<PAGE>
_____________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________________________________________________________
FORM 10-Q
____________________________________________________________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER C00-22167
___________________________________________________________________________
EURONET SERVICES INC.
(Exact name of the registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
74-2806888
(I.R.S. employer identification no.)
14-24 HORVAT U.
1027 BUDAPEST
HUNGARY
(Address of principal executive offices)
011-36-1-224-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of April 30, 1999 15,213,453
common shares.
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PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS.
--------------------
EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Mar. 31, 1999 Dec. 31, 1998
------------- -------------
ASSETS (unaudited)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 35,803 $ 55,614
Restricted cash 9,653 12,972
Investment securities 2,425 3,149
Trade accounts receivable, net of allowances for
doubtful accounts of $291 on March 31, 1999 and
December 31, 1998 8,378 5,681
Costs and estimated earnings in excess of billings on software
installation contracts 331 745
Prepaid expenses and other current assets 3,680 3,869
-------- --------
Total current assets 60,270 82,030
Property, plant, and equipment, net 34,474 33,182
Intangible assets, net 15,268 12,464
Deposits 2,157 2,157
Deferred income taxes 571 571
Other assets, net 2,946 3,034
-------- --------
Total assets $115,686 $133,438
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 5,311 $ 4,739
Current installments of obligations under capital leases 4,031 4,266
Accrued expenses and other current liabilities 6,791 6,932
Income taxes payable 44 1,849
Billings in excess of costs and estimated earnings on software
installation costs 2,385 953
-------- --------
Total current liabilities 18,562 18,739
Obligations under capital leases, excluding current installments 6,383 6,809
Notes payable 78,294 83,720
-------- --------
Total liabilities 103,239 109,268
-------- --------
Stockholders' equity:
Common stock, $0.02 par value. Authorized 30,000,000 shares;
issued and outstanding 15,213,453 shares at March 31, 1999
and December 31, 1998 307 307
Warrants 1,725 1,725
Additional paid in capital 64,719 64,688
Treasury stock (4) (4)
Subscription receivable - (50)
Accumulated losses (53,029) (43,345)
Restricted reserve 784 784
Accumulated other comprehensive (loss)/income (2,055) 65
-------- --------
Total stockholders' equity 12,447 24,170
-------- --------
Total liabilities and stockholders' equity $115,686 $133,438
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 2
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EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
----------- ------------
<S> <C> <C>
Revenues:
ATM network and related revenue $ 5,402 $ 2,001
Software, maintenance and related revenue 2,767 -
----------- -----------
Total revenues 8,169 2,001
Operating expenses:
Operating costs 5,786 1,636
Salaries and benefits 4,976 1,744
Selling, general and administrative 2,785 1,515
Depreciation and amortization 2,367 932
----------- -----------
Total operating expenses 15,914 5,827
Operating loss (7,745) (3,826)
Other (expense)/income:
Interest income 457 461
Interest expense (2,832) (456)
Foreign exchange gain, net 282 174
----------- -----------
Total other (expense)/income (2,093) 179
----------- -----------
Loss before income taxes and extraordinary item (9,838) (3,647)
Income taxes - -
----------- -----------
Loss before extraordinary item (9,838) (3,647)
Extraordinary gain on early retirement of debt, net of
applicable income taxes (Note 5) 154 -
------------ ------------
Net loss $ (9,684) $ (3,647)
Other comprehensive (loss)/income:
Translation adjustment (2,119) 375
----------- -----------
Comprehensive loss $ (11,803) $ (3,272)
=========== ===========
Loss per share -- basic and diluted:
Loss before extraordinary item $ (0.65) $ (0.24)
Extraordinary gain 0.01 -
----------- -----------
Net loss $ (0.64) $ (0.24)
=========== ===========
Weighted average number of shares outstanding 15,213,453 15,133,507
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 3
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EURONET SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(9,684) $ (3,647)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,367 932
Unrealized foreign exchange gains, net (5,368) -
Accretion of discount on notes 2,453 -
Decrease in costs and estimated earnings in excess of billings
on software installation contracts 414 -
Decrease/(increase) in restricted cash 2,420 (306)
(Increase) in trade accounts receivable (2,712) (152)
Decrease/(increase) in prepaid expenses and other current assets 189 (287)
Increase/(decrease) in trade accounts payable 552 (180)
Decrease in income taxes payable (1,805) -
Increase in billings in excess of costs and estimated earnings
on software installation contracts 1,432 -
Decrease in accrued expenses and other current liabilities (607) (562)
Other (219) 26
--------- --------
Net cash used in operating activities (10,568) (4,176)
--------- --------
Cash flows from investing activities:
Fixed asset purchases (4,927) (1,254)
Purchase of intangible assets (3,439) -
Proceeds from sale of fixed assets 45 60
Purchase of investment securities (2,360) -
Proceeds from maturity of investment securities 2,809 10,119
Investment in subsidiaries (3) -
Net decrease in loan receivable - 3
--------- --------
Net cash (used in)/provided by investing activities (7,875) 8,928
--------- --------
Cash flows from financing activities:
Repurchase of notes payable (373) -
Subscriptions paid 50 -
Repayment of obligations under capital leases (772) (648)
(Repayment of)/proceeds from bank borrowings (188) 40
--------- --------
Net cash used in financing activities (1,283) (608)
--------- --------
Effects of exchange rate differences on cash (85) 43
--------- --------
Net (decrease)/increase in cash and cash equivalents (19,811) 4,187
Cash and cash equivalents at beginning of period 55,614 7,516
--------- --------
Cash and cash equivalents at end of period $35,803 $ 11,703
========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 4
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EURONET SERVICES INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Euronet
Services Inc. and subsidiaries have been prepared from the records of Euronet
Services Inc. and subsidiaries (collectively, the "Company"), pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of management, such unaudited consolidated financial statements include all
adjustments (consisting only of normal, recurring accruals) necessary to present
fairly the financial position of the Company at March 31, 1999 and the results
of its operations, and cash flows for the three month periods ended March 31,
1999 and 1998.
The unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of Euronet
Services Inc. and subsidiaries for the year ended December 31, 1998, including
the notes thereto, set forth in the Company's Form 10-K.
The results of operations for the three month period ended March 31, 1999
are not necessarily indicative of the results to be expected for the full year.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
There have been no significant additions to or changes in accounting
policies of the Company since December 31, 1998. For a description of these
policies, see Note 2 to the Notes to Consolidated Financial Statements for the
year ended December 31, 1998.
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge in one of three categories described in the pronouncement. The accounting
for changes in the fair value of a derivative (that is, gains and losses)
depends on the intended use of the derivative and the resulting designation.
Under SFAS 133, an entity that elects to apply hedge accounting is required to
establish at the inception of the hedge the method it will use for assessing the
effectiveness of the hedge derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. SFAS 133 applies to all
entities and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application should be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be designated
and documented pursuant to the provisions of SFAS 133. Earlier application of
all of the provisions is encouraged but is permitted only as of the beginning of
any fiscal quarter that begins after issuance of SFAS 133. Additionally, SFAS
133 should not be applied retroactively to financial statements of prior
periods. Management believes that the adoption of SFAS 133 will not have a
material impact on the Company's consolidated financial statements.
NOTE 3 -- NET LOSS PER SHARE - BASIC AND DILUTED
Net loss per share has been computed by dividing net loss by the weighted
average number of common shares outstanding. The effect of potential common
stock (stock options and warrants outstanding) is antidilutive. Accordingly,
diluted net loss per share does not assume the exercise of stock options and
warrants outstanding.
NOTE 4 -- ACQUISITION
On March 26, 1999 the Company signed an agreement with Service Bank GmbH &
Co. KG ("Service Bank") to acquire 252 installed ATM's in Germany and 36 ATMs in
inventory. The purchase price for this established ATM network was DEM 12.2
million (USD 6.7 million). Under the agreement, the Company will receive monthly
fees based on revenues realized from the ATMs, less certain expenses and
management fees payable to the Service Bank. The risks and rewards of ownership
of the ATM network transferred to the Company as of January 1, 1999, and
revenues and expenses from the operation of the ATM network accrued to Euronet
from that date.
The acquisition has been accounted for as a purchase, accordingly, the
results of operations are included in the accompanying consolidated financial
statements since January 1, 1999. The purchase price has been allocated to
assets acquired of $3.5 million based on their fair values. The excess of the
purchase price over the fair value of the net assets acquired of $3.2 million
has been recorded as goodwill and will be amortized over seven years.
Page 5
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NOTE 5 -- EXTINGUISHMENT OF DEBT
During February 1999, the Company repurchased 1,700 units (principal amount
of DM 1.7 million) of its senior discount 12 3/8% notes for $373,000. This
repurchase has been accounted for as an extinguishment of debt with a resulting
$154,000 (net of income taxes of $80,000) recognized as an extraordinary gain on
such extinguishment. The extinguishment gain (pre-tax) represents the difference
between the allocated carrying value of the debt extinguished ($629,000) and the
consideration paid ($373,000), offset by the write-off of the allocated
unamortized deferred financing costs ($22,000).
NOTE 6 -- BUSINESS SEGMENT INFORMATION
Euronet and its subsidiaries operate in two business segments: (1) the
service of providing an independent shared ATM network to the banks and
financial institutions that it serves, ("ATM and related services"); and
(2) producing application software for payment and transaction delivery systems,
("ARKSYS software solutions"). These business segments are supported by a
corporate service segment which provides corporate and other administrative
services which are not directly identifiable with the two business segments,
("Corporate and other"). The accounting policies of each segment are the same as
those described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes not including nonrecurring gains and net loss. The Company accounts for
inter segment sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices.
During 1997, Euronet and its subsidiaries operated in one business segment,
ATM and related services. During 1998 and 1997, the corporate function resources
were allocated to the ATM and related services segment. As a result of the
acquisition of ARKSYS in December 1998, the Company established a second
business segment for its software delivery and development activities. Beginning
in January 1999, the Company separated corporate function resources from the ATM
and related services segment, and reported separately corporate support
activities. The following tables present the segment results of the Company's
operations for the quarters ended March 31, 1999 and March 31, 1998.
<TABLE>
<CAPTION>
ATM and ARKSYS
related software Corporate and
For the Quarter ended March 31, 1999 services solutions other Total
-------- --------- ------------- --------
<S> <C> <C> <C> <C>
Total revenues $ 5,402 $ 2,812 $ - $ 8,214
Total operating expenses (9,519) (4,907) (1,533) (15,914)
Operating loss (4,117) (2,095) (1,533) (7,745)
Interest income 52 25 380 457
Interest expense (314) - (2,518) (2,832)
Foreign exchange loss, net 49 - 233 282
Extraordinary gain, net of tax expense - - 154 154
Net loss $(4,330) $(2,070) $(3,284) $ (9,684)
Segment assets $58,027 $19,384 $38,275 $115,686
</TABLE>
<TABLE>
<CAPTION>
ATM and ARKSYS
related software Corporate and
For the Quarter ended March 31, 1998 services solutions other Total
-------- --------- ------------- --------
<S> <C> <C> <C> <C>
Total revenues $ 2,001 $ - $ - $ 2,001
Total operating expenses (4,654) - (1,173) (5,827)
Operating loss (2,653) - (1,173) (3,826)
Interest income 35 - 426 461
Interest expense (456) - - (456)
Foreign exchange loss, net 174 - - 174
Extraordinary gain, net of tax expense - - - -
Net loss $(2,900) $ - $ (747) $(3,647)
Segment assets $31,971 $ - $33,961 $65,932
</TABLE>
Page 6
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The following is a reconciliation of the segmented information to the
unaudited consolidated financial statements.
Three months ended
March 31, 1999
------------------
(in thousands)
Revenues:
Total revenues for reportable segments $8,214
Elimination of inter segment revenues (45)
------
Total consolidated revenues $8,169
======
Total revenues and long-lived assets for the three months ended March 31,
1999 and March 31, 1998 for the Company analyzed by geographical location is as
follows:
Total Revenues Long-lived Assets
---------------------- ---------------------
March 31, March 31, March 31, March 31,
1999 1998 1999 1998
--------- --------- --------- --------
United States $2,767 $ - $13,084 $ -
Hungary 1,292 1,405 11,084 10,269
Poland 1,100 444 9,633 9,849
Germany 2,788 112 10,838 2,463
Other 222 40 5,103 2,656
------- ------ ------- -------
Total $8,169 $2,001 $49,742 $25,237
======= ====== ======= =======
Total revenues are attributed to countries based on location of customer for
the ATM and related service segment. For revenues generated by the ARKSYS
software solutions segment, all revenues are attributed to the United States.
Long lived assets consist of property, plant, and equipment, net of accumulated
depreciation and intangible assets, net of accumulated amortization.
NOTE 7 -- RECLASSIFICATION
Certain amounts have been reclassified in the prior period unaudited
consolidated financial statements to conform to the 1999 unaudited consolidated
financial statements presentation.
Page 7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
OVERVIEW
Euronet Services Inc. (the "Company") is a provider of end-to-end electronic
payment solutions and transaction processing for retail banks and other
companies. The Company operates an independent automated teller machine ("ATM")
network in Europe and owns a US-based software subsidiary, Arkansas Systems Inc.
("ARKSYS"), that specializes in electronic payment and transaction delivery
systems. Together with ARKSYS, Euronet offers electronic payment solutions
consisting of ATM network participation and outsourced management solutions, and
comprehensive software solutions to retail banks and other companies around the
world.
The Company was formed and established its first office in Budapest in June
1994. In May 1995, the Company opened its second office, in Warsaw. During 1997,
the Company also opened offices in Berlin, Zagreb, Prague, Paris and Bucharest.
In 1998 the Company opened an office in London and acquired ARKSYS with offices
in Little Rock, Orlando and Budapest. The Company maintains corporate offices in
Kansas City and Budapest.
Euronet and its subsidiaries operate in two business segments: (1) the service
of providing an independent shared ATM network to the banks and financial
institutions, ("ATM and related services"); and (2) producing application
software for payment and transaction delivery systems, ("ARKSYS software
solutions"). These business segments are supported by a corporate service
segment which provides corporate and other administrative services which are not
directly identifiable with the two business segments ("Corporate and other").
(See Note 6 to the unaudited Consolidated Financial Statements - Business
Segment Information.)
Until December 1998, Euronet had devoted substantially all of its resources to
establishing and expanding its ATM network through the addition of ATMs to its
proprietary network and through providing outsourcing management solutions for
bank-owned ATMs. On December 2, 1998, the Company acquired ARKSYS and for the
quarter ended March 31, 1999, a significant portion of the Company's revenues
and expenses resulted from and are attributable to ARKSYS operations.
Total revenues increased to $8.2 million for the quarter ended March 31,1999
from $2.0 million for the quarter ended March 31, 1998. The increase in revenues
is primarily due to two factors: (1) a $3.4 million increase in ATM and related
services segment revenues resulting from the increase in transaction volume
attributable to additional network connections to credit and debit card issuers
and an increase in the number of ATMs operated by the Company during these
periods, and (2) the addition of $2.8 million of ARKSYS software solutions
segment revenues. Revenues from the quarters ended March 31, 1999 and March 31,
1998 are discussed more fully in the Segment Results of Operations sections
below.
Total operating expenses increased to $15.9 million for the quarter ended
March 31, 1999 from $5.8 million for the quarter ended March 31, 1998. The
increase can be broken down by segment as follows: (1) a $4.8 million increase
in ATM and related services segment operating costs, (2) the addition of $4.9
million of ARKSYS software solutions segment operating costs, and (3) a $400,000
increase in Corporate and other operating costs. Operating expenses from the
quarters ended March 31, 1999 and March 31, 1998 are discussed more fully in the
Segment Results of Operations sections below.
Total other (expense)/income decreased to a $2.1 million expense for the
quarter ended March 31, 1999 from $200,000 income for the quarter ended March
31, 1998. The additional expense is due primarily to the recording of interest
expense related to the Company's 12 3/8% senior discount notes issued in June
1998. Other (expense)/income from the quarters ended March 31, 1999 and March
31, 1998 are discussed more fully in the Segment Results of Operations sections
below.
The Company generated a net loss of $9.7 million for the quarter ended March
31, 1999 compared to a net loss of $3.6 million for the quarter ended March 31,
1998. The Company generated an operating loss of $7.7 million for the quarter
ended March 31, 1999 compared to an operating loss of $3.8 million for the
quarter ended March 31, 1998. The increased operating loss is due to three
factors: (1) a $1.4 million increase in operating losses from the Company's ATM
and related services segment; (2) the addition of $2.1 million in operating
losses from the Company's ARKSYS software solutions segment; and (3) a $400,000
increase in operating losses from the Company's Corporate and other segment. The
results of segment operations are discussed more fully in the Segment Results of
Operations section below.
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SEGMENT RESULTS OF OPERATIONS
SEGMENT RESULTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
Revenues Operating Loss Net Loss
------------------ --------------------- ---------------------
Quarter ended March 31, 1999 1998 1999 1998 1999 1998
- ----------------------------------- -------- ------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ATM and related services $5,402 $2,001 $(4,072) $(2,653) $(4,285) $(2,900)
ARKSYS software solutions 2,812 - (2,140) - (2,115) -
Corporate and other - - (1,533) (1,173) (3,284) (747)
Inter segment eliminations (45) - - - - -
------ ------ ------- ------- ------- -------
Total $8,169 $2,001 $(7,745) $(3,826) $(9,684) $(3,647)
</TABLE>
ATM AND RELATED SERVICES SEGMENT OVERVIEW
The Company operates the only independent, non-bank owned automated teller
machine ("ATM") network in Central and Western Europe, as a service provider to
banks and other retail oriented financial institutions. This segment's principal
source of revenue to date has been transaction and service fees from a growing
number of ATMs installed in Hungary, Poland, the Czech Republic, Croatia,
France, Germany, and the UK.
During the first quarter of 1999, the Company further expanded its proprietary
network by acquiring a network of 252 installed ATMs and 35 ATMs in inventory
from Service Bank GmbH & Co. KG ("Service Bank") (see Note 4 to the uaudited
Consolidated Financial Statements). As of March 31, 1999, the Company's
proprietary ATM network totalled 1,557 ATMs, (see Note 4 to the Unaudited
Consolidated Financial Statements) of which 87% are owned by the Company and 13%
are owned by banks but operated by the Company through management agreements
with such banks and financial institutions as a part of the Company's outsourced
management solutions business.
The ATM and related services segment derives substantially all of its revenues
from ATM transaction fees. The Company receives a fee from the card issuing
banks or International Card Organizations for ATM transactions processed on its
ATMs. As the Company continues to focus on expanding its network and installing
additional ATMs, the Company expects that transaction fees will continue to
account for a substantial amount of its ATM and related services segment
revenues for the foreseeable future.
The transaction volumes processed on an ATM in any given market are affected
by a number of factors, including location of the ATM and the amount of time the
ATM has been installed at the location. The Company's experience has been that
the number of transactions on a newly installed ATM is initially very low and
takes approximately three to twelve months after installation to achieve average
transaction volumes for that market. Accordingly, the average number of
transactions, and thus revenues, per ATM are expected to increase as the
percentage of mature ATMs operating in the Company's network increases.
The Company's outsourced management solutions business also generates revenues
from ATM network management services that it offers to banks that own
proprietary ATM networks. The Company has expanded its outsourced management
solutions to include not only the operation of existing ATMs owned by banks, but
also the installation and management of Company-owned ATMs for banks in their
branches or off-site locations. Both types of outsourced management agreements
involve the operation of ATMs in return for monthly management fees or a
guaranteed monthly level of transaction fees, ensuring a certain level of return
for the Company. The Company believes that revenues from these services will
increase in the future.
The Company sells advertising on its network by putting clients'
advertisements on its ATM screens and the receipts. The Company believes that
advertising revenues will increase as it expands its network and continues to
market this service.
ARKSYS SOFTWARE SOLUTIONS SEGMENT OVERVIEW
ARKSYS, founded in Little Rock, Arkansas, U.S., in 1975, is a leading provider
of electronic payment software solutions for the IBM AS/400 platform, one of the
major hardware options for retail banks. ARKSYS software performs a number of
retail banking functions including payment and transaction delivery for ATM
systems, financial transaction processing, credit and debit card management, POS
transaction processing, comprehensive card and client management, Internet and
PC banking, and other means of electronic funds transfer ("EFT"). ARKSYS's
primary software solution is the Integrated Transaction Management ("ITM")
product, a suite of payment and transaction functions designed to support
virtually every aspect of retail financial transaction delivery. The core
systems of ITM provide for transaction identification, transaction routing,
security, transaction
Page 9
<PAGE>
detail logging, network connections, authorization interfaces, settlement and
management of the system. Front-end systems support ATM management, POS
management, telephone banking, internet banking, kiosks, and workstation
authorization. These systems provide a comprehensive solution for ATM, debit or
credit card management and bill payment facilities. ARKSYS also offers Goldnet,
a shared EFT network solution that allows the formation of an independent
gateway network. Euronet uses Goldnet for its EFT requirements in eight
countries in Europe.
While the traditional target market for ARKSYS has been retail banks, the
Company expects to seek other retail customers who require EFT solutions and who
would benefit from the installation of ARKSYS's integrated suite of products.
Software solutions developed by ARKSYS are currently used by more than 160
retail banks and other companies in over 60 countries, including the Company's
own transaction processing center located in Budapest, Hungary.
CORPORATE AND OTHER SEGMENT OVERVIEW
The Corporate and other segment exists soley to support the activities of the
ATM and related services and ARKSYS software solutions segments. This segment
performs general corporate, administrative and support functions including
legal, corporate finance, treasury, investor relations and corporate
communications services.
COMPARISON OF RESULTS OF OPERATIONS FOR THE QUARTERS ENDED MARCH 31, 1999 AND
1998
ATM AND RELATED SERVICES SEGMENT
ATM and Related Services Revenue
Total segment revenues increased to $5.4 million for the quarter ended March
31,1999 from $2.1 million for the quarter ended March 31, 1998. The increase in
revenues was due primarily to the significant increase in transaction revenues
resulting from a corresponding increase in transaction volume attributable to
additional network connections to credit and debit card issuers and an increase
in the number of ATMs operated by the Company during these periods. The Company
had 798 ATMs installed as of March 31, 1998, which processed 2.8 million
transactions in the quarter. As of March 31, 1999, the Company's proprietary ATM
network totalled 1,557 ATMs, of which 87% are owned by the Company and 13% are
owned by banks but operated by the Company through management agreements with
banks and financial institutions as a part of the Company's Outsourced
Management Solutions business. The network processed 5.9 million transactions
for the quarter ended March 31, 1999.
Transaction fees charged by the Company vary for the three types of
transactions that are currently processed on the Company's ATMs: cash
withdrawals, balance inquiries and transactions not completed because
authorization is not given by the relevant Card Issuer. Transaction fees for
cash withdrawals vary from market to market but generally range from $0.60 to
$1.75 per transaction while transaction fees for the other two types of
transactions are generally substantially less.
Operating Expenses
Total segment operating expenses increased to $9.4 million for the quarter
ended March 31, 1999 from $4.7 million for the quarter ended March 31, 1998. The
increase is due primarily to costs associated with the installation of
significant numbers of ATMs and expansion of the Company's operations during the
period.
ATM and related services segment operating costs consist primarily of:
ATM installation costs; ATM site rentals; costs associated with maintaining
ATMs; ATM telecommunications; interest on network cash and cash delivery and
security services to ATMs. Such costs increased to $5.6 million for the quarter
ended March 31, 1999 from $1.6 million for the quarter ended March 31, 1998. The
increase in ATM operating costs was primarily attributable to costs associated
with operating the increased number of ATMs in the network during the period.
As well, for the first quarter of 1999 an intercompany allocation was made of
$692,000 to charge the ATM operations with transaction switching and bank
connection fees associated with the operations central processing center in
Budapest. Previously these costs were not allocated as a direct operating cost
but were included as a component of selling, general and administrative costs.
Segment salaries and benefits increased to $1.4 million for the quarter ended
March 31, 1999 from $1.0 million for the quarter ended March 31, 1998. The
increase reflected the expansion of the operations to Western European markets
with significantly higher labour costs than Central Europe.
Selling, general and administrative costs allocated to the ATM and related
services segment decreased to $660,000 for the quarter ended March 31, 1999 from
$1.1 million for the quarter ended March 31, 1998. It is the opinion of
management that this decrease reflects an accurate allocation of these types of
costs. The cost decrease results from the net effect of (1) a $692,000
allocation of costs from the selling, general and administrative line of the
Budapest processing center to the operating cost line, as discussed above, and
(2) a $271,000 increase in costs associated with the expansion of the Company's
network operations.
Page 10
<PAGE>
Depreciation and amortization increased to $1.8 million for the quarter ended
March 31, 1999 from $926,000 for the quarter ended March 31, 1998. This
increase was due primarily to the increase in the number of deployed ATMs as
discussed previously.
ARKSYS SOFTWARE SOLUTIONS SEGMENT
ARKSYS was acquired by the Company on December 2, 1998. Therefore, comparable
figures for the first quarter 1998 have not been provided.
ARKSYS Software Solutions Revenue.
Revenues from the ARKSYS software solutions segment totalled $2.8 million
after inter segment eliminations for the quarter ended March 31, 1999.
Software Sales Backlog
The Company defines "software sales backlog" as fees specified in contracts
which have been executed by the Company for its customers and for which the
Company expects recognition of the related revenue within one year. At December
31, 1998 the revenue backlog was $2.3 million, at March 31, 1999 the revenue
backlog was $5.3 million. The increase in backlog results principally from
growth in ARKSYS sales since the acquisition. It is management's intention to
focus on expediting delivery and implementation of software in an effort to
reduce backlog while continuing sales growth. There can be no assurance that the
contracts included in backlog will actually generate the specified revenues or
that the actual revenues will be generated within the one year period.
Operating Expenses
ARKSYS software solutions segment operating expenses consist primarily of
salaries and benefits, selling, general and administrative, and depreciation.
Operating expenses totalled $4.9 million for the quarter ended March 31, 1999.
Since the acquisition of ARKSYS in December 1998, the Company has made planned
increases in ARKSYS's staff in order to increase sales, accelerate development
of certain software enhancements and reduce delivery times for software. These
staff increases have resulted in a significant increase in salaries and benefits
at ARKSYS, which has contributed to the net losses of the ARKSYS software
solutions segment for the three months ended March 31, 1999.
CORPORATE AND OTHER SEGMENT
Operating Expenses
Operating expenses for the Corporate and other segment increased to $1.5
million for the quarter ended March 31, 1999 from $1.2 million for the quarter
ended March 31, 1998. The Company's expansion of its network infrastructure,
expenses related to the Company's acquisition of ARKSYS and increases in
corporate and administrative capabilities resulted in increased expenditures.
NON OPERATING RESULTS
Interest expense
Interest expense increased to $2.5 million for the quarter ended March 31,
1999 from $0 for the quarter ended March 31, 1998. The increase was the result
of recording interest expense related to the issue in June 1998 of 243,211 units
of DM 1,000 12 3/8% senior discount notes due on July 1, 2006 (the "Notes").
Other Income/Expense
The Company had a net foreign exchange gain of $282,000 for the quarter ended
March 31, 1999, as compared to a net foreign exchange gain of $174,000 for the
quarter ended March 31, 1998. Exchange gains and losses that result from
remeasurement of assets and liabilities are recorded in determining net loss. A
portion of the assets and liabilities of the Company are denominated in
currencies other than the U.S. dollar, including capital lease obligations,
notes payable (including the Notes issued in the Company's public bond
offering), cash and cash equivalents, investments, and forward foreign exchange
contracts. It is the Company's policy to attempt to match local currency
receivables and payables. The foreign currency denominated assets and
liabilities give rise to foreign exchange gains and losses as a result of U.S.
dollar to currency exchange movements. The Company entered into forward foreign
exchange contracts as a partial hedge against German mark denominated
liabilities to partially offset the foreign exchange movements on the Company's
Notes.
Page 11
<PAGE>
The Company's losses due to holding cash and other assets and liabilities
denominated in several Eastern and Western European currencies were entirely
eliminated due to the relative strength of the U.S. dollar against the German
mark which generated exchange gains on the notes payable of $7.3 million. There
can be no assurance that future performance of the U.S. dollar against other
currencies, especially the German mark, will continue to yield exchange gains in
future periods.
Extraordinary Gain
In February 1999 the Company recorded an extraordinary gain of $154,000 (net
of income taxes of $80,000), following its repurchase of a portion of its DM
denominated senior discount 12 3/8% notes. The gain represents the difference
between the allocated carrying value of the face value of the debt repurchased
of $629,000 less the consideration paid of $373,000, offset by the write-off of
the allocated unamortized deferred financing costs of $22,000. The Company has
not retired the bonds repurchased.
Net Loss
The Company's net loss increased to $9.7 million during the quarter ended
March 31, 1999 from $3.6 million for the quarter ended March 31, 1998 as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has sustained negative cash flows from
operations and has financed its operations and capital expenditures primarily
through the proceeds from the 1998 issue of DM denominated notes payable, the
Company's 1997 public equity offering, equipment lease financing and private
placements of equity securities. The net proceeds of such transactions, together
with revenues from operations and interest income have been used to fund
aggregate net losses of approximately $53.0 million and investments in property,
plant and equipment of approximately $45.0 million.
The Company had cash and cash equivalents of $35.8 million and working capital
of $41.7 million at March 31, 1999. The Company had $9.7 million of restricted
cash held as security with respect to cash provided by banks participating in
Euronet's ATM network, to cover guarantees to a customer and as deposits with
customs officials. The Company expects to continue to generate losses from
operating activities, and negative cash flow while it concentrates on the
expansion of its ATM network business and development of ARKSYS service delivery
capabilities. As a result of the Company's strategy of continuing expansion and
increasing its market share, the Company's net losses are expected to continue
for 1999. The Company expects improved results in the Year 2000. There can be no
assurance that the Company's revenues will grow or be sustained in future
periods or that the Company will be able to achieve or sustain profitability or
positive cash flow from operations in any future period. If the Company cannot
achieve and sustain operating profitability or positive cash flow from
operations, it may not be able to meet its debt service or working capital
requirements.
The Company leases the majority of its ATMs under capital lease arrangements
that expire between 1999 and 2007. The leases bear interest between 8% and 17%
per annum. As of March 31, 1999 the Company owed $10.4 million under such
capital lease arrangements.
At March 31, 1999, the Company had contractual capital commitments of
approximately $3.5 million. The Company expects that its capital requirements
will continue in the future as it pursues its strategy of expanding its network
and increasing the number of installed ATMs. The Company anticipates that its
capital expenditures for the 12 months ending December 31, 1999 could total
approximately $15.0 million, primarily in connection with the acquisition of
ATMs, scheduled capital lease payments on existing lease obligations, and
related installation costs. Aggregate capital expenditures of the Company for
1999 and 2000 for such purposes could reach approximately $30.0 million in the
Company's existing markets, notably Western and Central Europe. These
requirements contemplate planned expansion in existing markets. Acquisitions of
related business and investments in new markets in furtherance of the Company's
strategy may require additional capital expenditures.
BALANCE SHEET ITEMS
Cash and Cash Equivalents
The decrease of cash and cash equivalents to $35.8 million at March 31, 1999
from $55.6 million at December 31, 1998 is due primarily to operating losses
during the quarter ended March 31, 1999, the net effects of working capital
movements, unrealized foreign exchange gains and losses and the acquisition of a
network of 252 installed and 36 inventoried ATMs from Service Bank (see Note 4
to the Unaudited Consolidated Financial Statements) for $6.7 million.
Page 12
<PAGE>
Restricted Cash
Restricted cash decreased to $9.6 million at March 31, 1999 from $13.0 million
at December 31, 1998. The majority of restricted cash was held as security with
respect to cash provided in Hungary by banks participating in Euronet's ATM
network, to cover guarantees to a customer and as deposits with customs
officials. The decrease represents amounts withdrawn from the network, and
devaluation of the Hungarian forint and Polish zloty.
Trade Accounts Receivable
Trade accounts receivable increased to $8.4 million at March 31, 1999 from
$5.7 million at December 31, 1998 is due primarily to sales from the ARKSYS
software solutions segment and the Service Bank transaction (described in Note 4
to the Unaudited Consolidated Financial Statements).
Property, Plant and Equipment
Net property, plant and equipment increased from $33.2 million at December 31,
1998 to $34.5 million at March 31, 1999. This increase is due primarily to the
installation of ATMs, the Service Bank transaction (described in Note 4 to the
Unaudited Consolidated Financial Statements), and the acquisition of computer
equipment as the network expands.
Intangible Assets
The increase in intangible assets to $15.3 million at March 31, 1999 from
$12.5 million at December 31, 1998 is due primarily to the acquisition of the
network of 252 installed and 36 inventoried ATMs from Service Bank (see Note 4
to the Unaudited Consolidated Financial Statements) and recording of purchased
intangibles of $3.2 million.
Notes Payable
Notes payable decreased to $78.3 million at March 31, 1999 from $83.7 million
at December 31, 1998. This is the result of several transactions as follows:
Balance at December 31, 1998 $83,720
Unrealized foreign exchange gain (DM vs. US$) (7,250)
Accretion of bond interest 2,453
Bond repurchase (629)
-------
Balance at March 31, 1999 $78,294
=======
Accumulated other Comprehensive (Loss)/Income
The decrease in other comprehensive loss to $2.1 million at March 31, 1999
from a gain of $65,000 at December 31, 1998 is a result of the change in the
foreign currency translation due an approximate 14.3% devaluation of the Polish
zloty against the US dollar and an approximate 9.4% devaluation of the DM
against the US dollar during the first quarter.
Total Stockholders Equity
Total stockholders equity at March 31, 1999 was $12.4 million a decrease from
$24.2 million at December 31, 1998. This is primarily due to the loss from
operations for the quarter ended March 31, 1999 of $9.7 million and the
recording of a cumulative translation adjustment of $2.1 million discussed
above.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1998, the FASB issued SFAS No. 133 - Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge in one of three categories described in the pronouncement.
The accounting for changes in the fair value of a derivative (that is, gains and
losses) depends on the intended use of the derivative and the resulting
designation. Under SFAS 133, an entity that elects to apply hedge accounting is
required to establish at the inception of the hedge the method it will use for
assessing the effectiveness of the hedge derivative and the measurement approach
for determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. SFAS 133 applies to all
entities and is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application should be as of the beginning of an
entity's fiscal quarter; on that date, hedging relationships must be designated
and documented pursuant to the provisions of SFAS 133. Earlier application of
all of the provisions is encouraged but is permitted only as of the beginning of
any fiscal quarter that begins after issuance of SFAS 133. Additionally, SFAS
133 should not be applied retroactively to financial
Page 13
<PAGE>
statements of prior periods. Management believes that the adoption of SFAS 133
will not have a material impact on the Company's consolidated financial
statements.
YEAR 2000 COMPLIANCE
ATM and Related Services Segment
The Company depends on hardware and software systems to provide services to
its customers, to maintain substantially all of its internal operations, and for
the maintenance of on-line computer links to its bank customers, whose software
systems are relied upon to deliver transaction authorization requests. As part
of the program to obtain confirmation of Year 2000 compliance, the Company has
identified the following specific areas of its, or its bank customers' business,
that are affected by year 2000 considerations:
- - The Company's central processing center in Budapest, which uses ARKSYS and
vendor software and AS/400 hardware.
- - Firmware and operating systems in each ATM ("ATM Firmware and Software").
- - Vendor and internally generated software which is used in the Company's
country operations.
- - Software and hardware used to support the financial reporting and accounting
systems of the Company.
- - Software and hardware used by the Company's bank customer to authorize
transactions.
- - Year 2000 readiness of subcontractors performing telecommunications, driving,
monitoring and operating services.
Central Processing Center
The Company has received written confirmation from IBM that the Company's
current version of the AS/400 operating system is Year 2000 compliant. The
Company has upgraded all versions of its ARKSYS software to the Year 2000
compliant release 1.4.
ATM Firmware and Software
IBM and NCR from which the Company purchases its ATMs, have supplied
information regarding Year 2000 compliance. Approximately 500 IBM and 250 NCR
machines require an upgrade at an expected cost of approximately $500 per ATM,
for a total project cost of approximately $375,000. The required changes for
both the IBM and NCR ATM's has been made and tested. The NCR software package
has been distributed and will be installed in April through June of 1999. The
IBM package has been tested and installed in several production machines. Final
roll out will begin in April and is expected to be completed by June 1999.
Vendor and Internal Software Used in the Company's Subsidiaries
All standard vendor or internal software, provided for use in the country
operations by the Company's internal software group ("IS Group") is Year 2000
compliant. Where some of the Company's subsidiaries have developed additional
software locally this has been inventoried and is being reviewed for compliance,
and will be replaced by standard products provided through the IS group. Any
necessary upgrading and testing of all Company software used in all entities is
expected to be completed by June 1999. The cost of any such upgrades is expected
to be immaterial.
Software Used in Financial and Accounting Systems
The majority of the Company's internal financial analysis tools have been
built internally, using Microsoft Access and Microsoft Excel, and are Year 2000
compliant. The Company's primary financial reporting software (Scala 5.0) has
been updated for compliance, tested and implemented.
Software and Hardware Used by the Company's Bank Customers to Authorize
Transactions
The Company has contacted each bank customer in writing requesting
certification of its transaction authorization software for Year 2000 readiness,
and advising that the Company will be required to unilaterally cease support for
any connection which is unable to continue processing. The Company has offered
the use of its test center to verify ability to authorize transactions into the
Year 2000. In addition, the Company has offered the opportunity to place "stand-
in" authorization files at the Company's computer center, against the event of
difficulty with the customer's in-house software.
The Company's revenues could be materially and adversely affected if a
material number of the Company's bank customers are unable to process
transactions into the Year 2000. The Company continues to assess and monitor the
potential impact of the advent of Year 2000 as it receives replies to its
request and suggestions.
The Company has established a testing program with regard to all of its major
card association gateways (Visa, Europay, Mastercard, American Express, Diners
Club) which is anticipated to be completed by July 1999.
Page 14
<PAGE>
Year 2000 Compliance of Subcontractors Providing Telecommunications Driving,
Switching and Authorization Services
The Company relies on telecommunications providers in each market and has
retained subcontractors in Germany, France and the UK to perform the majority of
ATM services it provides. Each of these subcontractors has been required to
provide written certification of Year 2000 compliance. In the absence of such
assurances the Company will survey alternative providers.
Contingency Plan
The Company is confident that its own systems are or will be ready to process
transactions and maintain uninterrupted operations into the year 2000, and
therefore a contingency plan is likely to be limited to providing for the
software and hardware problems of bank customers, which can only be accurately
defined following the supply of information requested from them, described
above.
ARKSYS Software Solutions Segment
ARKSYS has developed and is marketing to its customers a fully Year 2000
compliant version of its software. This version is being operated in the
Company's central processing center. ARKSYS is actively engaged in a program of
updating previous versions of software that have been installed for its
customers who have maintenance contracts with ARKSYS. To date, ARKSYS has
upgraded 53 of its customers and 36 remain to be completed. Completion of this
program is expected by October 1, 1999.
The Company is aware that certain of its customers may choose to temporarily
freeze software development and installation during the third and fourth
quarters of 1999, in order to limit any complications arising from the advent of
the Year 2000. While the Company believes that such freezes may not affect
execution of new contracts for software, implementation of existing contracts
may be affected. Because the Company recognizes revenue based upon the
percentage of completed contract method, any such freezes may adversely affect
revenues of this segment during the third and fourth quarters of 1999.
PREPARATION FOR THE INTRODUCTION OF THE EURO
From January 1, 2002, eleven of the fifteen member countries of the European
Union are scheduled to issue new euro-denominated bills and coins for use in
cash transactions. No later than July 1, 2002 these eleven participating
countries, and other member countries who so elect, will withdraw all bills and
coins denominated in their sovereign currencies, which will no longer be legal
tender.
The Company must be able to dispense euro cash in its networks from January 1,
2002, and may have to dispense both euro and the sovereign currencies between
January 1, 2002 and July 1, 2002. The Company's networks in Germany, France and
potentially the UK will be affected in this regard. The Company's ATMs are able
to dispense various national currencies and will be able to dispense the euro
without hardware modification. A single currency across these countries may
provide opportunities for operating efficiencies and should reduce foreign
exchange exposure.
The Company continues to assess the potential impact of the euro in terms of
its effect on competition, currency risk, and additional costs, but does not
currently believe that the adoption of the euro to date has had a material
adverse effect on its business.
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 U.S. Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included in this document, including,
without limitation, statements regarding (i) the Company's business plans and
financing plans and requirements, (ii) trends affecting the Company's business
plans and financing plans and requirements, (iii) trends affecting the Company's
business, (iv) the adequacy of capital to meet the Company's capital
requirements and expansion plans, (v) the assumptions underlying the Company's
business plans, (vi) business strategy, (vii) government regulatory action,
(viii) technological advances and (ix) projected costs and revenues, are
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Forward-looking
statements are typically identified by the words believe, expect, anticipated,
intend, estimate and similar expressions.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties. Actual
results may differ materially from those in the forward-looking statements as a
result of various factors, including: technological and business developments in
the local card and electronic banking markets affecting the transaction and
other fees which the Company is able to charge for its services; foreign
exchange fluctuations; competition from bank-owned ATM networks, outsource
providers of ATM services and software providers; the Company's relationships
with its major customers, sponsor banks in various markets and International
Card Organizations; unanticipated Year 2000 problems; and changes in laws and
regulations affecting the Company's business. These risks and other risks are
described elsewhere in this document and the Company's periodic filings with the
Securities and Exchange Commission.
Page 15
<PAGE>
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
FOREIGN EXCHANGE EXPOSURE
For the three months ended March 31, 1999, 29% of the Company's revenues were
generated in Poland and Hungary, compared to 73% for year ended December 31,
1998, and 99% for the year ended December 31, 1997. This figure is substantially
reduced with the additional revenues from Arksys and the Company's expanded ATM
network in Germany. While in Hungary the majority of revenues received are
US dollar denominated, this is not the case in Poland, where the majority of
revenues are denominated in Polish zloty. However the majority of these foreign
currency denominated contracts are linked either to inflation or the retail
price index. While it remains the case that a significant portion of the
Company's expenditures are made in or are denominated in U.S. dollars the
Company is also striving to achieve more of its expenses in local currencies to
match its revenues.
INFLATION AND FUNCTIONAL CURRENCIES
In recent years, Hungary, Poland and the Czech Republic have experienced high
levels of inflation. Consequently, these countries' currencies have continued to
decline in value against the major currencies of the OECD over this time period.
However, due to the significant reduction in the inflation rate of these
countries in recent years, none of these countries are considered to have a
hyper-inflationary economy. Therefore, since Poland was no longer considered
hyper-inflationary since 1998 and a significant portion of the Company's Polish
subsidiary's revenues and expenses are denominated in zloty, the functional
currency of the Company's Polish subsidiary is the zloty. The Hungarian and the
Czech Republic subsidiaries continue to have a significant portion of revenues
and expenses denominated in the U.S. dollar. Consequently the U.S. dollar
continues to be the functional currency.
The Company estimates that a further 10% depreciation in foreign exchange
rates of the Deutsche mark, Hungarian forint, and Polish zloty against the U.S.
dollar, would have the combined effect of a $600,000 increase in the reported
net loss. This was estimated using 10% of the Company's net losses after
adjusting for unusual impairment and other items including U.S. dollar
denominated or indexed expenses. The Company believes that this quantitative
measure has inherent limitations. It does not take into account any governmental
actions or changes in either customer purchasing patterns or the Company's
financing or operating strategies.
Germany, France and the U.K. have experienced relatively low and stable
inflation rates in recent years. Therefore, the local currencies in each of
these markets is the functional currency. Although Croatia, like Germany, France
and the U.K. has maintained relatively stable inflation and exchange rates, the
functional currency of the Croatian company is the U.S. dollar due to the
significant level of U.S. dollar denominated revenues and expenses. The
Company's Romanian subsidiary operates with the U.S. dollar as the functional
currency due to the significant level of U.S. dollar denominated revenues and
expenses.
Due to the factors mentioned above, the Company does not believe that
inflation will have a significant effect on results of operations or financial
condition. The Company continually reviews inflation and the functional currency
in each of the countries that it operates in.
Page 16
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
The Company filed an 8KA on February 16, 1999 relating to the
acquisition of ARKSYS.
Page 17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
May 15, 1999 By: /s/ MICHAEL J. BROWN
----------------------
Michael J. Brown
Chief Executive Officer
May 15, 1999 By: /s/ DANIEL C. STEVENS
----------------------
Daniel C. Stevens
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 18
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- ----------------------------
11 Earnings Per Share
27 Financial Data Schedule
Page 19
<PAGE>
EXHIBIT 11 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
EURONET SERVICES INC.
COMPUTATION OF LOSS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months
Ended
March 31,
1999
--------------
(Unaudited)
Loss per common share
Weighted average common shares outstanding................. 15,213,453
Net Loss................................................... (9,684,000)
Loss per common share - basic and diluted.................. $ (0.64)
===========
Page 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 35,803
<SECURITIES> 2,425
<RECEIVABLES> 8,378
<ALLOWANCES> (291)
<INVENTORY> 0
<CURRENT-ASSETS> 60,270
<PP&E> 34,474
<DEPRECIATION> 0
<TOTAL-ASSETS> 115,686
<CURRENT-LIABILITIES> 18,562
<BONDS> 78,294
307
0
<COMMON> 0
<OTHER-SE> 66,440
<TOTAL-LIABILITY-AND-EQUITY> 115,686
<SALES> 0
<TOTAL-REVENUES> 8,169
<CGS> 0
<TOTAL-COSTS> (15,914)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,832)
<INCOME-PRETAX> (9,838)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 154
<CHANGES> 0
<NET-INCOME> (9,684)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
