%
Salaries and benefits			27,493				22,561				4,932				22%
Selling, general and administrative			20,567				17,011				3,556				21%
Federal excise tax refund			(12,191	)			—				(12,191	)			n/m
Depreciation and amortization			16,302				14,128				2,174				15%
Total operating expenses			517,045				430,029				87,016				20%
Operating income		$	52,813			$	37,622			$	15,191				40%
Transactions processed (millions)			634.8				457.8				177.0				39%

Revenues

The increase in revenues for 2007 compared to 2006 was generally attributable to: (i) the increase in total transactions processed across all of our Prepaid Processing Segment operations; (ii) $47.2 million in revenues contributed by Omega Logic and Brodos Romania, which were acquired in the first quarter 2007; and (iii) foreign currency translations to the U.S. dollar. Beginning in 2006 and continuing into 2007, the U.S. dollar weakened compared to most of the currencies of the countries in which we operate. Because our revenues are recorded in the functional currencies of our operating entities, amounts we earn are positively impacted by the weakening of the U.S. dollar.

Revenue growth was partially offset by reduced revenue growth in Spain resulting from the second quarter 2006 expiration of a preferential commission arrangement with a Spanish mobile operator. Additionally, in certain more mature markets, such as the U.K., New Zealand and Spain, our revenue growth has slowed substantially and, in some cases, revenues have decreased because conversion from scratch cards to electronic top-up is substantially complete and certain mobile operators and retailers are driving competitive reductions in pricing and margins. We expect most of our future revenue growth to be derived from: (i) developing markets or markets in which there is organic growth in the prepaid sector overall, (ii) from continued conversion from scratch cards to electronic top-up in less mature markets, (iii) from additional products sold over the base of prepaid processing terminals, and (iv) possibly from acquisitions.

Revenues per transaction decreased to $0.90 for 2007 from $1.02 for 2006 due primarily to the growth in revenues and transactions recorded by our ATX subsidiary, which is 51% Euronet-owned. In accordance with U.S. GAAP, ATX is consolidated and the amounts in our financial statements and in the table above reflect 100% of ATX. Results attributable to the 49% minority owner are reflected in the minority interest line of our Consolidated Statements of Income. ATX provides only transaction processing services without direct costs and other operating costs generally associated with installing and managing terminals; therefore, the revenue we recognize from these transactions is a fraction of that recognized on average transactions but with very low cost. Transaction volumes for ATX in 2007 increased over 100% compared to 2006. Partially offsetting the decreases described above was the growth in both volumes and revenues in Australia and the U.S., which generally have higher revenues per transaction, but also pay higher commission rates to retailers, than our other Prepaid Processing subsidiaries.

Direct operating costs

Direct operating costs in the Prepaid Processing Segment include the commissions we pay to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, as well as expenses required to operate POS terminals. Because of their nature, these expenditures generally fluctuate directly with revenues and processed transactions. The increase in direct operating costs is generally attributable to the increase in total transactions processed and foreign currency translations to the U.S. dollar compared to the prior year.

Gross margin

Gross margin, which represents revenues less direct costs, was $105.0 million for 2007 compared to $91.3 million for 2006. Gross margin as a percentage of revenues decreased to 18% for 2007 compared to 20% for 2006 and gross margin per transaction was $0.17 for 2007 compared to $0.20 for 2006. Most of the reduction in gross margin per transaction is due to the growth of revenues and transactions at our ATX subsidiary, the expiration of preferential commission arrangements in Spain discussed above and the general maturity of the prepaid mobile airtime business in many of our markets.

Salaries and benefits

The increase in salaries and benefits for 2007 compared to 2006 is primarily the result of the acquisitions of Brodos Romania and Omega Logic, as well as additional overhead to support development in other new and growing markets. As a percentage of revenue, salaries and benefits remained flat at 4.8% for both 2007 and 2006.

Selling, general and administrative

The increase in selling, general and administrative expenses for 2007 compared to 2006 is the result of the acquisitions of Brodos Romania and Omega Logic, as well as additional overhead to support development in other new and growing markets. As a percentage of revenues these selling, general and administrative expenses remained flat at 3.6% for both 2007 and 2006.

Federal excise tax refund

During 2006, the Internal Revenue Service (“IRS”) announced that Internal Revenue Code Section 4251 (relating to communications excise tax) will no longer apply to, among other services, prepaid mobile airtime services such as those offered by the Prepaid Processing Segment’s U.S. operations. Additionally, companies that paid this excise tax during the period beginning on March 1, 2003 and ending on July 31, 2006, are entitled to a credit or refund of amounts paid in conjunction with the filing of 2006 federal income tax returns. During 2007, $12.2 million was recorded for amounts paid during this period as a reduction to operating expenses of the Prepaid Processing Segment and as an other current asset. In addition, approximately $1.2 million is expected to be received in interest on the amount claimed, which will be recorded as interest income when received.

Depreciation and amortization

Depreciation and amortization expense primarily represents amortization of acquired intangibles and the depreciation of POS terminals we install in retail stores. The increase in depreciation and amortization for 2007 compared to 2006 was primarily due to the acquisitions of Brodos Romania and Omega Logic. As a percentage of revenues, depreciation and amortization decreased slightly to 2.9% for 2007 from 3.0% for 2006.

Goodwill and acquired intangible translation adjustment

During the third quarter 2007 we corrected an immaterial error related to foreign currency translation adjustments for goodwill and acquired intangible assets recorded in connection with acquisitions completed during periods prior to December 31, 2004. The impact of this correction on the Prepaid Processing Segment was to increase depreciation and amortization expense and decrease operating income by $0.4 million for each of the years ended December 31, 2006 and 2005.

Operating income

The improvement in operating income for 2007 compared to 2006 was due to the significant growth in revenues and transactions processed, the federal excise tax refund and the benefit of foreign currency translations to the U.S. dollar, partially offset by the impact of the events in Spain discussed above and the costs of development in new and growing markets.

Excluding the benefit of the federal excise tax refund, operating income as a percentage of revenues was 7.1% for 2007 compared to 8.0% for 2006. The decrease is primarily due to the events in Spain and operating expenses incurred to support development in new and growing markets. Also excluding the federal excise tax refund, operating income per transaction was $0.06 for 2007 compared to $0.08 for 2006. The decrease in operating income per transaction is due to the events in Spain, the impact of maturing markets and the growth in revenues and transactions at our ATX subsidiary. These decreases were partially offset by the benefit of foreign currency translations to the U.S. dollar.

2006 Compared to 2005
 
The following table summarizes the results of operations for the Prepaid Processing Segment for the
years ended December 31, 2006 and 2005:
 

		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2006				2005				Amount				Percent
Total revenues		$	467,651			$	409,575			$	58,076				14%
Operating expenses:
Direct operating costs			376,329				324,516				51,813				16%
Salaries and benefits			22,561				21,941				620				3%
Selling, general and administrative			17,011				15,782				1,229				8%
Depreciation and amortization			14,128				12,023				2,105				18%
Total operating expenses			430,029				374,262				55,767				15%
Operating income		$	37,622			$	35,313			$	2,309				7%
Transactions processed (millions)			457.8				348.0				109.8				32%

Revenues

The increase in revenues for 2006 compared to 2005 was generally attributable to the increase in total transactions processed across all of our Prepaid Processing operations and the full year impact of 2005 acquisitions. Revenue growth was offset by reduced revenue in Spain resulting from expiration of the preferential commission arrangements with a Spanish mobile operator. When we acquired our Spanish prepaid subsidiaries, we entered into agreements with a major mobile operator under which the subsidiaries received a preferred, exclusive distributor commission on sales of prepaid mobile airtime. This arrangement expired in May 2006 and was not renewed. Additionally, in mature markets, such as the U.K. and Australia, our revenue growth slowed substantially and, in some cases, revenues have decreased because conversion from scratch cards to electronic top-up is substantially complete and certain mobile operators and retailers are driving competitive reductions in pricing and margins.

Revenue per transaction decreased to $1.02 for 2006 from $1.18 for 2005 due primarily to the growth in revenues and transactions recorded by our ATX subsidiary, which was acquired at the end of the first quarter 2005. Transaction volumes at ATX have increased by approximately 300% for 2006, compared to 2005. For 2006, ATX transaction volumes accounted for approximately 18% of all transaction volume for the Prepaid Processing Segment, compared to 6% for 2005. The expiration of preferential commission arrangements in Spain discussed above also contributed to the decrease in revenue per transaction.

Partially offsetting the decreases described above for 2006, compared to 2005, were the growth in both volumes and revenues in the U.S.

Direct operating costs

The increase in direct operating costs is generally attributable to the increase in total transactions processed over the prior year. Direct costs as a percentage of revenue are slightly higher in our mature markets, such as the U.K. and Spain. These higher costs have been partially offset during 2006 by lower direct costs as a percentage of revenue in other markets and by ATX. As discussed above, ATX is a transaction processor, with very few direct costs and, accordingly, a high gross margin percentage.

Gross margin

Gross margin was $91.3 million for 2006, compared to $85.1 million for 2005. Gross margin as a percentage of revenue was 20% for 2006, compared to 21% for 2005 and gross margin per transaction was $0.20 for 2006, compared to $0.24 per transaction for 2005. Most of the reduction in gross margin per transaction is due to the growth of revenues and transactions at our ATX subsidiary and the expiration of preferential commission arrangements in Spain discussed above. Although we were able to pass through our reduction in commission in Spain to the retailers under our contracts with them by paying a lower distribution commission, we chose to pass through only a portion of the reduction to guard against the loss of retailers. Also during 2006, we commenced distribution of additional products and prepaid airtime from the two other mobile operators in Spain. As a result of the expiration of preferential commission arrangements in Spain, partially offset by the distribution of products from the other mobile operators in Spain, gross margin for 2006 was approximately $2.6 million lower than 2005. This reduction would have been larger, except for the completion of a significant acquisition in Spain during March 2005. Additional decreases in gross margin per transaction were experienced across most of our other countries and were partially offset by increased transaction volumes in markets with higher margins, such as Australia, New Zealand and the U.S.

Salaries and benefits

The slight increase in salaries and benefits for 2006, compared to 2005 is primarily the result of the full year effect of 2005 acquisitions. As a percentage of revenue, salaries and benefits have decreased slightly to 4.8% for 2006, from 5.4% for 2005. The decrease in salaries and benefits as a percentage of revenue reflects leverage and scalability in our markets.

Selling, general and administrative

The increase in selling, general and administrative expenses generally is also the result of the full year effect of 2005 acquisitions. As a percentage of revenue these selling, general and administrative expenses decreased to 3.6% of revenue for 2006, compared to 3.9% of revenue for 2005, also as a result of our leverage and scalability in our markets.

Depreciation and amortization

Depreciation and amortization expense primarily represents amortization of acquired intangibles and the depreciation of POS terminals we install in retail stores. The increase for 2006, compared to 2005, is due to the full year effect of amortization of intangible assets recorded in connection with 2005 acquisitions. As a percentage of revenues, depreciation and amortization was relatively flat at 3.0% for 2006, compared to 2.9% for 2005.

Goodwill and acquired intangible translation adjustment

During the third quarter 2007 we corrected an immaterial error related to foreign currency translation adjustments for goodwill and acquired intangible assets recorded in connection with acquisitions completed during periods prior to December 31, 2004. The impact of this correction on the Prepaid Processing Segment was to increase depreciation and amortization expense and decrease operating income by $0.4 million for each of the years ended December 31, 2006 and 2005.

Operating income

The increase in operating income for 2006 compared to 2005 includes a reduction of approximately $2.6 million related to the impact of the developments in Spain discussed above. Exclusive of the impact of Spain, the improvement in operating income for 2006 was due to the growth in revenues and transactions processed, contributions from our 2005 acquisitions and increased leverage and scalability in our markets.

Operating income as a percentage of revenues decreased to 8.0% for 2006 from 8.6% for 2005. Operating income per transaction decreased to $0.08 for 2006, from $0.10 for 2005. As discussed above, these decreases in operating income as a percentage of revenue and per transaction are the result of the developments in Spain, the growth in revenues and transactions associated with ATX and gross margin declines across several of our other countries. These decreases were partially offset by increased transactions in markets with higher operating margins, such as Australia, New Zealand and the U.S.

MONEY TRANSFER SEGMENT

The Money Transfer Segment was established during April 2007 with the acquisition of RIA, which is more fully described in Note 5, Acquisitions, to the Consolidated Financial Statements included in this report. To assist in better understanding the results of the Money Transfer Segment, unaudited pro forma results have been provided as if RIA’s results were included in our consolidated results of operations beginning January 1, 2006. Because our results of operations for the year ended December 31, 2006 were insignificant, and fluctuations when compared to the year ended December 31, 2007 are nearly entirely due to the acquisition of RIA, the following discussion and analysis will focus on pro forma results of operations. The pro forma financial information is not intended to represent, or be indicative of, the consolidated results of operations or financial condition that would have been reported had the RIA acquisition been completed as of the beginning of the periods presented. Moreover, the pro forma financial information should not be considered as representative of our future consolidated results of operations or financial condition. The Money Transfer Segment generated total revenues of $1.7 million and an operating loss of $1.0 million for the year ended December 31, 2005. Based on the insignificance of the money transfer business prior to the acquisition of RIA, we have not provided analysis comparing the 2006 and 2005 operations.

The following tables present the actual results of operations for the years ended December 31, 2007 and 2006 for the Money Transfer Segment.

		As Reported
		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2007				2006				Amount				Percent
Total revenues		$	158,759			$	3,210			$	155,549				4846%
Operating expenses:
Direct operating costs			83,795				1,932				81,863				4237%
Salaries and benefits			32,705				2,353				30,352				1290%
Selling, general and administrative			21,459				1,863				19,596				1052%
Depreciation and amortization			13,670				357				13,313				3729%
Total operating expenses			151,629				6,505				145,124				2231%
Operating income		$	7,130			$	(3,295	)		$	10,425				n/m
Transactions processed (millions)			12.0				0.3				11.7				3900%

The following tables present the pro forma results of operations for the years ended December 31, 2007 and 2006 for the Money Transfer Segment:

		Pro Forma (unaudited)
		Year Ended December 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2007				2006				Amount				Percent
Total revenues		$	204,948			$	182,082			$	22,866				13%
Operating expenses:
Direct operating costs			108,589				96,926				11,663				12%
Salaries and benefits			42,383				36,445				5,938				16%
Selling, general and administrative			27,444				25,757				1,687				7%
Depreciation and amortization			17,700				16,858				842				5%
Total operating expenses			196,116				175,986				20,130				11%
Operating income		$	8,832			$	6,096			$	2,736				45%
Pro forma transactions processed (millions)			15.5				13.9				1.6				12%

Comparison of pro forma operating results

During 2007, we combined our previous money transfer business with RIA and incurred total exit costs of $0.9 million. These costs represented the accelerated depreciation and amortization of property and equipment, software and leasehold improvements that were disposed of during 2007; the write off of marketing materials and trademarks that have been discontinued or will not be used; the write off of accounts receivable from agents that did not meet RIA’s credit requirements; and severance and retention payments made to certain employees. These exit costs are not included in pro-forma operating expenses in the above table.

Revenues

Revenues from the Money Transfer Segment include a transaction fee for each transaction as well as the difference between purchasing currency at wholesale exchange rates and selling the currency to customers at retail exchange rates. Pro forma revenue per transaction increased slightly to $13.22 for 2007 from $13.10 for 2006. On a historical basis, about 75% of our Money Transfer Segment revenues are derived from transaction fees, about 25% is derived from the foreign currency spread and other small amounts of revenue are derived from sources such as fees for cashing checks, issuing money orders and processing bill payments. For 2007, 75% of our money transfers were initiated in the U.S., 23% in Europe and 2% in other countries, such as Canada and Australia. For 2006, 83% of our money transfers were initiated in the U.S., 16% in Europe and 1% in other countries. We expect that the U.S. will continue to represent our highest volume market; however, significant future growth is expected to be derived from non-U.S. initiated sources.

The increase in pro forma revenues for 2007 compared to 2006 is due to an increase in the number of transactions processed of 12% for 2007 compared to 2006. For 2007, money transfers to Mexico, which represented 38% of total money transfers, decreased by 1.1%, while transfers to all other countries increased 26% when compared to the prior year due to the expansion of our operations and continued growth in immigrant worker populations. The decline in transfers to Mexico was largely the result of immigration developments, downturns in certain labor markets and other economic factors impacting the U.S. market. These issues have also resulted in certain competitors lowering transaction fees and foreign currency exchange spreads in certain markets where we do business in an attempt to limit the impact on money transfer volumes. During the second half of 2007, however, total money transfers to Mexico slightly exceeded total money transfers to Mexico during the second half of 2006.

Direct operating costs

Direct operating costs in the Money Transfer Segment primarily represent commissions paid to agents that originate money transfers on our behalf and distribution agents that disburse funds to the customers’ destination beneficiary, together with less significant costs, such as telecommunication and bank fees to collect money from originating agents. Direct operating costs generally increase or decrease by a similar percentage as revenues.

Gross margin

Pro forma gross margin, which represents revenues less direct costs, was $96.4 million for 2007 compared to $85.2 million for 2006. This slight improvement is primarily due to the growth in money transfer transactions discussed above. Pro forma gross margin as a percentage of revenues was 47% for both 2007 and 2006.

Salaries and benefits

Salaries and benefits include salaries and commissions paid to employees, the cost of providing employee benefits, amounts paid to contract workers and accruals for incentive compensation. Pro forma salaries and benefits for 2006 also include costs associated with our previous money transfer business that generally have been eliminated from our cost structure beginning in the second quarter 2007. The increase for 2007 compared to 2006 is primarily due to overall Company growth.

Selling, general and administrative

Selling, general and administrative expenses include operations support costs, such as rent, utilities, professional fees, indirect telecommunications, advertising and other miscellaneous overhead costs. Pro forma selling, general and administrative expenses for 2007 were relatively flat compared to 2006. However, the prior year pro forma results include costs associated with our previous money transfer business, which generally have been eliminated from our cost structure beginning in the second quarter 2007. Excluding the impact of these costs, the increase in pro forma selling, general and administrative expenses for 2007 compared to 2006 is due primarily to overall Company growth.

Depreciation and amortization

Depreciation and amortization primarily represents amortization of acquired intangibles and also includes depreciation of money transfer terminals, computers and software, leasehold improvements and office equipment. The increase in pro forma depreciation and amortization for 2007 compared to 2006 is primarily due to additional computer equipment in our customer service centers and increased leasehold improvements, office equipment and computer equipment for expansion.

Operating income

The increase in pro forma operating income for 2007 compared to 2006 is the result of increased pro forma revenues, without commensurate increases in pro forma operating expenses, as discussed in more detail in the sections above.

CORPORATE SERVICES
 
The components of Corporate Services operating expenses for 2007, 2006 and 2005 were as follows:
 
 

														Year-over-Year Change
														2007				2006
														Increase				Increase
		Year Ended December 31,												(Decrease)				(Decrease)
(dollar amounts in thousands)		2007				2006				2005				Percent				Percent
Salaries and benefits		$	13,217			$	13,285			$	10,527				(1	%)			26	%
Selling, general and administrative			5,811				4,343				5,381				34	%			(19	%)
Depreciation and amortization			828				205				110				304	%			86	%
Total operating expenses		$	19,856			$	17,833			$	16,018				11	%			11	%

Operating expenses for Corporate Services increased by 11% for both 2007 and 2006, compared to the respective prior year. The decrease in salaries and benefits compensation for 2007 compared to 2006 was due primarily to lower incentive compensation accruals and the December 2006 resignation of our former President and Chief Operating Officer. The increase in selling, general and administrative expenses was mainly the result of higher professional fees and other expenses associated with acquisitions that were not completed, including Envios de Valores La Nacional Corp. (“La Nacional”). See Note 22, Litigation and Contingencies, to the Consolidated Financial Statements for further discussion regarding La Nacional. The increase in corporate depreciation and amortization is the result of amortization associated with the purchase of a company-wide three-year Microsoft license.

The increase in salaries and benefits expense for 2006, compared to 2005 is primarily attributable to additional expense recorded for share-based compensation in 2006. Share-based compensation expense increased to $7.3 million for 2006, compared to $5.3 million for 2005. Share-based compensation expense for 2006 is comprised of $4.0 million related to the unvested portion of stock options granted prior to 2005 and $3.3 million for restricted stock awards granted primarily during 2005 and 2006. This increase of $2.0 million in share-based compensation expense for 2006 compared to 2005 is due mainly to: i) $1.1 million in additional expense due to changes in the accounting treatment for performance-based restricted stock awards that require expense to be recognized over a “graded” attribution schedule, rather than a “straight-line” attribution schedule, resulting in more expense in the early years of an award; and ii) $0.9 million in increased expense due to additional performance-based awards to certain executives during 2006 and additional awards to employees resulting from overall Company growth, including acquired businesses. The remaining increase in $0.8 million increase in salaries and benefits expense is due to incremental expense from overall Company growth. The decrease in selling, general and administrative expenses for 2006, compared to 2005 was the result of lower professional fees and other expenses associated with acquisition analysis during 2006, compared to 2005.

OTHER INCOME (EXPENSE) 

		Year Ended December 31,												Year-over-Year Change
														2007				2006
														Increase				Increase
														(Decrease)				(Decrease)
(dollar amounts in thousands)		2007				2006				2005				Percent				Percent
Interest income		$	16,296			$	13,750			$	5,874				19	%			134	%
Interest expense			(26,213	)			(14,747	)			(8,459	)			78	%			74	%
Income from unconsolidated affiliates			908				660				1,185				38	%			(44	%)
Loss on early retirement of debt			(427	)			—				—				n/m				—
Foreign currency exchange gain (loss), net			15,515				10,166				(7,495	)			53	%			n/m
Total other income (expense)		$	6,079			$	9,829			$	(8,895	)			(38	%)			n/m

Interest income

The increase in interest income for 2007 over 2006 was primarily due to investment of the unused proceeds from the $154.3 million private equity placement that was completed during March 2007, as well as cash generated from operations. The increase in interest income for 2006 over 2005 was primarily due to interest earned on the unused proceeds from the $175 million October 2005 convertible debt issuance and cash generated from operations. Increasing average cash deposits held in our trust accounts related to the administration of customer collections and vendor remittance activities of the Prepaid Processing Segment have also generated increased interest income as the Segment’s operations have grown. Improvements in interest income for both 2007 and 2006, when compared to the respective previous year, were also due to higher average interest rates resulting from a gradual shift of investments from money market accounts to commercial paper and the general rise in short-term treasury rates throughout from 2005 through 2007. Recently this trend has reversed and short-term interest rates have decreased substantially during the first quarter 2008. If this trend continues, we expect that interest rates earned on our invested balances for 2008 will decrease as a result.  

Interest expense  

The increase in interest expense for 2007 over 2006 was primarily related to the additional borrowings to finance the April 2007 acquisition of RIA, which comprises our new Money Transfer Segment, and described in Note 5, Acquisitions, to the Consolidated Financial Statements. Additionally, we incurred additional borrowings under the revolving credit facility to finance the working capital requirements of the Money Transfer Segment. We generally borrow amounts under the revolving credit facility several times each month to fund the correspondent network in advance of collecting remittance amounts from the agency network. These borrowings are repaid over a very short period of time, generally within a few days. The increase in interest expense is also due to higher overall interest rates on our debt obligations in 2007 compared to 2006. Including amortization of deferred financing costs, interest expense on the term loan and revolving credit facility is approximately 7.5%, compared to approximately 4.0% for the $315 million in outstanding convertible debentures.

The increase in interest expense for 2006 over 2005 was primarily the result of the issuance of $175 million in convertible debt during 2005 described in Note 11, Debt Obligations, to the Consolidated Financial Statements.

Similar to the impact on interest income, due to the recent trend of decreasing short-term interest rates, we expect that interest rates paid on our borrowings for 2008 will also decrease.  

Income from unconsolidated affiliates  

The increase in income from unconsolidated affiliates recorded for 2007 compared to 2006 was primarily because we recognized a gain of $0.4 million in 2007 from the sale of our 8% ownership interest in CashNet Telecommunications Egypt SAE. The remainder of income from unconsolidated affiliates represents the equity in income of our 40% equity investment in e-pay Malaysia. During 2007, we recognized $0.7 million of equity losses related to e-pay Malaysia’s unsuccessful expansion efforts into Indonesia. As of December 31, 2007, our investment in e-pay Malaysia was $2.1 million and, based on the performance of e-pay Malaysia’s core business, as well future expectations, we do not believe that the amount recorded as investment in e-pay Malaysia is impaired.

The decrease in income from unconsolidated affiliates for 2006 compared to 2005 was primarily due to $0.3 million in dividends recorded during 2005 related to Europlanet and ATX, which were declared before we obtained control of these entities. In addition, 2006 included $0.3 million in losses recorded by Euronet Middle-East, our 49% EFT Processing Segment joint venture in Bahrain.

Loss on early retirement of debt

Loss on early retirement of debt of $0.4 million for 2007 represents the pro-rata write-off of deferred financing costs associated with the portion of the $190 million term loan that was prepaid during 2007. We expect to continue to prepay amounts outstanding under the term loan through available cash flows and, accordingly, recognizing losses on early retirement of debt for the pro-rata portion of unamortized deferred financing costs.

Net foreign currency exchange gain (loss)

Assets and liabilities denominated in currencies other than the local currency of each of our subsidiaries give rise to foreign currency exchange gains and losses. Exchange gains and losses that result from re-measurement of these assets and liabilities are recorded in determining net income. We recorded a net foreign currency exchange gain of $15.5 million and $10.2 million during 2007 and 2006, respectively, and net foreign currency exchange loss of $7.5 million during 2005. The foreign currency exchange gain or loss recorded is a result of the impact of fluctuations in foreign currency exchange rates on the recorded value of these assets and liabilities. Throughout both 2007 and 2006, the U.S. dollar weakened against most European-based currencies, primarily the euro and British pound, creating realized and unrealized foreign currency exchange gains. This compares to 2005, during which time the U.S. dollar strengthened against these currencies and we, therefore, recorded realized and unrealized foreign currency exchange losses.

INCOME TAX EXPENSE

		Year Ended December 31,
(dollar amounts in thousands)		2007				2006				2005
Income from continuing operations before income taxes and minority interest		$	83,256			$	61,683			$	38,457
Minority interest			(2,040	)			(977	)			(916	)
Income from continuing operations before income taxes			81,216				60,706				37,541
Income tax expense			28,056				14,704				14,843
Income from continuing operations		$	53,160			$	46,002			$	22,698
Effective income tax rate			34.5%				24.2%				39.5%
Income from continuing operations before income taxes		$	81,216			$	60,706			$	37,541
Adjust: Foreign exchange gain (loss), net			15,515				10,166				(7,495	)
Income from continuing operations before income taxes and foreign exchange gain (loss), net		$	65,701			$	50,540			$	45,036
Effective income tax rate, excluding foreign exchange gain (loss), net			42.7	%			29.1	%			33.0	%

We calculate our effective tax rate by dividing income tax expense by pre-tax book income including the effect of minority interest. Our effective tax rates were 34.5%, 24.2% and 39.5% for the years ended December 31, 2007, 2006 and 2005, respectively. Excluding foreign currency exchange translation results from pre-tax income, our effective tax rates were 42.7%, 29.1% and 33.0% for the years ended December 31, 2007, 2006 and 2005, respectively.

The increase in the effective tax rate for 2007, excluding foreign currency gains and losses, primarily relates to the recognition of deferred income tax expense in the U.S. attributable to the utilization of tax net operating losses against significant pre-tax income generated by the our U.S. operations from foreign currency gains, interest income earned on loans to our foreign subsidiaries and the $12.2 million federal excise tax refund. The 2007 effective tax rate was also unfavorably impacted by the acquisition of RIA, which operates in jurisdictions that have tax rates that are higher than our historical effective tax rate, and the recognition of deferred tax benefits for net operating losses in certain countries during 2006.

Tax expense in the U.S. was partly reduced by the reversal of our remaining valuation allowances against our U.S. tax net operating loss. Consequently, should we generate pre-tax income for financial reporting purposes in the U.S. during 2008, including income from the recognition of additional foreign currency gains, we would be required to recognize deferred tax expense on such income. For U.S. federal income tax purposes, however, as of December 31, 2007, we have approximately $106.6 million of net operating losses that will offset taxable income in future periods generated from pre-tax income produced by our U.S. operations and the recognition of the future tax effects of temporary differences recorded as deferred tax liabilities.

We determine income tax expense and remit income taxes based upon enacted tax laws and regulations applicable in each of the taxing jurisdictions where we conduct business. Based on our interpretation of such laws and regulations, and considering the evidence of available facts and circumstances and baseline operating forecasts, we have accrued the estimated tax effects of certain transactions, business ventures, contractual and organizational structures, projected business unit performance, and the estimated future reversal of timing differences. Should a taxing jurisdiction change its laws and regulations or dispute our conclusions, or should management become aware of new facts or other evidence that could alter our conclusions, the resulting impact to our estimates could have a material adverse effect to our Consolidated Financial Statements.  

OTHER

Minority interest

Minority interest was $2.0 million, $1.0 million and $0.9 million for the years ended December 31, 2007, 2006 and 2005, respectively. Minority interest represents the elimination of the net income (loss) attributable to the minority shareholders’ portion of our consolidated subsidiaries that are not wholly-owned, including Movilcarga, of which we own 80%; ATX, of which we own 51%; our subsidiary in China, of which we own 75%; and Europlanet, of which we owned 66% until the end of 2005, when we acquired the remaining 34% ownership.

Discontinued operations

Discontinued operations for 2007 reflects a gain of $0.3 million, net of legal costs, after we received a binding French Supreme Court decision relating to a lawsuit in France that resulted in a cash recovery. Discontinued operations for 2005 include a $0.6 million loss on the final liquidation of the France ATM network processing services business sold in 2002. This loss consists primarily of the reclassification to net income of the cumulative translation adjustment that had previously been recorded as a component stockholders’ equity (accumulated other comprehensive income) due to the prior years’ consolidation of the operations in France. There were no assets or liabilities held for sale at December 31, 2007 or 2006.  

NET INCOME

We recorded net income of $53.5 million, $46.0 million and $22.1 million for 2007, 2006 and 2005, respectively. The increase of $7.5 million in 2007 over 2006 was primarily the result of an increase in operating income of $25.3 million, including the federal excise tax refund of $12.2 million, an increase in the net foreign currency exchange gain of $5.4 million, an increase in income from unconsolidated affiliates of $0.3 million and a gain from discontinued operations of $0.3 million. These increases were partially offset by an increase in net interest expense of $8.9 million, an increase in income tax expense of $13.4 million, a loss on early retirement of debt of $0.4 million and an increase in income attributable to minority interest of $1.1 million.

As more fully discussed above, the increase of $23.9 million for 2006 compared to 2005 was the result of an increase in operating income of $4.5 million, an improvement in foreign currency exchange gain (loss) of $17.7 million, a decrease in net interest expense of $1.6 million, a decrease in income tax expense of $0.1 million and other items of $0.5 million. These increases were partially offset by a decrease in equity from unconsolidated subsidiaries of $0.5 million.  

LIQUIDITY AND CAPITAL RESOURCES

Working capital

As of December 31, 2007, we had working capital, which is the difference between total current assets and total current liabilities, of $279.3 million, compared to working capital of $284.4 million as of December 31, 2006. Our ratio of current assets to current liabilities was 1.53 at December 31, 2007, compared to 1.70 as of December 31, 2006. The decrease in the ratio of current assets to current liabilities was due primarily to the reduction in cash of approximately $168.3 million for the acquisition of RIA, mostly offset by $154.3 million in net proceeds from the private equity offering that we completed during March 2007. As of December 31, 2007, $129.5 million of the net proceeds from the offering remained unused and included in unrestricted cash.

We require substantial working capital to finance operations. The Money Transfer Segment funds the correspondent distribution network before receiving the benefit of amounts collected from customers by agents. Working capital needs increase due to weekends and international banking holidays. As a result, we may report more or less working capital for the Money Transfer Segment based

solely upon the fiscal period ending on a particular day. As of December 31, 2007, excluding restricted cash held in escrow in connection with the agreement to acquire La Nacional, working capital in the Money Transfer Segment was $54.9 million. We expect that working capital needs will increase as we expand this business.  

Operating cash flows

Cash flows provided by operating activities decreased to $78.3 million for 2007, compared to $95.9 million for 2006, primarily due to fluctuations in working capital associated with the timing of the settlement process with mobile operators in the Prepaid Processing Segment. Offsetting this decrease, operating cash flows also reflect an increase in net income, net of depreciation and amortization expense, and the federal excise tax refund, which was accrued in 2007. The increase in depreciation and amortization expense is primarily the result of the acquisition of RIA.

Investing activity cash flows

Cash flows used in investing activities were $439.9 million in 2007, compared to $26.1 million in 2006. Our investing activities for 2007 consisted of $352.7 million in cash paid related to acquisitions, primarily RIA, $20.0 million for the purchase of MoneyGram common stock and $26.0 million placed in escrow in connection with the agreement to acquire La Nacional. See further discussion regarding the agreement to acquire La Nacional under “Contingencies” below. We also spent $42.3 million for purchases of property and equipment and software development. Our investing activities for 2006 include $2.1 million in cash paid for acquisitions and $25.1 million for purchases of property and equipment and software development.

Financing activity cash flows

Cash flows from financing activities were $301.5 million in 2007, compared to $24.7 million in 2006. Our financing inflows for 2007 consisted primarily of $190.0 million in proceeds from borrowings under our term loan agreement and $167.7 million from the equity private placement and stock option exercises. The proceeds from the term loan were used to finance a portion of the acquisition of RIA. Partially offsetting these increases were repayments and early retirements of debt obligations of $30.9 million, repayments of capital lease obligations of $10.4 million, dividends paid to minority interest stockholders of $2.8 million and debt issuance costs associated with our new syndicated credit facility of $3.8 million. To support the short-term cash needs of our Money Transfer Segment, we generally borrow amounts under the revolving credit facility several times each month to fund the correspondent network in advance of collecting remittance amounts from the agency network. These borrowings are repaid over a very short period of time, generally within a few days. Primarily as a result of this, during 2007, we had a total of $880.0 million in borrowings and $889.0 million in repayments under our revolving credit facility. Our financing activities for 2006 consisted primarily of proceeds from the exercise of stock options and employee share purchases of $14.7 million and net borrowings on short-term debt and revolving credit agreements of $16.6 million, partially offset by payments on capital lease obligations totaling $6.4 million.

Other sources of capital

Credit Facility — In connection with completing the acquisition of RIA discussed under “Opportunities and Challenges” above, we entered into a $290 million secured credit facility consisting of a $190 million seven-year term loan, which was fully drawn at closing, and a $100 million five-year revolving credit facility (together, the “Credit Facility”). The $190 million seven-year term loan bears interest at LIBOR plus 200 basis points or prime plus 100 basis points and requires that we repay $1.9 million of the balance each year, with the remaining balance payable after seven years. We estimate that we will be able to repay the $190 million term loan prior to its maturity date through cash flows available from operations, provided our operating cash flows are not required for future business developments. Financing costs of $4.8 million have been deferred and are being amortized over the terms of the respective loans.

The $100 million five-year revolving Credit Facility replaced our previously existing revolving credit facility and bears interest at LIBOR or prime plus a margin that adjusts each quarter based upon our consolidated total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio. We intend to use the revolving credit facility primarily to fund working capital requirements, which have increased as a result of the operations of our Money Transfer Segment. Based on our current projected working capital requirements, we anticipate that our revolving credit facility will be sufficient to fund our working capital needs.

We may be required to repay our obligations under the Credit Facility six months before any potential repurchase date under our $140 million 1.625% Convertible Senior Debentures Due 2024 or our $175 million 3.5% Convertible Debentures Due 2025, unless we are able to demonstrate that either: (i) we could borrow unsubordinated funded debt equal to the principal amount of the applicable convertible debentures while remaining in compliance with the financial covenants in the Credit Facility or (ii) we will have sufficient liquidity to meet repayment requirements (as determined by the administrative agent and the lenders). The Credit Facility contains three financial covenants that become more restrictive through September 30, 2008: (1) total debt to EBITDA ratio, (2) senior secured debt to EBITDA ratio and (3) EBITDA to fixed charge coverage ratio. Because of the change to these covenants over time, in order to remain in compliance with our debt covenants we may be required to increase our EBITDA, repay debt, or both. These and other material terms and conditions applicable to the Credit Facility are described in the agreement governing the Credit Facility.

The term loan may be expanded by up to an additional $150 million and the revolving credit facility can be expanded by up to an additional $25 million, subject to satisfaction of certain conditions including pro-forma debt covenant compliance.

As of December 31, 2007, after making required repayments on the term loan of $1.4 million and voluntary prepayments of $24.6 million, we had borrowings of $164.0 million outstanding against the term loan. We had borrowings of $62.2 million and stand-by letters of credit of $25.3 million outstanding against the revolving credit facility. The remaining $12.5 million under the revolving credit facility ($37.5 million if the facility were increased to $125 million) was available for borrowing. Borrowings under the revolving credit facility are being used to fund short-term working capital requirements in the U.S., Spain and India. As of December 31, 2007, our weighted average interest rate under the revolving credit facility was 7.0% and under the term loan was 7.1%, excluding amortization of deferred financing costs.

Short-term debt obligations – Short-term debt obligations at December 31, 2007 consist only of the $1.9 million annual repayment requirement under the term loan. Certain of our subsidiaries also have available credit lines and overdraft facilities to supplement short-term working capital requirements, when necessary. As of December 31, 2007, there were no borrowings outstanding against any of these facilities.

Our Prepaid Processing Segment subsidiaries in Spain enter into agreements with financial institutions to receive cash in advance of collections on customers’ accounts. These arrangements can be with or without recourse and the financial institutions charge the Spanish subsidiaries transaction fees and/or interest in connection with these advances. Cash received can be up to 40 days prior to the customer invoice due dates. Accordingly, the Spanish subsidiaries remain obligated to the banks on the cash advance until the underlying accounts receivable are ultimately collected. Where the risk of collection remains with Euronet, the receipt of cash continues to be carried on the Consolidated Balance Sheet in each of trade accounts receivable and accrued expenses and other current liabilities. Amounts outstanding under these arrangements are generally $2 million or less.

We believe that the short-term debt obligations can be refinanced at terms acceptable to us. However, if acceptable refinancing options are not available, we believe that amounts due under these obligations can be funded through cash generated from operations, together with cash on hand or borrowings under our revolving credit facility.

Convertible debt – We have $175 million in principal amount of 3.5% Convertible Debentures Due 2025 that are convertible into 4.3 million shares of Euronet Common Stock at a conversion price of $40.48 per share upon the occurrence of certain events (relating to the closing prices of Euronet Common Stock exceeding certain thresholds for specified periods). We will pay contingent interest for the six-month period from October 15, 2012 through April 14, 2013 and for each six-month period thereafter from April 15 to October 14 or October 15 to April 14 if the average trading price of the debentures for the applicable five trading-day period preceding such applicable six-month interest period equals or exceeds 120% of the principal amount of the debentures. Contingent interest will equal 0.35% per annum of the average trading price of a debenture for such five trading-day periods. The debentures may not be redeemed by us until October 20, 2012 but are redeemable at par at any time thereafter. Holders of the debentures have the option to require us to purchase their debentures at par on October 15, 2012, 2015 and 2020, or upon a change in control of the Company. On the maturity date, these debentures can be settled in cash or Euronet Common Stock, at our option, at predetermined conversion rates.

We also have $140 million in principal amount of 1.625% Convertible Senior Debentures Due 2024 that are convertible into 4.2 million shares of Euronet Common Stock at a conversion price of $33.63 per share upon the occurrence of certain events (relating to the closing prices of Euronet Common Stock exceeding certain thresholds for specified periods). We will pay contingent interest for the six-month period from December 20, 2009 through June 14, 2010 and for each six-month period thereafter from June 15 to December 14 or December 15 to June 14 if the average trading price of the debentures for the applicable five trading-day period preceding such applicable six-month interest period equals or exceeds 120% of the principal amount of the debentures. Contingent interest will equal 0.30% per annum of the average trading price of a debenture for such five trading-day periods. The debentures may not be redeemed by us until December 20, 2009 but are redeemable at any time thereafter at par. Holders of the debentures have the option to require us to purchase their debentures at par on December 15, 2009, 2014 and 2019, and upon a change in control of the Company. On the maturity date, these debentures can be settled in cash or Euronet Common Stock, at our option, at predetermined conversion rates.

Should holders of the convertible debentures require us to repurchase their debentures on the dates outlined above, we cannot guarantee that we will have sufficient cash on hand or have acceptable financing options available to us to fund these required repurchases. An inability to be able to finance these potential repayments could have an adverse impact on our operations. These terms and other material terms and conditions applicable to the convertible debentures are set forth in the indenture agreements governing these debentures and in Note 11, Debt Obligations, to the Consolidated Financial Statements.

Proceeds from issuance of shares and other capital contributions – We have established, and shareholders have approved, share compensation plans (the “SCP”) that allow the Company to make grants of shares of restricted Common Stock, or options to purchase shares of Common Stock, to certain current and prospective key employees, directors and consultants. During 2007, 494,200 stock options were exercised at an average exercise price of $14.16, resulting in proceeds to us of approximately $7.0 million.

We also sponsor a qualified Employee Stock Purchase Plan (“ESPP”) under which we reserved 500,000 shares of Common Stock for purchase under the plan by employees through payroll deductions according to specific eligibility and participation requirements. This plan qualifies as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986. Offerings commence at the beginning of each quarter and expire at the end of the quarter. Under the plan, participating employees are granted options, which immediately vest and are automatically exercised on the final date of the respective offering period. The exercise price of Common Stock options purchased is the lesser of 85% of the “fair market value” (as defined in the ESPP) of the shares on the first day of each offering or the last day of each offering. The options are funded by participating employees’ payroll deductions or cash payments. During 2007, we issued 49,500 shares at an average price of $24.19 per share, resulting in proceeds to us of approximately $1.2 million.

These plans are discussed further in Note 17, Stock Plans, to the Consolidated Financial Statements.

Other uses of capital

Payment obligations related to acquisitions – As partial consideration for the acquisition of RIA, we granted the sellers of RIA 3,685,098 contingent value rights (“CVRs”) and 3,685,098 stock appreciation rights (“SARs”). The 3,685,098 CVRs mature on October 1, 2008 and will result in the issuance of up to $20 million of additional shares of Euronet Common Stock or payment of additional cash, at our option, if the price of Euronet Common Stock is less than $32.56 on the maturity date. The 3,685,098 SARs entitle the sellers to acquire additional shares of Euronet Common Stock at an exercise price of $27.14 at any time through October 1, 2008. Combined, the CVRs and SARs entitle the sellers to additional consideration of at least $20 million in Euronet Common Stock or cash. The SARS also provide potential additional value to the sellers for situations in which Euronet Common Stock appreciates beyond $32.56 per share prior to October 1, 2008, which is to be settled through the issuance of additional shares of Euronet Common Stock. These and other terms and conditions applicable to the CVRs and SARs are set forth in the agreements governing these instruments.

We have potential contingent obligations to the former owner of the net assets of Movilcarga. Based upon presently available information, we do not believe any additional payments will be required. The seller has disputed this conclusion and has initiated ad hoc arbitration as provided for in the purchase agreement. A global public accounting firm has been engaged as an independent expert to review the results of the computation. Any additional payments, if ultimately determined to be owed the seller, will be recorded as additional goodwill and could be made in either cash or a combination of cash and Euronet Common Stock at our option.

In connection with the acquisition of Brodos Romania, we agreed to contingent consideration arrangements based on the achievement of certain performance criteria. If the criteria are achieved, during 2009 and 2010, we would have to pay a total of $2.5 million in cash or 75,489 shares of Euronet Common Stock, at the option of the seller.

See the section entitled “contingencies” below for discussion of liquidity and capital resources involving a settlement agreement related to a previous agreement to acquire La Nacional.

Leases – We lease ATMs and other property and equipment under capital lease arrangements that expire between 2008 and 2013. The leases bear interest between 2.5% and 12.5% per year. As of December 31, 2007, we owed $16.6 million under these capital lease arrangements. The majority of these lease agreements are entered into in connection with long-term outsourcing agreements where, generally, we purchase a bank’s ATMs and simultaneously sell the ATMs to an entity related to the bank and lease back the ATMs for purposes of fulfilling the ATM outsourcing agreement with the bank. We fully recover the related lease costs from the bank under the outsourcing agreements. Generally, the leases may be canceled without penalty upon reasonable notice in the unlikely event the bank or we were to terminate the related outsourcing agreement. We expect that, if terms were acceptable, we would acquire more ATMs from banks under such outsourcing and lease agreements.

Capital expenditures and needs – Total capital expenditures for 2007 were $45.5 million, of which $3.0 million were funded through capital leases. These capital expenditures were primarily for the purchase of ATMs to meet contractual requirements in Poland and India, the purchase and installation of ATMs in key under-penetrated markets, the purchase of POS terminals for the Prepaid Processing and Money Transfer Segments, and office and data center computer equipment and software. We also incurred $3.0 million during 2007 for a company-wide, three-year Microsoft license. Included in capital expenditures for office and data center equipment and software for 2007 is approximately $4.1 million in capital expenditures for the purchase and development of the necessary processing systems and capabilities to enter the cross-border merchant processing and acquiring business. Total capital expenditures for 2008 are estimated to be approximately $35 million to $45 million.

An additional $2.9 million in software development cost was capitalized during 2007 for the development and enhancement of our EFT Processing Segment software products. See Note 20, Computer Software to be Sold, to the Consolidated Financial Statements for a further discussion.

In the Prepaid Processing Segment, approximately 93,000 of the approximately 396,000 POS devices that we operate are Company-owned, with the remaining terminals being operated as integrated cash register devices of our major retail customers or owned by the retailers. As our Prepaid Processing Segment expands, we will continue to add terminals in certain independent retail locations at a price of approximately $300 per terminal. We expect the proportion of owned terminals to total terminals operated to remain relatively constant.

At current and projected cash flow levels, we anticipate that cash generated from operations, together with cash on hand and amounts available under our recently amended revolving credit facility and other existing and potential future financing will be sufficient to meet our debt, leasing, contingent acquisition and capital expenditure obligations. If our capital resources are insufficient to meet these obligations, we will seek to refinance our debt under terms acceptable to us. However, we can offer no assurances that we will be able to obtain favorable terms for the refinancing of any of our debt or other obligations.

In the EFT Processing Segment, we are required to maintain ATM hardware for Euronet-owned ATMs and software for all ATMs in our network and in our processing centers in accordance with certain regulations and mandates established by local country regulatory and administrative bodies as well as EMV (Europay, MasterCard and Visa) chip card support. During the first quarter 2008, we expect to incur approximately $0.5 million in capital expenditures at our processing center in Budapest, Hungary for further EMV upgrades. Additionally, as regulations change or new regulations or mandates are issued, we may have additional capital expenditures over the next few years to maintain compliance with these regulations and/or mandates. While we do not currently have plans to increase capital expenditures to expand our network of owned ATMs, we expect that if strategic opportunities were available to us, we would consider increasing future capital expenditures to expand this network in new or existing markets.

Litigation — During 2005, a former cash supply contractor in Central Europe (the “Contractor”) claimed that we owed approximately $2.0 million for the provision of cash during the fourth quarter 1999 and first quarter 2000 that had not been returned. This claim was made after we terminated our business with the Contractor and established a cash supply agreement with another supplier. In the first quarter 2006, the Contractor initiated legal action in Budapest, Hungary regarding the claim. In April 2007, an arbitration tribunal awarded the Contractor $1.0 million, plus $0.2 million in interest, under the claim, which was paid and recorded as selling, general and administrative expenses of the EFT Processing Segment during 2007.

Contingencies

Settlement agreement with La Nacional – On January 12, 2007, we signed a stock purchase agreement to acquire La Nacional and certain of its affiliates, subject to regulatory approvals and other customary closing conditions. In connection with this agreement, on January 16, 2007 we deposited $26 million in an escrow account created for the proposed acquisition. The escrowed funds were not permitted to be released except upon mutual agreement between La Nacional’s stockholder and us or through legal remedies available in the agreement.

On April 5, 2007, we gave notice to the stockholder of La Nacional of the termination of the stock purchase agreement, alleging certain breaches of the terms thereof by La Nacional and requested the release of the $26 million held in escrow under the terms of the agreement. La Nacional’s stockholder denied such breaches occurred, contested such termination and did not consent to our request for release of the escrowed funds. While pursuing all legal remedies available to us, we engaged in negotiations with La Nacional and its stockholder to determine whether the dispute could be resolved through revised terms for the acquisition or some other mutually agreeable method.

On January 10, 2008, we entered into a settlement agreement with La Nacional, certain of its affiliates and its stockholder evidencing the parties’ mutual agreement not to consummate the acquisition of La Nacional and certain of its affiliates, in exchange for payment by Euronet of a portion of the legal fees incurred by La Nacional. Among other terms and conditions, the settlement agreement contains mutual releases in connection with litigation and provided for the release to us of the $26 million held in escrow, plus interest earned on the escrowed funds. In connection with the settlement, we expensed $1.3 million in acquisition costs and other settlement costs during 2007.

From time to time, we are a party to litigation arising in the ordinary course of business. Currently, there are no other contingencies that we believe, either individually or in the aggregate, would have a material adverse effect upon our consolidated results of operations or financial condition.

Other trends and uncertainties

Cross border merchant processing and acquiring – In our EFT Processing Segment, we have entered the cross-border merchant processing and acquiring business, with the execution of an agreement with a large petrol retailer in Central Europe. Since the beginning of 2007, we have devoted significant resources, including capital expenditures of approximately $4.1 million, to the ongoing investment in development of the necessary processing systems and capabilities to enter this business, which involves the purchase and design of hardware and software. Merchant acquiring involves processing credit and debit card transactions that are made on POS terminals, including authorization, settlement, and processing of settlement files. It will involve the assumption of credit risk, as the principal amount of transactions will be settled to merchants before settlements are received from card associations. We expect to incur approximately $1.0 million in additional capital expenditures associated with the development of the necessary systems and capabilities to enter this business. We expect that the necessary systems and capabilities will be completed and we will be processing transactions during the first quarter 2008.

Fraudulent card transactions – During the fourth quarter 2007, we recorded losses of approximately $1.9 million, primarily in Poland and Hungary, as a result of certain fraudulent transactions on our network. We are taking remedial action to prevent similar transactions and expect the amounts to be reduced significantly in the first quarter 2008 and eliminated in the second quarter 2008.

Stock plans

Historically, the Compensation Committee of our Board of Directors has awarded nonvested shares or nonvested share units (“restricted stock”) and stock options as an element of long-term management incentive compensation. The amount of future compensation expense related to awards of restricted stock is based on the market price for Euronet Common Stock at the grant date. For grants of stock options, we used the Black-Scholes option pricing model for the determination of fair value for stock option grants and plan to use the Black Scholes option pricing model for future stock option grants, if any. The grant date for stock options or restricted stock is the date at which all key terms and conditions of the grant have been determined and the Company becomes contingently obligated to transfer assets to the employee who renders the requisite service, generally the date at which grants are approved by our Board of Directors or Compensation Committee thereof. Share-based compensation expense for awards with only service conditions is generally recognized as expense on a “straight-line” basis over the requisite service period. For awards with performance conditions, expense is recognized on a “graded attribution method.” The graded attribution method results in expense recognition on a straight-line basis over the requisite service period for each separately vesting portion of an award, as if the award was, in-substance, multiple awards. Expense for stock options and restricted stock is generally recorded as a corporate expense.

We have total unrecognized compensation cost related to unvested stock option and restricted stock awards of $24.2 million that will be recognized over a weighted average period of 4.2 years.

Inflation and functional currencies  

Generally, the countries in which we operate have experienced low and stable inflation in recent years. Therefore, the local currency in each of these markets is the functional currency. Due to these factors, we do not believe that inflation will have a significant effect on our results of operations or financial position. We continually review inflation and the functional currency in each of the countries where we operate.

OFF BALANCE SHEET ARRANGEMENTS

We have certain significant off balance sheet items described below and in the following section, “—Contractual Obligations” (also see Note 24, Guarantees, to the Consolidated Financial Statements).

As of December 31, 2007 we had $30.7 million of bank guarantees issued on our behalf, of which $1.7 million are collateralized by cash deposits held by the respective issuing banks.

On occasion we grant guarantees in support of obligations of subsidiaries. As of December 31, 2007, we had granted guarantees for cash in various ATM networks amounting to $25.1 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $27.1 million over the terms of the agreements with the customers.

 From time to time, we enter into agreements with unaffiliated parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such obligations is not stated in the agreements. Our liability under such indemnification provisions may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnity obligations include the following:

	•		In connection with contracts with financial institutions in the EFT Processing Segment, we are responsible for damages to ATMs and theft of ATM network cash that, generally, is not recorded on the Consolidated Balance Sheet. As of December 31, 2007, the balance of ATM network cash for which the we were responsible was approximately $420 million. We maintain insurance policies to mitigate this exposure;
	•		In connection with the license of proprietary systems to customers, we provide certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
	•		We have entered into purchase and service agreements with our vendors and into consulting agreements with providers of consulting services, pursuant to which we have agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from our use of the vendor’s product or the services of the vendor or consultant;
	•		In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, we have entered into agreements containing indemnification provisions, which are generally described as follows: (i) in connection with acquisitions made by Euronet, we have agreed to indemnify the seller against third party claims made against the seller relating to the subject subsidiary, operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by us, we have agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made;
	•		We have entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to our benefit plans. Under such agreements, we have agreed to indemnify such service providers for third party claims relating to the carrying out of their respective duties under such agreements; and
	•		In connection with our entry into the money transfer business, we have issued surety bonds in compliance with licensing requirements of the applicable governmental authorities.

We are also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which we have money transfer operations. We are not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with us and, accordingly, no liabilities were recorded as of December 31, 2007.

CONTRACTUAL OBLIGATIONS  

The following table summarizes our contractual obligations as of December 31, 2007:

						Payments due by period
						Less than 1												More than
(in thousands)		Total				year				1-3 years				4-5 years				5 years
Long-term debt obligations, including interest		$	667,140			$	24,398			$	190,227			$	221,771			$	230,744
Estimated contingent acquisition obligations			22,500				20,000				1,250				1,250				—
Obligations under capital leases			19,473				6,501				9,987				2,761				224
Obligations under operating leases			63,388				17,098				28,435				15,371				2,484
Total		$	772,501			$	67,997			$	229,899			$	241,153			$	233,452

For the purposes of the above table, our $140 million convertible debentures issued in December 2004 are considered due during 2009, and our $175 million convertible debentures issued in October 2005 are considered due during 2012, representing the first years in which holders have the right to exercise their put option. Additionally, the above table only includes interest on these convertible debentures up to these dates. Although in certain circumstances we may be required to repay our obligations under the Credit Facility six months before any potential repurchase date under our $315 million in convertible debentures, the table above assumes that these circumstances will not be met and the Credit Facility will be fully repaid at maturity. We have assumed $62.2 million will be

outstanding at all times under the revolving credit facility. The computation of interest for debt obligations with variable interest rates reflects interest rates in effect at December 31, 2007. For additional information on debt obligations, see Note 11, Debt Obligations, to the Consolidated Financial Statements.

Estimated contingent acquisition obligations as of December 31, 2007 include: 1) $20 million in cash and/or Euronet Common Stock to be provided to the sellers of RIA upon the assumed settlement of the CVRs and SARs during October 2008; and 2) additional consideration to be settled in cash or Euronet Common Stock that we may have to pay during 2009 and 2010 in connection with the acquisition of Brodos, totaling up to $2.5 million. See Note 5, Acquisitions, to the Consolidated Financial Statements for a more complete description of these acquisitions.

For additional information on capital and operating lease obligations, see Note 14, Leases, to the Consolidated Financial Statements.

Our total liability for uncertain tax positions under Financial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”) was $7.4 million as of December 31, 2007. We are not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next year. See Note 15, Income Taxes, to the Consolidated Financial Statements for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES  

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the U.S. requires management to make judgments, assumptions, and estimates, often as a result of the need to make estimates of matters that are inherently uncertain and for which the actual results will emerge over time. These judgments, assumptions and estimates affect the amounts of assets, liabilities, revenues and expenses reported in the Consolidated Financial Statements and accompanying notes. Note 3, Summary of Significant Accounting Policies and Practices, to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of the Consolidated Financial Statements. Our most critical estimates and assumptions are used for computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired in acquisitions, and revenue recognition. We base base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The following descriptions of critical accounting policies and estimates are forward-looking statements and are impacted significantly by estimates and should be read in conjunction with Item 1A – Risk Factors. Actual results could differ materially from the results anticipated by these forward-looking statements.  

Accounting for income taxes

The deferred income tax effects of transactions reported in different periods for financial reporting and income tax return purposes are recorded under the liability method. This method gives consideration to the future tax consequences of deferred income or expense items and immediately recognizes changes in income tax laws upon enactment. The income statement effect is generally derived from changes in deferred income taxes, net of valuation allowances, on the balance sheet as measured by differences in the book and tax bases of our assets and liabilities.   We have significant tax loss carryforwards, and other temporary differences, which are recorded as deferred tax assets and liabilities. Deferred tax assets realizable in future periods are recorded net of a valuation allowance based on an assessment of each entity’s, or group of entities’, ability to generate sufficient taxable income within an appropriate period, in a specific tax jurisdiction.   In assessing the recognition of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized. As more fully described in Note 15, Taxes, to the Consolidated Financial Statements, gross deferred tax assets were $53.3 million as of December 31, 2007, partially offset by a valuation allowance of $8.9 million. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We make judgments and estimates on the scheduled reversal of deferred tax liabilities, historical and projected future taxable income in each country in which we operate, and tax planning strategies in making this assessment.   Based upon the level of historical taxable income and current projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the existing valuation allowance at December 31, 2007. If we have a history of generating taxable income in a certain country in which we operate, and baseline forecasts project continued taxable income in this country, we will reduce the valuation allowance for those deferred tax assets that we expect to realize.

Additionally, effective January 1, 2007, we adopted the provisions of FIN 48, which is intended to reduce the diversity associated with certain aspects of measurement and recognition related to accounting for income taxes. FIN 48 requires substantial management judgment and use of estimates in determining whether the impact of a tax position is “more likely than not” of being sustained on

audit by the relevant taxing authority. We consider many factors when evaluating and estimating our tax positions, which may require periodic adjustments and which may not accurately anticipate actual outcomes. It is reasonably possible that amounts reserved for potential exposure could change significantly as a result of the conclusion of tax examinations and, accordingly, materially affect our operating results.

Goodwill and other intangible assets  

In accordance with SFAS No. 141, “Business Combinations,” we allocate the acquisition purchase price to the tangible assets, liabilities and intangible assets acquired based on their estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is supported by valuations using estimates and assumptions provided by management. For larger or more complex acquisitions, management engages an appraiser to assist in the valuation. Intangible assets with finite lives are amortized over their estimated useful lives. As of December 31, 2007, the Consolidated Balance Sheet includes goodwill of $762.7 million and acquired intangible assets, net of accumulated amortization, of $156.8 million.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” on an annual basis, and whenever events or circumstances dictate, we test for impairment. Impairment tests are performed annually during the fourth quarter and are performed at the reporting unit level. Generally, fair value represents discounted projected future cash flows and potential impairment is indicated when the carrying value of a reporting unit, including goodwill, exceeds its estimated fair value. If the potential for impairment exists, the fair value of the reporting unit is subsequently measured against the fair value of its underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of the reporting unit’s goodwill. An impairment loss is recognized for any excess of the carrying value of the reporting unit’s goodwill over the implied fair value. Our annual impairment tests during the years 2007, 2006 and 2005 indicated that there were no impairments. Determining the fair value of reporting units requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that our operations will not perform as expected, or that estimates or assumption could change, which may result in the recording of material non-cash impairment charges during the year in which these changes take place.

See “Impact of New and Emerging Accounting Pronouncements Not Yet Adopted” below for discussion regarding issuance of SFAS No. 141R, “Business Combinations,” that will be effective for acquisitions we complete after January 1, 2009.

Impairment or disposal of long-lived assets

In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors that are considered important which could trigger an impairment review include the following: significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the respective asset. The same estimates are also used in planning for our long- and short-range business planning and forecasting. We assess the reasonableness of the inputs and outcomes of our discounted cash flow analysis against available comparable market data. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds the fair value of the respective asset. Assets to be disposed are required to be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale are required to be presented separately in the appropriate asset and liability sections of the balance sheet. Reviewing long-lived assets for impairment requires considerable judgment. Estimating the future cash flows requires significant judgment. If future cash flows do not materialize as expected or there is a future adverse change in market conditions, we may be unable to recover the carrying amount of an asset, resulting in future impairment losses.

Revenue recognition

In accordance with U.S. GAAP, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collection is reasonably assured. The majority of our revenues are comprised of monthly recurring management fees and transaction-based fees that are recognized when the transactions are processed or the services are performed. When determining the proper revenue recognition for monthly management fees and transaction-based fees, we consider the guidance in Staff Accounting Bulletin (“SAB”) 101, “Revenue Recognition in Financial Statements,” as amended by SAB 104, “Revenue Recognition,” Emerging Issues Task Force (“EITF”) 99-19, “Reporting Revenue Gross as Principle versus Net as an Agent,” EITF 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” and other various interpretations.

Certain of our noncancelable customer contracts provide for the receipt of up-front fees paid to or received from the customer and/or decreasing or increasing fee schedules over the agreement term for substantially the same level of services provided by the Company.

As prescribed by SAB 101 and SAB 104, we recognize revenue under these contracts based on proportional performance of services over the term of the contract, which generally results in “straight-line” revenue recognition of the contracts’ total cash flows, including any up-front payment.

We also record certain revenues in the EFT Processing Segment related to the sale of EFT software solutions for electronic payment and transaction delivery systems, including professional fees for implementation and customization, ongoing software maintenance and associated computer hardware. When determining the proper revenue recognition for these items, in addition to SAB 101, SAB 104, and EITF 00-21, we also consider the guidance contained in Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended by SOP 98-4 and SOP 98-9, and SOP 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Applying U.S. GAAP revenue recognition guidance to the software business requires more detailed knowledge of the rules and is subject to more complex judgment. For the year ended December 31, 2007, revenues from software and software-related products and services represented 3% of our total consolidated revenues.

Substantial management judgment and estimation is required in determining the proper revenue recognition methodology for our various revenue producing activities, as well as the proper and consistent application of our determined methodology.

SUBSEQUENT EVENTS

During 2007, in connection with our interest to acquire MoneyGram, we purchased 1.3 million shares of MoneyGram common stock at a cost basis of $20.0 million. Subsequent to December 31, 2007, the market price of MoneyGram common stock declined significantly. Based on trading prices for MoneyGram common stock on February 28, 2008, the value of the Company’s investment decreased to $4.9 million. On February 27, 2008, we decided not to submit a proposal to acquire MoneyGram. In connection with this decision, we expect to record expense before income tax benefit of approximately $15 million to $20 million during the first quarter 2008, representing the decline in value of MoneyGram stock, together with acquisition related expenses. The actual loss could be larger if the market price of MoneyGram common stock deteriorates further.

IMPACT OF NEW AND EMERGING ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

During 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement applies whenever other accounting pronouncements require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. SFAS No. 157 is effective for us beginning in the first quarter 2008; however, our adoption of SFAS No. 157 is not expected to have a material impact on the Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, such as deferred financing costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS No. 159, changes in fair value are recognized in earnings. SFAS No. 159 is effective for us beginning in the first quarter 2008; however, our adoption of SFAS No. 159 is not expected to have a material impact on the Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which is a revision of SFAS No. 141, “Business Combinations.” SFAS No. 141R will apply to all business combinations and will require most identifiable assets, liabilities, noncontrolling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS No 141R will also require transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the

respective purchase price. SFAS No. 141R is effective for acquisitions that we may complete after January 1, 2009 and early adoption is prohibited. The adoption will have a significant impact on the accounting treatment for acquisitions occurring after the effective date.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” that replaces Accounting Research Bulletin (“ARB”) 51, “Consolidated Financial Statements.” SFAS No. 160 will require noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which will change the accounting for transactions with noncontrolling interest holders. SFAS No. 160 is effective for Euronet on January 1, 2009 and will result in a change in the classification of noncontrolling interest from a component of liabilities to a component of equity in Consolidated Balance Sheets and will change the accounting for transactions with noncontrolling shareholders after the effective date.

In December 2007, the Securities and Exchange Commission issued SAB 110, “Certain Assumptions Used in Valuation Methods,” which extends the use of the “simplified” method, under certain circumstances, in developing an estimate of expected term of “plain vanilla” share options in accordance with SFAS No. 123R. Prior to SAB 110, SAB 107 stated that the simplified method was only available for grants made up to December 31, 2007. Because we have primarily utilized restricted stock since the beginning of 2005, the expected term has been an insignificant component of the amount of recorded share-based compensation. However, for future grants of stock options, if any, should the historical experience regarding the expected term of granted stock options be considered insufficient for estimating future expected terms, we may continue to use the “simplified method” for determining the expected term in situations allowed by SAB 110. Management is still analyzing the potential impact of the adoption of SAB 110; however, the impact on the Consolidated Financial Statements is not expected to be material.

FORWARD-LOOKING STATEMENTS

This document contains statements that constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this document are forward-looking statements, including statements regarding the following:

	•		our business plans and financing plans and requirements,
	•		trends affecting our business plans and financing plans and requirements,
	•		trends affecting our business,
	•		the adequacy of capital to meet our capital requirements and expansion plans,
	•		the assumptions underlying our business plans,
	•		business strategy,
	•		government regulatory action,
	•		technological advances, or
	•		projected costs and revenues.