Back to GetFilings.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

Commission File Number 000-22167

EURONET WORLDWIDE, INC.

(Exact name of the Registrant as specified in its charter)

DELAWARE

(State of other jurisdiction of incorporation or organization)

74-2806888

(I.R.S. employer identification no.)

4601 COLLEGE BOULEVARD

SUITE 300

LEAWOOD, KANSAS 66211

(913) 327-4200

(Address and telephone number of the Registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.02 par value

Preferred Stock Purchase Rights

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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.  ¨

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

As of June 30, 2003 the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $287 million. The aggregate market value was determined based on the closing price of the Common Stock on June 30, 2003.

At February 29, 2004, the Registrant had 29,788,836 shares of common stock (the “Common Stock”) outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for its Annual Meeting of Shareholders in 2004, which will be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2003, are incorporated by reference into Part III.

PART I

ITEM 1. BUSINESS

OVERVIEW

Euronet Worldwide, Inc. (“Euronet”) is an industry leader in processing secure electronic financial transactions. We offer outsourcing and consulting services, integrated electronic funds transfer (“EFT”) software, network gateways, and electronic prepaid top-up services to financial institutions, mobile operators and retailers. Euronet operates the largest independent pan-European automated teller machine (“ATM”) network and the largest shared ATM network in India. In our EFT Processing Segment, we process transactions for a network of 3,350 ATMs across Europe and in India. We provide comprehensive electronic payment solutions consisting of ATM network participation, outsourced ATM management solutions, and electronic recharge services for prepaid mobile airtime. Through our Prepaid Processing Segment, we are one of the largest providers of prepaid processing, or “top-up services,” for prepaid mobile phone airtime. We operate a network of point-of-sale (“POS”) terminals providing electronic processing of top-up services in the U.K., Australia, Poland, Ireland, New Zealand, Germany, the U.S., Malaysia and Indonesia. Through our Software Solutions Segment, we offer a suite of integrated EFT software solutions for electronic payment and transaction delivery systems. Our principal customers are banks, mobile phone operators and retailers that require electronic financial transaction processing services. Our solutions are used in more than 60 countries around the world. As of December 31, 2003, we had 10 offices in Europe, four in the Asia-Pacific region, two in the U.S. and one in Egypt.

The first company in the Euronet group was established in 1994 as a Hungarian limited liability company. We began operations in 1995, setting up a processing center and installing our first ATMs in Budapest, Hungary. We commenced operations in Poland and Germany in 1995 and 1996, respectively. The Euronet group was reorganized on March 6, 1997 in connection with its initial public offering, and at that time the operating entities of the Euronet group became wholly owned subsidiaries of Euronet Services, Inc., a Delaware corporation. We changed our name from Euronet Services, Inc. to Euronet Worldwide, Inc. in August 2001.

Until December 1998, we devoted substantially all of our resources establishing and expanding our ATM network and outsourced ATM management services business in Central Europe (including Hungary, Poland, the Czech Republic, Croatia and Romania) and Germany. In December, 1998, we acquired Euronet USA (formerly Arkansas Systems, Inc.), a U.S. company that produces electronic payment systems software for retail banks and is a leading electronic payment software system for the IBM iSeries (formerly AS/400) platform. As a result of this acquisition, we were able to offer a broader and more complete line of services and solutions to the retail banking market, including software solutions related not only to ATMs, but also to POS devices, credit and debit card operations, the Internet, and telephone and mobile banking. We have invested in software research, development and delivery capabilities and have integrated our EFT Processing Segment and software business. These two complementary segments present strong cross-selling opportunities within our combined customer base. Also, since this software is used in our operations center, opportunities exist to leverage the core infrastructure and software to provide innovative value-added e-commerce products and services.

Between 1999 and 2001, we expanded our presence to Egypt and to Western and Southern Europe including Greece, France and, in particular, the U.K., where we established a sizeable independent ATM network. As of December 31, 2002, we operated 772 ATMs in the U.K. of which 640 were owned by us. In January 2003, we sold our U.K. subsidiary, but we continue to operate all of its ATMs through a five-year management outsourcing agreement. We sold our ATM operations in France in May 2002 due to the imposition of stringent new safety requirements for the operation of ATMs, which made it difficult to operate ATMs profitably in that market.

Throughout 2001 and 2002, Euronet focused on product developments that would add transaction functionality via new and existing products, including mobile banking and event messaging. Another new product line, the Electronic Recharge line, was added, which enabled the purchase of prepaid mobile airtime from ATMs, POS terminals and directly from the mobile handset.

In 2002, we opened a small office in Slovakia to support expanding efforts in Central Europe. We also entered India, one of the largest emerging markets for ATM and card growth potential. In the India market, we are focusing on ATM outsourcing and electronic recharge products for replenishing prepaid mobile airtime. We have also established the largest national shared ATM network in India with several member banks.

Euronet has progressively shifted its strategy from operating Euronet-owned ATMs to managing outsourced ATMs for banks. One step in this shift occurred in January 2003, when we sold our U.K. ATM network and simultaneously signed an ATM outsourcing agreement with the buyer. From that date forward, we have operated the ATMs in that network under a five year outsourcing agreement. This transaction is described in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Additionally, in September 2003 we sold our 272 ATMs in Hungary to an established Hungarian financial institution. In connection with the sale, we entered into a long-term outsourcing agreement and cash sponsorship arrangement with the financial institution.

2

Also in 2003, Euronet complemented its existing two segments with a third business that focuses on processing transactions for prepaid services, primarily for prepaid mobile airtime, which operates as our Prepaid Processing Segment. In February 2003, we acquired e-pay Ltd (“e-pay”). See Note 4 - Acquisitions. e-pay is an electronic payments processor of prepaid top-up services in the U.K, Australia, Poland, Ireland and New Zealand. Additionally, e-pay owns 40% of the shares of e-pay Malaysia, a separate company that offers electronic top-up in Malaysia and, through a 70% subsidiary of e-pay Malaysia, in Indonesia. e-pay has agreements with mobile operators in those markets under which it supports the distribution of airtime to their subscribers through more than 114,000 POS terminals in approximately 46,000 retail locations. With this acquisition, we gained offices in London and Sydney. We maintain e-pay’s data center in Basildon, U.K. but established a connection between that center and Euronet’s existing data center in Budapest, Hungary.

In the second half of 2003, we expanded the Prepaid Processing Segment with acquisitions in the U.S. and in Germany. In September 2003, we purchased all of the assets and assumed certain liabilities of Austin International Marketing and Investments, Inc. (“AIM”). AIM is a U.S.-based electronic “top-up” company, processing prepaid transactions via POS terminals in 36 states on approximately 2,800 POS terminals. Generally, this business will operate as part of the U.S.-based prepaid service branded as PaySpot. In November 2003, we acquired the German company transact Elektronische Zahlungssysteme GmbH (“transact”), the market leader in electronic processing of prepaid mobile airtime top-up services in Germany, with a market share of approximately 60% of electronic top-up transactions. transact currently supports top-up purchases at more than 9,500 of their installed base of over 22,000 POS terminals in approximately 18,500 retail locations. With this acquisition, we acquired an office in Munich. In January 2004, our wholly owned subsidiary, PaySpot, Inc., acquired 100% of the shares of Prepaid Concepts, Inc. (“Precept”). See Note 27 - Subsequent Events to the Consolidated Financial Statements. Precept provides prepaid top-up services in the U.S. and the acquisition of Precept should greatly expand our Prepaid Processing Segment in the U.S. Precept currently processes top-up sales at more than 4,500 POS terminals. With this acquisition, we acquired an additional office in Orange County, California.

As of December 31, 2003, we operated in three principal business segments. The first is the EFT Processing Segment (formerly called the Processing Services Segment), which comprises our proprietary ATM network and outsourced management of ATMs for banks. It includes various new processing services that we provide for banks and mobile phone companies through our ATM network and managed ATMs, such as mobile phone recharge services. Our second principal segment is the Prepaid Processing Segment (new in 2003), which comprises three subsidiaries and is focused on providing prepaid services, primarily prepaid mobile airtime via POS devices at retail locations. Our third principal segment is the Software Solutions Segment, which provides transaction processing software solutions to banks that enable them to operate ATMs and POS terminals, issue credit and debit cards and process financial transactions through various touch points.

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.

The charters for the Audit, Compensation, and Corporate Governance and Nominating Committees, as well as the Code of Ethics for our employees, including our Chief Executive Officer and Senior Financial Officer, are available on our website at www.euronetworldwide.com. We will also provide printed copies of these materials to any stockholder, upon request to Euronet Worldwide, Inc., 4601 College Boulevard, Suite 300, Leawood, Kansas, U.S.A. 66211, Attention: Investor Relations.

MARKET OPPORTUNITY AND SEGMENT OVERVIEW

For discussion of the amount of total revenue contributed by each segment, please see Note 20 - Business Segment Information to the Consolidated Financial Statements.

EFT PROCESSING SEGMENT

Our EFT Processing Segment provides services to banks and mobile phone companies primarily in the developing markets of Central and Southern Europe (Hungary, Poland, the Czech Republic, Croatia, Romania, Slovakia, Serbia and Greece), Egypt, Indonesia and India, as well as in developed countries of Western Europe (Germany and the U.K.). Although all of these markets present market opportunities for expanding the sales of our services, we believe opportunities for transaction growth in the ATM services business are greater in the developing countries.

3

Our ATM network enables cardholders to make cash withdrawals, balance inquiries and other transactions with cards issued by banks. The number of transactions made on our ATMs depends on the number of bankcards issued in the country where the ATMs are located. In the developing markets, the number of cards currently issued per person is substantially lower than in the developed markets, but is increasing rapidly. We believe transaction levels in the developing markets will increase eventually to approximate those of the developed markets as banks bring new customers into the banking system and issue more cards to their existing customers. Therefore, the growth rates that we expect to achieve from transaction-based revenues in developing markets are higher than in developed markets.

In the European markets, ATMs are located primarily at bank branches, as compared to a broader array of sites in the U.S. We believe opportunities are available in these markets to provide ATM access in places where our experience suggests that customers use ATMs more frequently, such as in shopping malls and large retail outlets.

Economic development in the developing markets also influences the growth rates we expect for certain other services we offer. For example, banks seeking to expand and develop their business in developing markets are good potential clients for our existing ATM network, as we can provide their customers’ access to ATMs we have already installed in those markets. Likewise, we offer banks outsourced ATM services whereby we will establish a network of ATMs for banks and operate those ATMs for a fixed monthly fee or a combination of a fixed monthly fee and transaction fees.

When a bank cardholder conducts a transaction on a Euronet-owned ATM, we receive a fee from the cardholder’s bank for that transaction. The bank pays us this fee either directly or indirectly through a central switching and settlement network. When paid indirectly, this fee is referred to as the “interchange fee.” All of the banks in a shared ATM and POS switching system establish the amount of the interchange fee by agreement.

We believe banks in both the developing and developed markets are becoming more receptive to outsourcing the operation of their ATMs and POS networks. The operation of these devices requires expensive hardware and software and specialized personnel. We have these resources available and offer them to banks under outsourcing contracts that require the banks to pay a monthly and/or transaction-based fee to us. This arrangement substantially reduces the investment a bank needs to make to operate its ATMs and POS terminals. We believe opportunities exist for developing our outsourcing business in all of our markets.

PREPAID PROCESSING SEGMENT

We entered the prepaid processing business through the acquisition of e-pay in February 2003 and began reporting its results in a new segment called the Prepaid Processing Segment beginning in the first quarter of 2003. Subsequent to its acquisition, e-pay expanded its operations into New Zealand, Ireland and Poland. In the second half of 2003, Euronet further expanded the Prepaid Processing Segment with acquisitions of AIM in the U.S. and transact in Germany.

Customers using mobile phones 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 operators in the U.S. and certain European countries have provided service principally through postpaid accounts, the trend in Europe and other countries offering wireless services has shifted toward prepaid accounts. This shift is driven, according to Oftel surveys (the U.K. telecommunications regulator), by customers’ belief that prepaid products better meet their needs and enable them to better control their monthly wireless expenditures. Moreover, the mobile operators favor prepaid because they do not take the credit risk with respect to payment for airtime usage. In certain developing markets, the majority of mobile phones are prepaid.

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 code numbers that, when entered into a customer’s mobile phone account, credit 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 and theft.

Scratch cards are the predominant method of crediting mobile phone accounts in most developed markets, but a shift is occurring in these markets away from usage of scratch cards to more efficient e-top-up methods. In the U.K., for example, we estimate that approximately 10% of all top-ups were performed through e-top-ups in early 2002. By December 2003, we estimate that as much as 55% of all U.K. top-ups were performed through e-top-ups.

4

Our Prepaid Processing Segment processes the distribution of prepaid mobile phone minutes to consumers through networks of POS terminals and direct connections to the electronic payment systems of retailers. In some markets, we enter into agreements with mobile phone operators and connect directly to their back-office systems. In other markets (such as Germany and the U.S.), we distribute mobile phone time by connecting directly to the mobile operators or by purchasing PINs (personal identification numbers) that enable airtime top-up from third party sources, who have negotiated with the mobile operator. We then distribute the mobile phone time through an electronic network, either through a direct credit from the mobile operator to the mobile phone, or sales of PINs. The business has grown rapidly over the past year as new retailers have been added and prepaid airtime has switched from scratch cards to distribution by electronic means.

We maintain contractual relationships with the retailers or networks that operate the POS terminals through which we distribute PINs. Our agreements with major retailers generally are multiyear agreements, whereas agreements with small retailers are terminable on three months notice. In Europe, we generally provide the POS terminals free of charge and incur the expense of installing those terminals in the retail outlets. In the U.S., the retailers generally pay for the POS terminals. In the U.S., we are attempting to achieve leverage in expanding our network by contracting with distributors or networks of POS or ATM terminals (generally referred to as Independent Sales Organizations or ISOs) that are paid a commission for delivering us contracts with retailers in their networks to distribute PINs on their terminals. As a result of our agreements with ISOs in the U.S., our relationships with the retailers are sometimes indirect through the distributor or ISO.

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 phone time are completed, the customer pays the retailer and the retailer becomes obligated to make settlement of the principal amount of the phone time sold. At e-pay, these amounts are deposited in accounts that are held in trust for the mobile operators. In Germany and the U.S., retailer accounts are directly debited on a contractually defined basis. No trust arrangements are required in Germany or the U.S. with respect to amounts settled to us. We maintain systems that permit us to monitor the payment practices of each retailer.

The Prepaid Processing Segment now supports top-up transactions at more than 126,000 points of sale in 59,000 locations across nine countries.

We believe substantial opportunities exist to provide electronic top-up services to mobile operators. We intend to leverage these opportunities by using the technology and business methods we have developed or acquired.

SOFTWARE SOLUTIONS SEGMENT

Although our Software Solutions Segment is headquartered in the U.S., the majority of our software customers is international and, in particular, located in developing markets. This distribution is largely because our software products, based on the Integrated Transaction Management (“ITM”) core system, are relatively small and inexpensive packages that are appropriate for banks with up to $10 billion in assets with various transaction processing needs. Euronet Software is the preferred transaction-processing software for banks that operate their back office software using the IBM iSeries platform, which is also a relatively inexpensive, expandable hardware platform. Our software offering includes modules for ATM management, POS management, merchant management, debit card and credit card systems, telephone banking, Internet banking and mobile banking. We believe demand will continue for our software from banks in many markets and throughout the developing world as new banks are established. Once a customer purchases our software and installs the core system, we provide a series of modules, upgrades and maintenance services that often result in recurring revenues for us.

STRATEGY

EFT PROCESSING SEGMENT

The expansion and enhancement of our outsourced management solutions, both in existing markets and new markets, will remain an important business strategy. We also will focus heavily on the development of our outsourced management solutions with fixed fee arrangements. We believe increasing the number of bank-owned ATMs that we operate under management agreements will provide continued growth while minimizing the capital we place at risk. We continually strive to make our own ATM networks more efficient by eliminating the underperforming ATMs and installing ATMs in more desirable locations.

We have expanded our outsourced management solutions beyond ATMs to include card management and additional services, such as POS terminal management, bill payment and prepaid mobile operator solutions. We support these services using our proprietary software products. The introduction of value-added services for delivery over our ATM network has resulted in increased transactions and revenues. In the last several years, we developed and entered into a number of agreements for a new

5

line of services involving the use of our ATM networks and central processing infrastructure to enable mobile phone users the ability to purchase prepaid mobile phone time on ATMs and on mobile phones. We contract with mobile phone providers to facilitate their sale of mobile phone time, and we are paid a commission on each sale, often a percentage of the value of the mobile phone time purchased. In this regard, we also contract with banks to use their ATMs for the distribution of mobile phone time, thereby expanding the distribution networks we can offer to mobile phone operators. We offer these transaction types as a service enhancement to existing clients, or as a “pass-through” service on ATMs that are owned and operated by others.

This ATM and Mobile Recharge line of services has been substantially strengthened through complementary services obtained by our acquisitions of e-pay, transact, AIM and Precept. We can now provide top-up services through POS terminals. We intend to expand our technology and business methods into other markets where we operate and hope to leverage our relationships with mobile phone companies and banks in those markets to cross-sell and to facilitate that expansion.

PREPAID PROCESSING SEGMENT

We plan to expand our prepaid mobile phone top-up business into new and our existing markets by taking advantage of our existing relationships with mobile phone operators and retailers. This expansion will depend on various factors, including the following:

SOFTWARE SOLUTIONS SEGMENT

We downsized our Software Solutions Segment in January 2001 to bring expenses in line with revenues, and this segment’s improved results have contributed to our overall results in 2002 and 2003. We have made significant progress in reducing software delivery times and adding resources to enhance and expand our software products. Software products are now 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 found significant opportunities for cross-selling processing services to our software solutions customers and that our ability to develop, adapt and control our own software gives us credibility with our processing services customers. In addition, during 2001 we entered into agreements under which we used our software in lieu of cash as our initial capital contributions to new transaction processing joint ventures that were created in 2002 (for example, in Serbia). Such contribution permits us to enter new markets without any cash outlay. Therefore, although revenues from our Software Solutions Segment are not currently growing significantly, we view it as a valuable element of our overall business strategy. Our software is used by our Budapest and India processing centers in our EFT Processing Segment, resulting in cost savings and added value compared to third-party license and maintenance options.

Our strategy in the Software Solutions Segment in 2003 included improvement of the application functionality for our core debit and credit solutions. Our software was upgraded to become compliant with certain new mandates of the international card organizations, involving initiatives such as EMV (Europay, MasterCard and Visa) chip card support and Triple DES (Data Encryption Standard) support. EMV standards define the technology required for issuance and acceptance of chip cards. Triple DES security standards represent a significant strengthening of encryption requirements to further protect sensitive data that is transmitted in transactions. These emerging industry standards have been jointly developed by the three major card associations and we believe they will have a significant influence over EFT-related hardware and software decisions throughout the next five years. Our ability to provide support for mandated initiatives such as EMV and Triple DES may provide significant opportunities to sell updated software to our existing customers and may enable Euronet to replace competitors’ non-compliant solutions.

In the last three years, we also undertook a strategy of signing customers to extended long-term software maintenance agreements. We continue to invest in emerging markets and technologies that complement our processing and software solutions.

ACQUISITIONS

In January 2004, we purchased all of the share capital of Precept, a company based in California. The purchase price for the Precept shares was approximately $17.8 million. We paid $4.0 million in cash, issued promissory notes in the original principal amount of $4.0 million and issued 527,180 shares of our Common Stock for the Precept shares. Of the issued shares of our Common Stock, 400,000 shares have been held in escrow and will be released on February 25, 2005, subject to certain performance criteria. Of the $4.0 million in promissory notes, $2.0 million are convertible into shares of our Common Stock. The remaining indebtedness of $2.0 million bears interest at an annual rate of 7%, with

6

accrued interest payable at maturity in February 2005. We have the option to pay the principal and interest at maturity in shares of our Common Stock, valued at a 10% discount to the average market price for the 20 trading days prior to the maturity date. In addition, at any time prior to the maturity date, the amount outstanding under these notes is convertible into shares of our Common Stock at the option of the holders, at a conversion price of $28.43 per share. We filed a registration statement with the SEC to enable the public resale of the Common Stock issued to the former shareholders of Precept, and that registration statement was declared effective by the SEC in February 2004. For further discussion on Precept, see Note 27 - to the Consolidated Financial Statements “Subsequent Events.”

In November 2003, we purchased 100% of the shares of the German company, transact. transact was founded in 1996 and specializes in payment processing services and software for electronic financial transactions and prepaid mobile phone transactions on POS terminals, as well as retailer till systems. Additionally, transact offers a proprietary line of POS terminals, including general packet radio system (GPRS) based products, including POS terminals. transact currently supports mobile phone top-up purchases at more than 9,500 of their installed base of over 22,000 POS terminals in approximately 18,500 retail locations. The purchase price consisted of €15.0 million (approximately $17.8 million as of the acquistion date) in cash and 643,048 shares of Common Stock, plus an additional “earn-out” payment due on January 14, 2005, which is payable pursuant to the terms of a purchase agreement and certain certificates issued to transact’s shareholders. The “earn-out” will be calculated based on transact’s EBITDA (earnings before interest, taxes, depreciation and amortization as described in the purchase agreement and the certificates) for the third quarter of 2004, together with certain other performance criteria described in the purchase agreement and the certificates. Based upon current projections of the future performance of transact, as to which there can be no assurances, we estimate that the second installment of the purchase price will be between $20.0 and $30.0 million. Subject to certain EBITDA multiples, 50% of the second installment of the purchase price is payable in cash, and the other 50% is payable, at our option, either in cash or in Common Stock valued for these purposes at $10.00 per share. The second installment of the purchase price is subject to reduction or deferred payment based upon a number of factors, including the extent of the total proportion of transact’s business in certain defined customer agreements. Our ability to issue shares exceeding approximately 2.5% of our shares of Common Stock outstanding as of November 18, 2003 in order to pay the second installment of the purchase price will be subject to stockholder approval. The transfer of the transact shares to us is staged, with 96% of the shares transferred at closing and the remaining 4% transferred on payment of the second installment of the purchase price. We filed a registration statement with the SEC to enable the public resale of the Common Stock issued to the former shareholders of transact, and that registration statement was declared effective by the SEC in February 2004.

In order to fund the transact acquisition, in November 2003, we privately placed 1,131,363 shares of our Common Stock with Fletcher International, Ltd. (“Fletcher”), an accredited institutional investor, which we refer to as “Fletcher,” and received proceeds of $20.0 million. The per share purchase price of $17.68 was based on the volume-weighted average price for our shares of Common Stock on November 19, 2003, plus $2.00 per share. In addition, we granted Fletcher certain “additional investment rights” entitling Fletcher to purchase up to an additional $16.0 million in value of our Common Stock. The shares of our Common Stock subject to the additional investment rights, should Fletcher exercise these rights, will be purchased at a per share price equal to either (i) the prevailing price at the time of exercise of the additional investment rights (based on a volume-weighted average formula) or (ii) if the prevailing price is less than $17.68, the prevailing price minus $2.00 per share. The additional investment rights may be exercised by Fletcher on one or more occasions commencing March 19, 2004, and for the 15-month period thereafter, which period may be extended under certain circumstances. We may not compel Fletcher to exercise its additional investment rights. We filed a registration statement with the SEC to enable the public resale of the Common Stock issued to Fletcher, and that registration statement was declared effective by the SEC in February 2004.

In September 2003, we acquired the assets of AIM, a U.S.-based top-up company. The assets of AIM were purchased on an “earn-out” basis, with $2.0 million of the purchase price being paid at closing in cash and shares of our Common Stock and the remainder being paid in our Common Stock valued at a 30-day average at time of payment. In the initial payment, we issued 114,374 shares of Common Stock. This stock is restricted through the two-year earn-out period subject to the achievement of certain financial goals with maximum additional consideration of $5.5 million.

In February 2003, we purchased all of the share capital of e-pay Ltd. from its shareholders for approximately $74.9 million, excluding transaction costs. Components of the consideration paid were:

We filed two registration statements with the SEC to enable the public resale of the Common Stock issued to the former shareholders of e-pay. Those registration statements were declared effective by the SEC in December 2003.

7

In August 1999, we purchased the remaining 66 ²/3% interest in DASH, a U.S. ATM processing services company, for a consideration of $800,000 payable in 24 equal monthly installments commencing on July 1, 1999. We delivered letters of credit to each of the sellers in the amount of the entire unpaid balance of the purchase price of DASH, which have since been cancelled. We then owned 100% interest in DASH. DASH was sold on January 4, 2002 for $6.8 million in cash.

In March 1999, we acquired 252 installed ATMs in Germany and 36 ATMs in inventory from Service Bank GmbH & Co. KG (“Service Bank”). The purchase price for this established ATM network was $6.7 million. Pursuant to the agreement, we received monthly fees based on revenues realized from the ATMs less certain expenses and management fees payable to Service Bank.

In November 1998, we acquired the outstanding Common Stock of Euronet USA for purchase consideration of approximately $17.9 million (including incidental costs of $90,000 and fair value of stock options of $96,000). Euronet USA is the software provider to Euronet’s ATM transaction processing center in Central Europe.

DISPOSITIONS

In January 2003, we sold 100% of the shares of our U.K. subsidiary, Euronet Services (U.K.) Ltd. (“Euronet U.K.”) to Bridgepoint Capital Limited (“Bridgepoint”). This transaction was effected through a Share Purchase Agreement (the “Acquisition Agreement”) whereby EFT Services Holding B.V. (“Euronet Holding”), a Netherlands corporation and a wholly-owned subsidiary of Euronet, sold all of its shares of Euronet U.K. to Bank Machine (Acquisitions) Limited (“BMAL”), a U.K. company owned by Bridgepoint. The Acquisition Agreement provided that the benefits and burdens of ownership of the shares and all employees of Euronet U.K. were transferred to Bridgepoint effective January 1, 2003.

Concurrently with this transaction, Euronet and Bank Machine Limited (which is the new name of Euronet U.K. following the acquisition) signed an ATM and Gateway Services Agreement (the “Services Agreement”). Under the Services Agreement, our Hungarian subsidiary, Euronet Adminisztracios Kft. (“Euronet Hungary”), provides ATM operating, monitoring, and transaction processing services to BMAL through December 2007. The services provided by Euronet Hungary are substantially identical to the services provided to Euronet U.K. prior to its sale to Bridgepoint. We recorded a gain of approximately $18.0 million related to this transaction. Because of the presence of a continued relationship through the 5-year outsourcing agreement, we were precluded under U.S. GAAP from accounting for this transaction as a discontinued operation. Accordingly, we accounted for the gain on the sale as income from continuing operations.

In January 2002, we sold substantially all of the assets of our ATM processing business in the U.S., known as DASH, to FNF (formerly ALLTEL Information Services, Inc.) for $6.8 million in cash. We recorded a pre-tax gain of approximately $4.8 million related to this transaction.

In July 2002, we sold substantially all of the non-current assets and capital lease obligations of our processing business in France to Atos S.A. Non-current assets and capital lease obligations related to the France business have been removed from continuing operations and classified under discontinued operations. We incurred a loss on disposal of the France business of $0.1 million.

In previous filings, we reported the U.K. and France businesses under the Western European Sub-segment and DASH under the Other Operations Sub-segment. All operating amounts, ATM counts, transaction numbers and statistics reported in this filing exclude France and DASH.

OPERATIONS

EFT PROCESSING SEGMENT

OVERVIEW

The major source of revenue generated by our ATM network is transaction revenue. We receive fixed monthly fees under many of our outsourced management contracts, and this element of revenue has been increasing over the last few years, but remains smaller than the transaction fee element. The transactions processed by our ATM network increased by 45%, from 79.2 million transactions in 2002 to 114.7 million transactions in 2003. Revenue sources of the EFT Processing Segment also include outsourced management revenue, which is revenue from operating ATMs that we do not own, prepaid mobile phone recharge revenue from ATM or mobile phone handsets and advertising revenue. The number of ATMs operated increased from 3,005 at December 31, 2002 to 3,350 ATMs at December 31, 2003. Euronet owns and/or operates ATMs in Hungary, Poland, Germany, Croatia, the Czech Republic, the U.K., Greece, Kosovo, Slovakia, Romania, Egypt and India.

8

Our experience is that the level of transactions on our networks is subject to seasonal variation. Transactions per ATM tend to drop in the first quarter, as compared to the preceding fourth quarter, to the lowest levels we experience during the year, primarily due to a drop in post holiday travel and spending. Since revenues of the EFT Processing Segment are more weighted toward transactions, this segment is directly affected by the seasonality we experience. In years prior to 2003, we believe our aggressive rollout of ATMs lessened the impact of seasonal variations on our overall transaction levels and revenues and transactions from new ATMs compensated for the reduction in overall transaction levels. For a discussion of EFT Processing Segment results, please see Note 20 – Business Segment Information to the Consolidated Financial Statements and Item 7– Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ATM TRANSACTION PROCESSING

Our operations center uses our Software Solutions Segment’s Integrated Transaction Management core software solution. The ATMs in our networks are able to process transactions for holders of credit and debit cards issued by or bearing the logos of banks and international card organizations such as American Express, Diners Club International, Visa, MasterCard and Europay. This ability is accomplished through our agreements and relationships with these banks, international credit and debit card issuers and international associations of card issuers.

In a typical ATM transaction, the transaction is routed from the ATM to our processing center, and then to the card issuer for authorization. Once authorization is received, the authorization message is routed back to the ATM and the transaction is completed. The card issuer is responsible for authorizing ATM transactions processed on our ATMs.

The card issuer pays us a transaction-processing fee for successful transactions and, in certain circumstances, for transactions that are not completed because they fail to receive authorization. The fees paid to us by the card issuers are independent of any fees charged by the card issuers to cardholders in connection with the ATM transactions. We do not charge cardholders a transaction or access fee for using our ATMs.

We generally receive fees from our customers for four types of transactions that are processed on our ATMs:

Transaction fees for cash withdrawals vary from market to market but generally range from $0.60 to $2.70 per transaction. Transaction fees for the other three types of transactions are generally substantially less. In EFT Processing Segment revenues, we include transaction fees payable under the electronic recharge solutions that we distribute through our ATMs. Fees for recharge transactions vary substantially from market to market and are based on the specific prepaid solution and the denomination of prepaid usage purchased. Generally, transaction fees vary from $0.40 to $1.80 per prepaid mobile recharge purchase and are shared with the financial institution and the mobile operator. Any or all of these fees may come under pricing pressure in the future.

We monitor the number of transactions made by cardholders on our network. These include cash withdrawals, balance inquiries, deposits, mobile phone airtime recharge purchases and certain denied (unauthorized) transactions. We do not bill certain transactions on our network to banks, and we have excluded these transactions for reporting purposes. The number of transactions processed over our entire ATM network has increased over the last five years as follows: total transactions per year were 29.7 million in 1999, 43.5 million in 2000, 57.2 million in 2001, 79.2 million in 2002 and 114.7 million in 2003. The number of transactions processed monthly grew from approximately 7.0 million in December 2002 to approximately 11.0 million in December 2003.

A number of factors affect the transaction volumes processed on any given ATM, including the location of the ATM and the amount of time the ATM has been installed at that location. Our experience is that the number of transactions on a newly installed ATM is initially very low. It increases over varying periods ranging from three to 12 months after installation, depending upon the market, as consumers become familiar with the location of the machine. As the ATM network has matured, the number of transactions per ATM has increased. We have an ongoing policy of re-deploying under-performing ATMs to locations that we believe will result in higher transaction volumes. We anticipate that future transaction growth at our ATMs will depend heavily upon increased card issuance in developing markets and continued re-deployment of ATMs to better locations.

9

We believe that the location of ATMs is one of the most important factors in determining the success of an ATM network. Key target locations for our ATMs include:

Recognizing that convenience and reliability are principal factors in attracting and retaining ATM customers, we are investing in the establishment of advanced ATM machines, such as chip card readers and monitoring systems, as well as redundancies to protect against network interruption. We centrally monitor the performance and cash positions of our ATMs around the clock, and we dispatch local operations and maintenance contractors to service the machines. Satellite or land-based telecommunications lines to our processing centers link our ATMs in all markets except Germany, where we are required to use a German processing company.

10

OUTSOURCED MANAGEMENT SOLUTIONS

We offer outsourced management services to banks and other organizations using our processing centers’ secure electronic financial transaction processing software. Our outsourced management services include management of existing bank networks of ATMs, development of new ATM networks on a complete turn-key basis, management of POS networks, management of credit and debit card databases and other financial processing services. These services include 24-hour monitoring from our processing centers of each individual ATM’s status and cash condition, coordinating the cash delivery and management of cash levels in the ATM and automatic dispatch for necessary service calls. They also include real-time transaction authorization, advanced monitoring, network gateway access, network switching, 24-hour customer services, maintenance services, settlement and reporting. We already provide these services to existing customers and we have invested in the necessary infrastructure to support many additional transactions. As a result, any new outsourced management services agreements should provide additional revenue with lower incremental cost.

Our outsourced management agreements, other than in Germany, generally provide for fixed monthly management fees in addition to fees payable for each transaction. Therefore, the transaction fees under these agreements are generally lower than under card acceptance agreements. The fees payable under our outsourced management agreements in Germany are purely transaction based and include no fixed component.

OTHER PRODUCTS AND SERVICES

Our distribution network allows for the sale of financial and other products or services at a low incremental cost. We have developed value-added services in addition to basic cash withdrawal and balance inquiry transactions. These new services include bill payment, “mini-statement” and recharge (purchasing prepaid airtime from ATM and mobile phone devices) transactions. We are committed to the ongoing development of innovative new products and services to offer our EFT processing customers and intend to implement additional services as markets develop.

In Poland, Hungary, Croatia, Romania, the Czech Republic, the U.K., Egypt, India and Indonesia, we have established electronic connections to some or all of the major mobile phone operators. These connections permit us to transmit to them electronic requests to recharge mobile phone accounts. We have either established or adapted networks of ATMs in these markets to offer customers of the mobile operators the ability to credit their prepaid mobile phone accounts. We began to distribute prepaid mobile telephone vouchers on our networks in Hungary and Poland in November 1999. In May and October 2000, we added this service to our Czech Republic and Croatian ATM networks, respectively. As of December 31, 2003, we had contracts with 23 mobile operators to use our electronic recharge solutions in various markets. In Poland, Hungary, Croatia and Indonesia, we have contracts with all of the local mobile operators.

In an automatic ATM recharge transaction, our ATM prompts a consumer through a series of ATM screens, during which the customer’s credit or debit card is used to make payment for the recharge transaction. The card transaction is processed and settled to us in the same fashion as a typical ATM transaction. We then send a signal to the mobile operator requesting credit to the customer’s account in the amount of the transaction. The credit takes place automatically and the customer receives a message confirming the transaction. Similarly, our Mobile Recharge transaction uses the same workflow, but the transaction occurs with screens directly on the mobile phone. These recharge transactions are similar to the new Prepaid Processing Segment, but since they are transmitted from our ATMs or mobile phone handsets and proceed through our ATM operations center and managed by our ATM operations group, they will continue to be reported in the EFT Processing Segment.

Our agreements with mobile operators for the non-POS recharge business vary in term from one to five years. They provide for the maintenance of the electronic connection necessary to provide recharge transactions to customers and define operational and commercial terms regarding the method by which we will provide that transaction (ATM and mobile phone), settlement and the liability for transactions processed.

Since 1996, we have been selling advertising on our network. Advertising clients can display their advertisements on the video screens of our ATMs, on the receipts issued by the ATMs and on coupons dispensed with cash from the ATMs.

CARD ACCEPTANCE OR SPONSORSHIP AGREEMENTS

Our agreements with banks and international card organizations generally provide that all credit and debit cards issued by the customer bank or organization may be used at all ATM machines we operate in a given market. In many markets, we have agreements with a bank under which we are designated as a service provider (which we refer to as “sponsorship agreements”) for the acceptance of cards bearing international logos, such as Visa and MasterCard. These card acceptance or sponsorship agreements allow us to receive transaction authorization directly from the card issuing bank or international card organization. Our agreements generally provide for a term of three to seven years and are automatically renewed unless either party provides

11

notice of non-renewal prior to the termination date. In some cases, the agreements are terminable by either party upon six months notice. We are generally able to connect a bank to our network within 30 to 90 days of signing a card acceptance agreement. Generally, the bank provides the cash needed to complete transactions on the ATM, although we have contracted for cash supply with a cash supply bank in the Czech Republic.

Under our card acceptance agreements and many of our outsourced management agreements, we are required to maintain insurance on the cash in the ATMs. We also maintain insurance against vandalism and theft of the ATMs themselves. Insurance costs for ATM-related risks increased on a per ATM basis in 2003 as compared with 2002, but have decreased in 2004.

Under our card acceptance agreements, the ATM transaction fees we charge vary depending on the type of transaction (which are currently cash withdrawals, balance inquiries, wireless airtime recharge purchases, deposits and transactions not completed because authorization is not given by the relevant card issuer) and the number of transactions attributable to a particular card issuer.

Our agreements generally provide for payment in local currency. Transaction fees are sometimes denominated in U.S. dollars or inflation adjusted. Transaction fees are billed to banks and card organizations with payment terms no longer than one month.

PREPAID PROCESSING SEGMENT

OVERVIEW

In 2003, we entered the prepaid mobile phone business through the acquisition of e-pay, and began reporting the results of this business in a new segment called the Prepaid Processing Segment in the first quarter of 2003. In the second half of 2003, Euronet expanded the Prepaid Processing Segment with acquisitions of AIM in the U.S. and transact in Germany. For a discussion of revenues, operating profits/losses and total assets of the Prepaid Processing Segment during 2003, please see Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 - Business Segment Information to the Consolidated Financial Statements.

During 2003, we expanded our prepaid services to Poland, Ireland and New Zealand. In Poland we are deploying POS terminals into Polish retailers. We had deployed approximately 750 devices by December 2003 and offer top-up services for all the Polish mobile operators. In Ireland we have entered into contractual relationships with all the Irish mobile operators and offer a top-up solution through a significant supermarket chain. In New Zealand we offer services for Vodafone New Zealand via 300 POS terminals. All three of these operations use the technology and processing centers in the U.K.

PREPAID TRANSACTION PROCESSING

We process POS top-up transactions for two types of clients, distributors and retailers, across the nine countries where we currently process POS transactions through retail shops. Both types of client transactions start with a consumer in a merchant shop using an electronic card issued by the mobile phone operator to identify the consumer’s mobile phone number. The consumer uses this card at a specially programmed POS terminal in the shop or the retailer’s electronic cash register system that is connected to our network. The customer will select a predefined amount of prepaid airtime from the carrier of its 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). Using the electronic connection we maintain with the mobile operator, the purchased amount of airtime will be credited directly to the account of the consumer. The POS device then transmits the selected transaction to our data center.

One difference in our relationships with various retailers and distributors is in 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 which 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 network. Total transactions processed by the Prepaid Processing Segment in 2003 were 102.1 million. This transaction count includes transactions from e-pay starting in February 2003, from AIM starting in September 2003, and from transact starting in November 2003. As of December 31, 2003, the Prepaid Processing Segment processed approximately 13 million electronic prepaid transactions per month at more than 126,000 terminals located in approximately 59,000 retail locations in the U.K., Australia, Malaysia, Indonesia, New Zealand, Poland, Ireland, Germany and the U.S.

12

OTHER PRODUCTS AND SERVICES

The convenience offered by electronic purchases is an advantage that can be applied to 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 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.

RETAILER AND DISTIBUTOR CONTRACTS

We provide our prepaid services over networks installed in retail outlets or, in the case of major retailers, though direct connections to their electronic cash register systems. The POS terminals or the register systems are connected to our processing centers. In markets where we operate e-pay technology (the U.K., Australia, Poland, Ireland, New Zealand and the U.S.), we own and maintain the POS terminals. In Germany, the terminals are sold to the retailers or to distributors that service the retailer. In all cases, we have contracts with the retailers. Our agreements with major retailers for the POS business typically have two-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 regarding the installation and operation of the POS terminals have shorter terms and provide that either party can terminate the agreement upon three months’ notice and include provisions similar to those with major retailers.

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 are engaged in the process of establishing agreements with independent retailers in order to diversify our exposure to such distributors.

SOFTWARE SOLUTIONS SEGMENT

OVERVIEW

Through our Software Solutions Segment, we offer an integrated suite of card and retail transaction delivery applications for the IBM iSeries platform and some applications on NT server environments. These applications are generally referred to as Euronet Software. The core system of this product, called “Integrated Transaction Management” (ITM), provides for transaction identification, transaction routing, security, transaction detail logging, network connections, authorization interfaces and settlement. Front-end systems in this product support ATM and POS management, telephone banking, Internet banking, mobile banking and event messaging. These systems provide a comprehensive solution for ATM, debit or credit card management and bill payment facilities. We also offer increased functionality to authorize, switch and settle transactions for multiple banks through our GoldNet module. We use GoldNet for our own EFT requirements, processing transactions across 10 countries in Europe.

We have invested significant resources in increasing the delivery capacity for our software solutions and expanding customer service. We have made further investments in research and development of a number of new electronic- and mobile-commerce products that should enhance the segment’s performance in the future. We established a customer service center in Asia to expand our “follow-the-sun” support initiatives, which represent the Company’s commitment to providing same time zone support for our customers worldwide. With the addition of the customer support personnel in Asia, we have three centers covering EMEA, the Americas and Asia-Pacific. This coverage presents several benefits to our customers, including immediate access to live technical support, infrastructure expansion to aid in faster problem resolution and a more in-depth knowledge and allowance for the uniqueness of conducting business in the various regions.

For a discussion of revenues, operating losses and total assets of the Software Solutions Segment during each of the last three fiscal years, please see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 20 - Business Segment Information to the Consolidated Financial Statements.

SOFTWARE SALES BACKLOG

We define “software sales backlog” as fees specified in contracts which have been executed by us and for which we expect recognition of the related revenue within one year. At December 31, 2003, the revenue backlog was $5.3 million, as compared to December 31, 2002, when the revenue backlog was $4.9 million and at December 31, 2001, when the revenue backlog was $2.5 million. We intend to continue to focus on expediting the delivery and implementation of software in an effort to deliver existing backlog sales, while simultaneously replenishing the backlog through continuing product sales growth.

13

RESEARCH AND DEVELOPMENT

We have made an ongoing commitment to the development, maintenance and enhancement of our products and services. We regularly engage in research and development activities in each of our business segments aimed at the development and delivery of new products, services and processes to our customers, including bill payment and presentment, telephone and Internet banking products, applications for mobile devices, wireless banking products, prepaid mobile phone recharge products and browser-based ATM software products. We are also making significant improvements to our core software products.

Our research and development costs for software products to be sold, leased or otherwise marketed totaled $4.1 million for 2003, $4.0 million for 2002, and $5.0 million for 2001. Of these amounts, as of December 31, 2003, $1.8 million was capitalized and is included on our balance sheet in other long-term assets, net of accumulated amortization of $2.2 million. 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 23 - Research and Development to the Consolidated Financial Statements for a summary of the prior three years research and development capitalized costs and related amortization expense.

FINANCIAL INFORMATION BY GEOGRAPHIC AREA

For a discussion of revenues and long-lived assets by geographic location, please see Note 20 - Business Segment Information to the Consolidated Financial Statements.

TECHNOLOGY AND PROCESSING FACILITIES

HARDWARE

We use ATMs from several manufacturers in our ATM network. We are able to purchase ATMs at contractually defined prices that include quantity discounts. We also have a long-term contract with NCR to provide hardware maintenance and support services for ATMs from multiple manufacturers in five countries (Poland, Hungary, Germany, the Czech Republic and Egypt), which represent 80% of our installed base in Europe. Because we operate one of the largest Pan-European ATM networks, we have substantial negotiating leverage with ATM manufacturers and we believe we have received favorable pricing for hardware and ATM maintenance. The wide range of advanced technology available from Diebold and NCR provides our customers with state-of-the-art electronic features and reliability through sophisticated diagnostics and self-testing routines. Our ATMs are modular and upgradeable so that they can be adapted to provide additional services in response to changing technology and consumer demand. This allows us to modify our ATMs to provide new services without replacing our existing network infrastructure.

e-pay’s POS terminals are primarily acquired from Verifone and Dione PLC. We find the development environment for these products to be well suited to our services. We do not have any long-term supply agreements with any manufacturer, and we negotiate on an ad hoc basis for our terminal requirements. The market for terminals is highly competitive, and we believe this manner of procurement is in our best interests.

transact’s processing capabilities are hardware-independent, enabling their programs to work on most POS terminals. Our preferred hardware vendors for POS terminals are Ingenico, Trintech and Thales. Additionally, transact has designed and developed their own dedicated payment and prepaid terminal that uses PSTN, ISDN and GPRS (wireless) communication protocols. We believe the wireless GPRS capabilities in transact’s POS terminals provide a competitive advantage in the prepaid market by offering a technology that helps in geographical areas where landline phones are poor quality or nonexistent. GPRS also can quickly adapt to different countries’ requirements, so that we can quickly rollout our solutions into new regions. We plan to deploy these GPRS terminals in other countries where we offer prepaid services, such as Poland, and to connect these terminals to our processing center via the Internet, enabling real-time cross-border business. The transact terminals are developed to meet transact requirements by a German engineering company and manufactured in China.

PaySpot’s POS terminals are primarily acquired from Verifone and Lipman USA. We have no long-term supply agreements with any manufacturer, and we negotiate on an ad hoc basis for our terminal requirements. The market for terminals is highly competitive, and we believe this manner of procurement is in our best interests.

14

TELECOMMUNICATIONS

Strong back office central processing support is a critical factor in the successful operation of an ATM network. Each ATM (other than ATMs in Germany) is connected to a Euronet processing center through satellite or land-based telecommunications depending upon physical location, reliability of the communications supplier and cost. Because we strive to ensure very high levels of reliability for our network, we rely primarily on satellite telecommunications to the processing center in Budapest for most of our ATM connections in Central Europe. Our Budapest processing center is, in most cases, linked by VSAT (very small aperture terminal) telecommunications to the card issuers. The VSAT telecommunications providers generally guarantee uninterrupted service for 99.9% of the time. India’s ATMs run on a mix of leased line and VSAT connectivity, which all terminate at the Bombay data center. Issuer connections consist of direct leased lines, with an ISDN component for fail over purposes.

We continually strive to improve the terms of our agreements with our telecommunications providers and have entered into multi-country agreements with lower rates for service. In this regard, new agreements are negotiated periodically with our VSAT suppliers, establishing a lower communication cost per ATM that takes into account transaction volume growth.

Our agreements with our satellite telecommunications providers contain certain assurances with respect to the repair of satellite malfunction to ensure continuous reliable communications for the network. As the reliability of land based telecommunications improves in the emerging markets where we do business, we may rely more heavily on them because they are generally less expensive than satellite telecommunications.

Our e-pay operations center uses Transaction Network Services (TNS) that provides fast, cost-effective data communication services for transaction-oriented applications. TNS proprietary technology has been deployed worldwide. TNS claims to be 99.99% reliable and claims to have processed over 10 billion transactions worldwide in 2002.

e-pay operates two fully live data centers in the U.K. and receives transactional traffic from TNS via multiple fixed private circuits. The circuits between e-pay and TNS are delivered in a diverse routed fashion, which ensures different serving exchanges are used throughout. Inbound traffic is balanced across all available links providing maximum resilience and efficient use of bandwidth. Using this infrastructure e-pay is capable of receiving transactions from Dial POS solutions (PSTN, ISDN B & D Channel), Host to Host, and ATMs in most countries around the world.

In Germany, transact uses its own transaction network connection via PSTN, ISDN, X25, TCP/IP and GPRS, which is connected to the processing center by T-Com dual fiber-channel access to guarantee reliability higher than 99%. Mirrored server systems and firewall-systems provide high-availability and transaction security. In addition to the Munich processing center, transact is in the process of commissioning a separate processing center in Speyer, Germany for backup and standby service.

In the U.S., PaySpot dial transactions are delivered via Primary Rate Interface (PRI) interfaces from national telecommunications providers. The standard interface allows the continual evaluation and ability to migrate to another provider in the highly competitive U.S. telecommunications marketplace.

PROCESSING CENTERS

Our processing centers for the EFT Processing Segment are located in Budapest, Hungary and Mumbai, India. They are staffed 24 hours a day, seven days a week and consist of production IBM iSeries computers, which run the Euronet GoldNet ATM software package. The Budapest operations center has an off-site real time back up iSeries computer. The back up system provides high availability in the event of a failure of production iSeries computers. The Budapest processing center also includes an iSeries computer used for product and connection testing and development. The India backup system is warm, and is located on-site. The India data center uses its warm backup machine for testing and development. Our software is a state-of-the-art software package that conforms to all relevant industry standards and has been installed in at least 60 countries worldwide. The processing centers’ computers operate our ATMs and interface with the local bank and international transaction authorization centers.

To protect against power fluctuations or short-term interruptions, both EFT processing centers have full uninterruptible power supply systems with battery backup to service the network in case of a power failure. The processing center’s data back-up systems are designed to prevent the loss of transaction records due to power failure and permit the orderly shutdown of the switch in an emergency. The centers also have a diesel-powered generator available to supply electrical power to the processing center in the event of a prolonged power outage.

Our EFT processing centers have been certified by a number of transaction exchange entities, such as Visa, LINK and Europay/MasterCard. Additionally, our EFT processing centers are connected to 45 host-to-host bank and card organizations.

15

e-pay’s primary prepaid processing center for the Prepaid Processing Segment is located in Basildon, U.K. It is staffed 24 hours a day, seven days a week, and provides the processing for all of our e-top-up services in the U.K., Ireland, Poland, New Zealand and Australia. The operation of e-pay’s POS based recharge business involves the maintenance of a central processing computer that maintains the connections to the mobile operators, on the one hand, and POS terminals or retail billing systems on the other. e-pay uses a combination of off-the-shelf and proprietary software to operate the system. e-pay has methods for monitoring the volumes of transactions handled by each retailer and managing merchant settlement risk. The processing center’s data back-up systems are designed to prevent the loss of transaction records due to power failure and permit the orderly shutdown of the switch in an emergency. The center also has a diesel-powered generator available to supply electrical power to the processing center in the event of a prolonged power outage.

transact’s processing center for EFT and prepaid transactions is located in Munich, with a backup location being commissioned in Speyer, Germany. The processing center runs 24 hours a day, seven day a week and provides service for EFT payment and prepaid transactions. transact’s operations includes the maintenance of different clients’ networks, hotline and helpdesk and retail billing for EFT payment and prepaid business, generated via POS terminals, integrated electronic cash registers (ECR) and vending-based solutions. For the prepaid services, transact uses third-party payment-terminals and its own dedicated terminals, fully designed by transact with its own proprietary software connecting via PSTN, ISDN or GPRS communications protocols. transact’s proprietary Terminal-Management-System controls the terminal setup, limits and transaction monitoring to control every individual merchant and the settlement risks. All critical servers are stored in a data safe, which also protects vouchers against fraud or damage. To protect against power fluctuations or short-term interruptions, both of transact’s processing centers have full uninterruptible power supply systems with battery backup to service the network in case of a power failure. The Munich operations center is also equipped with a 40KV diesel-powered generator in the event of a prolonged power outage.

PaySpot employs processing centers in Leawood, Kansas and Little Rock, Arkansas for the U.S.-based Prepaid Processing Segment. The operation of PaySpot’s POS-based recharge business involves the maintenance of a central processing system that maintains the connections to the mobile operators and long-distance carriers and to POS terminals. PaySpot uses a combination of off-the-shelf and proprietary software to operate the system. PaySpot has methods for monitoring the volumes of transactions handled by each retailer and managing merchant settlement risk. Both processing centers have uninterruptible power supply systems with battery backup to protect against power fluctuations or short-term interruptions. The processing centers’ data back-up systems are designed to prevent the loss of transaction records due to power failure and permit the orderly shutdown of the switch in an emergency. The centers also have diesel-powered generators available to supply electrical power to the processing centers in the event of a prolonged power outage.

COMPETITION

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 that operate ATMs, such as EDS, GTECH, First Data Corporation or Global Payments may also establish ATM networks or offer outsourcing services that compete with us in various markets. Competitive factors in our EFT Processing Segment business include network availability and response time, price to both the bank 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 individual 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 the 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

Several companies offer electronic recharge services for mobile phone airtime on POS terminals in the markets where we do business. These companies include, but are not necessarily limited to, Alphyra, Paypoint, Omega Logic, Barclays Merchant Services and Anpost in the U.K.; On-Q and Ezipin in Australia; Milo, Kolporter and GTech in Poland; TeleCash Kommunikations-Service, GZS, ADT Jalex, ANTHROS and EVS in Germany; and PRE-Solutions, InComm and Everything Prepaid in the U.S.

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 prepaid airtime for longer than most of our competitors and have significant market share in those markets. We have approximately 40% of the POS recharge market in the U.K., 60% in

16

Germany and 50% in Australia. In addition, we offer complementary ATM and mobile recharge solutions through our EFT processing centers. We believe this will improve 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 hope 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 charged for each recharge transaction) 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.

SOFTWARE SOLUTIONS SEGMENT

We believe we are the leading supplier of electronic financial transaction processing software for the IBM iSeries (formerly AS/400) platform. Other suppliers service the software requirements of large mainframe systems and UNIX-based platforms.

Competitors of the Software Solutions Segment 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) wireless banking software systems, and (v) full EFT software. Competitors in this segment include Applied Communications Inc. (ACI), Mosaic Software and Oasis Software International.

Competitive factors in the Software Solutions business include price, technology development and the ability of software systems to interact with other leading products.

EMPLOYEES

Our business is highly automated and we outsource many of its specialized, repetitive functions such as ATM maintenance and installation, cash delivery and security. As a result, our labor requirements for operation of the network are relatively modest and are centered on monitoring activities to ensure service quality and cash reconciliation and control. We also have a customer service department to interface with cardholders to investigate and resolve reported problems in processing transactions.

In our EFT Processing Segment, our rollout of ATMs, our development of new products and individual bank connections and our expansion into new markets creates a need for qualified staff on many levels. We require skilled staff to identify desirable locations for ATMs and negotiate ATM lease agreements. Similarly, in our Prepaid Processing Segment, our rollout of prepaid services, development of new products, and expansion into new markets creates a need for qualified staff on many levels. We require skilled staff to develop and maintain our systems and our operations centers. In addition, ensuring consistency in quality and approach to new markets as well as proper coordination and administration of our expansion requires skilled staff in the areas of technical operations, financial analysis, project management, human resources, communications, marketing and sales. 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. The success of our Software Solutions Segment business in particular depends upon the ability to hire and retain highly qualified computer engineers and programmers.

As of December 31, 2000, we had 478 employees. In the first quarter of 2001, we reduced staffing, primarily in Little Rock and Budapest, in a reorganization of our software business. As a result of this reorganization, we had 384 employees as of December 31, 2001, and 385 employees as of December 31, 2002. Due to our growth, the number of our employees has increased to 548 employees as of December 31, 2