EEFT 6/30/2015 10Q

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
to
Commission File Number: 001-31648
EURONET WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware
74-2806888
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
 
 
3500 College Boulevard
 
Leawood, Kansas
66211
(Address of principal executive offices)
(Zip Code)
(913) 327-4200
(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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

On July 30, 2015, Euronet Worldwide, Inc. had 52,717,405 shares of Common Stock outstanding.
 
 
 
 
 



EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Table of Contents
 
 
Page
 
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
Item 1.
Item 1A.
Item 2.
Item 6.
 
 
 
 


Table of Contents

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
As of
 
June 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
538,075

 
$
468,010

Restricted cash
45,865

 
68,028

Inventory — PINs and other
59,404

 
85,675

Trade accounts receivable, net of allowances for doubtful accounts of $18,832 at June 30, 2015 and $20,546 at December 31, 2014
325,848

 
375,579

Prepaid expenses and other current assets
121,273

 
108,624

Total current assets
1,090,465

 
1,105,916

Property and equipment, net of accumulated depreciation of $242,024 at June 30, 2015 and $239,607 at December 31, 2014
140,070

 
125,307

Goodwill
605,265

 
599,863

Acquired intangible assets, net of accumulated amortization of $121,854 at June 30, 2015 and $113,153 at December 31, 2014
176,052

 
158,267

Other assets, net of accumulated amortization of $33,920 at June 30, 2015 and $30,276 at December 31, 2014
61,098

 
62,206

Total assets
$
2,072,950

 
$
2,051,559

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
393,817

 
$
445,984

Accrued expenses and other current liabilities
393,071

 
336,361

Current portion of capital lease obligations
2,241

 
2,216

Short-term debt obligations and current maturities of long-term debt obligations
14,653

 
11,156

Income taxes payable
11,695

 
19,248

Deferred revenue
32,342

 
33,916

Total current liabilities
847,819

 
848,881

Debt obligations, net of current portion
415,455

 
410,368

Capital lease obligations, net of current portion
3,739

 
2,148

Deferred income taxes
46,210

 
38,959

Other long-term liabilities
18,492

 
18,391

Total liabilities
1,331,715

 
1,318,747

Equity:
 
 
 
Euronet Worldwide, Inc. stockholders’ equity:
 
 
 
Preferred Stock, $0.02 par value. 10,000,000 shares authorized; none issued

 

Common Stock, $0.02 par value. 90,000,000 shares authorized; 56,979,239 issued at June 30, 2015 and 56,464,187 issued at December 31, 2014
1,140

 
1,129

Additional paid-in-capital
970,162

 
955,715

Treasury stock, at cost, 4,939,904 shares at June 30, 2015 and 4,867,420 shares at December 31, 2014
(138,472
)
 
(133,788
)
Retained earnings
39,606

 
5,619

Accumulated other comprehensive loss
(132,747
)
 
(97,922
)
Total Euronet Worldwide, Inc. stockholders’ equity
739,689

 
730,753

Noncontrolling interests
1,546

 
2,059

Total equity
741,235

 
732,812

Total liabilities and equity
$
2,072,950

 
$
2,051,559

See accompanying notes to the unaudited consolidated financial statements.

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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
 
Three Months Ended
June 30,
 
 
Six Months Ended
June 30,
 
2015
 
2014
 
 
2015
 
2014
Revenues
$
425,148

 
$
395,462

 
 
$
820,310

 
$
748,777

Operating expenses:
 
 
 
 
 
 
 
 
Direct operating costs
258,079

 
242,637

 
 
509,436

 
468,975

Salaries and benefits
64,760

 
60,368

 
 
125,088

 
113,942

Selling, general and administrative
38,616

 
40,981

 
 
72,650

 
73,852

Depreciation and amortization
16,513

 
17,348

 
 
33,793

 
33,498

Total operating expenses
377,968

 
361,334

 
 
740,967

 
690,267

Operating income
47,180

 
34,128

 
 
79,343

 
58,510

Other income (expense):
 
 
 
 
 
 
 
 
Interest income
494

 
627

 
 
1,103

 
1,159

Interest expense
(6,094
)
 
(2,442
)
 
 
(11,792
)
 
(4,430
)
Loss from unconsolidated affiliates

 
(31
)
 
 

 
(31
)
Foreign currency exchange loss, net
(5,104
)
 
(3,087
)
 
 
(18,056
)
 
(4,356
)
Other gains
388

 

 
 
388

 

Other expense, net
(10,316
)
 
(4,933
)
 
 
(28,357
)
 
(7,658
)
Income before income taxes
36,864

 
29,195

 
 
50,986

 
50,852

Income tax expense
(10,343
)
 
(8,707
)
 
 
(17,340
)
 
(14,431
)
Net income
26,521

 
20,488

 
 
33,646

 
36,421

Net loss attributable to noncontrolling interests
288

 
14

 
 
341

 
103

Net income attributable to Euronet Worldwide, Inc.
$
26,809

 
$
20,502

 
 
$
33,987

 
$
36,524

 
 
 
 
 
 
 
 
 
Earnings per share attributable to Euronet Worldwide, Inc. stockholders:
 
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.40

 
 
$
0.66

 
$
0.71

Diluted
$
0.50

 
$
0.38

 
 
$
0.64

 
$
0.69

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
51,935,757

 
51,675,775

 
 
51,804,459

 
51,231,997

Diluted
53,658,504

 
53,773,759

 
 
53,492,580

 
53,279,782

See accompanying notes to the unaudited consolidated financial statements.

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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
26,521

 
$
20,488

 
$
33,646

 
$
36,421

Translation adjustment
20,400

 
4,137

 
(34,940
)
 
7,336

Comprehensive (loss) income
46,921

 
24,625

 
(1,294
)
 
43,757

Comprehensive loss attributable to noncontrolling interests
239

 
26

 
456

 
114

Comprehensive income (loss) attributable to Euronet Worldwide, Inc.
$
47,160

 
$
24,651

 
$
(838
)
 
$
43,871

See accompanying notes to the unaudited consolidated financial statements.

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EURONET WORLDWIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
Six Months Ended
June 30,
 
2015
 
2014
Net income
$
33,646

 
$
36,421

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,793

 
33,498

Share-based compensation
6,415

 
6,511

Unrealized foreign exchange loss, net
18,056

 
4,356

Deferred income taxes
(665
)
 
(2,896
)
Loss from unconsolidated affiliates

 
31

Accretion of convertible debt discount and amortization of debt issuance costs
6,066

 
583

Changes in working capital, net of amounts acquired:
 
 
 
Income taxes payable, net
(5,424
)
 
(1,113
)
Restricted cash
19,359

 
16,574

Inventory — PINs and other
22,012

 
24,720

Trade accounts receivable
42,704

 
53,423

Prepaid expenses and other current assets
(14,726
)
 
5,637

Trade accounts payable
(33,814
)
 
(69,469
)
Deferred revenue
304

 
(2,298
)
Accrued expenses and other current liabilities
29,909

 
(4,598
)
Changes in noncurrent assets and liabilities
(707
)
 
1,744

Net cash provided by operating activities
156,928

 
103,124

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(29,264
)
 
(83,408
)
Purchases of property and equipment
(34,396
)
 
(29,268
)
Purchases of other long-term assets
(3,347
)
 
(2,922
)
Other, net
799

 
206

Net cash used in investing activities
(66,208
)
 
(115,392
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of shares
4,629

 
5,914

Repurchase of shares
(5,143
)
 
(766
)
Borrowings from revolving credit agreements
119,580

 
1,206,556

Repayments of revolving credit agreements
(116,790
)
 
(1,008,600
)
Proceeds from long-term debt obligations

 
9,000

Repayments of long-term debt obligations
(2,344
)
 
(2,938
)
Repayments of capital lease obligations
(1,689
)
 
(1,231
)
Borrowings from short-term debt obligations, net
1,474

 
3,597

Other, net
481

 
(2,154
)
Net cash provided by financing activities
198

 
209,378

Effect of exchange rate changes on cash and cash equivalents
(20,853
)
 
1,434

Increase in cash and cash equivalents
70,065

 
198,544

Cash and cash equivalents at beginning of period
468,010

 
209,826

 
 
 
 
Cash and cash equivalents at end of period
$
538,075

 
$
408,370

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid during the period
$
5,050

 
$
3,314

Income taxes paid during the period
$
21,510

 
$
17,655

Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Equity issued in connection with acquisitions
$
2,962

 
$
56,554

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) GENERAL
Organization
Euronet Worldwide, Inc. (together with its subsidiaries, the “Company” or “Euronet”) is a leading electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Euronet's primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services; electronic distribution of prepaid mobile airtime and other electronic payment products; and global money transfer services.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared from the records of the Company, in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting of normal interim closing procedures) necessary to present fairly on a consolidated basis the financial position of the Company as of June 30, 2015, the results of its operations for the three and six months ended June 30, 2015 and 2014 and cash flows for the six months ended June 30, 2015 and 2014. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2014, including the notes thereto, set forth in the Company’s 2014 Annual Report on Form 10-K. Certain amounts in prior years have been reclassified to conform to the current year's presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reported period. Significant items subject to such estimates and assumptions include computing income taxes, estimating the useful lives and potential impairment of long-lived assets and goodwill, as well as allocating the purchase price to assets acquired and liabilities assumed in acquisitions and revenue recognition. Actual results could differ from those estimates. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year ending December 31, 2015.
Seasonality
Euronet’s EFT Processing Segment experiences its heaviest demand for dynamic currency conversion services during the third quarter of the fiscal year, coinciding with tourism season. Additionally, the EFT Processing and epay Segments are impacted by seasonality during the fourth quarter and first quarter of each year due to higher transaction levels during the holiday season and lower levels following the holiday season. Seasonality in the Money Transfer Segment varies by regions of the world. In most markets, Euronet usually experiences increased demand for money transfer services from the month of May through the fourth quarter of each year, coinciding with the increase in worker migration patterns and various holidays, and experiences its lowest transaction levels during the first quarter of each year.

(2) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Recently Issued
In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory ("ASU 2015-11"), which simplifies the valuation of inventory by using the lower of cost or net realizable value. ASU 2015-11 will become effective for the Company on January 1, 2017 and early adoption is permitted. The guidance is to be applied on a prospective basis. The adoption of ASU 2015-11 is not expected to have a significant impact on the Company's financial position, results of operations or cash flows.
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-03, Interest - Imputation of Interest ("ASU 2015-03"), which requires that transaction costs related to the issuance of debt be deducted from the carrying value of the financial liability and not recorded as separate assets. ASU 2015-03 will become effective for the Company on January 1, 2016 and early adoption is permitted. The guidance is to be applied on a retrospective basis. Euronet has debt issuance costs which will be reclassified upon adoption of the guidance, but it is not expected to have a significant impact on the Company's financial position and it will have no impact upon the Company's results of operations or cash flows.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of

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promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective for the Company on January 1, 2018 and the Company has the option to adopt it effective January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected an adoption date, a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

(3) STOCKHOLDERS' EQUITY

Earnings Per Share
Basic earnings per share has been computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share has been computed by dividing earnings available to common stockholders by the weighted average shares outstanding during the respective period, after adjusting for any potential dilution of options to purchase the Company's common stock, assumed vesting of restricted stock and the assumed conversion of the Company’s convertible debentures. The following table provides the computation of diluted weighted average number of common shares outstanding:

Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Computation of diluted weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
51,935,757

 
51,675,775

 
51,804,459

 
51,231,997

Incremental shares from assumed exercise of stock options and vesting of restricted stock
1,722,747

 
2,097,984

 
1,688,121

 
2,047,785

Diluted weighted average shares outstanding
53,658,504

 
53,773,759

 
53,492,580

 
53,279,782

The table includes the impact of all stock options and restricted stock that are dilutive to the Company’s weighted average common shares outstanding during the three and six months ended June 30, 2015 and 2014. The calculation of diluted earnings per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding of approximately 620,000 and 888,000 for the three and six months ended June 30, 2015, respectively, and approximately 674,000 for both the three and six months ended June 30, 2014.

During the six months ended June 30, 2015, the Company had convertible notes outstanding that, if converted, would have had a potentially dilutive effect on its common stock. At issuance, the Company stated its intent to settle any conversion of these notes by paying cash for the principal value and issuing common stock for any conversion value in excess of the principal value. As of June 30, 2015, and currently, the Company maintains the intent and ability to settle any conversion as stated. Accordingly, the convertible notes would only have a dilutive effect if the market price per share of common stock exceeds the conversion price per share of common stock. Therefore, according to Accounting Standards Codification ("ASC") Topic 260, Earnings per Share, these notes were not dilutive to earnings per share for the three and six months ended June 30, 2015. See Note 7, Debt Obligations, for more information about the convertible notes.

Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consists entirely of foreign currency translation adjustments. The Company recorded a foreign currency translation gain of $20.4 million and a loss of $34.9 million for the three and six months ended June 30, 2015, respectively, and gains of $4.1 million and $7.3 million for the three and six months ended June 30, 2014, respectively. There were no reclassifications of foreign currency translation into the consolidated statements of income for the three and six months ended June 30, 2015 and 2014.


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(4) ACQUISITION
On June 17, 2015, the Company completed the acquisition of all of the capital stock of IME (M) Sdn Bhd and certain affiliated companies ("IME") pursuant to a Share Purchase Agreement (the "Purchase Agreement") among the Company and the selling shareholders of IME (the "Sellers"). IME is a leading Malaysian-based money transfer provider and provides the Money Transfer Segment with immediate entry into the Asian and Middle East send markets.
Under the terms of the Purchase Agreement, the Sellers received purchase consideration (the "Purchase Consideration") of $79.6 million in cash and 49,941 shares of Euronet common stock, with a fair value at date of acquisition of $3.0 million. A portion of the Purchase Consideration was placed in escrow at closing as security for the Sellers' indemnification and other obligations under the Purchase Agreement. Any Purchase Consideration remaining in escrow will be released to the Sellers at various defined dates over five years following the closing date, net of any pending indemnification or other claims under the Purchase Agreement.
The Purchase Consideration was allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. The valuation of the acquired net assets remains preliminary while management completes its valuation, particularly the valuation of acquired intangible assets. None of the goodwill or intangible asset amounts are expected to be deductible for income tax purposes. Pro-forma results of operations, assuming this acquisition was made at the beginning of the earliest period presented, have not been presented because the effect of this acquisition was not material to the Company's results. The net assets of the IME and its results from operations are included in the Money Transfer Segment's results.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date.
(in thousands)
 
As of June 17, 2015
Cash and cash equivalents
 
$
33,229

Other current assets
 
17,052

Intangible assets
 
35,130

Other long-term assets
 
5,253

Total assets acquired
 
90,664

 
 
 
Trade accounts payable
 
(1,894
)
Accrued expenses and other current liabilities
 
(1,555
)
Settlement obligations and customer deposits
 
(27,700
)
Deferred tax liabilities
 
(9,122
)
Other long-term liabilities
 
(858
)
Total liabilities assumed
 
(41,129
)
 
 
 
Goodwill
 
33,092

 
 
 
Net assets acquired
 
$
82,627


The intangible assets of IME are being amortized on a straight-line basis, and the estimated fair values consist of the following:

(in thousands)
 
Fair Value
 
Estimated
Useful Life
Customer relationships
 
$
33,940

 
8 years
Trade names
 
650

 
2 years
Non-compete agreements
 
540

 
5 years
Total intangible assets
 
$
35,130

 
 


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(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the six months ended June 30, 2015 is presented below:
(in thousands)
 
Acquired
Intangible
Assets
 
Goodwill
 
Total
Intangible
Assets
Balance as of December 31, 2014
 
$
158,267

 
$
599,863

 
$
758,130

Increases (Decreases):
 
 
 
 
 
 
Acquisition
 
35,130

 
33,092

 
68,222

Amortization
 
(11,446
)
 

 
(11,446
)
Other (primarily changes in foreign currency exchange rates)
 
(5,899
)
 
(27,690
)
 
(33,589
)
Balance as of June 30, 2015
 
$
176,052

 
$
605,265

 
$
781,317

Estimated amortization expense on intangible assets with finite lives, before income taxes, as of June 30, 2015, is expected to total $14.3 million for the remainder of 2015, $19.0 million for 2016, $17.1 million for 2017, $15.0 million for 2018, $14.3 million for 2019 and $13.9 million for 2020.
The Company’s annual goodwill impairment test is performed during the fourth quarter of its fiscal year. The annual impairment test for the year ended December 31, 2014 resulted in no impairment charge.
Determining the fair value of reporting units requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that the Company’s operations will not perform as expected, or that the estimates or assumptions included in the 2014 annual impairment test could change, which may result in the Company recording material non-cash impairment charges during the year in which these changes take place.

(6) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
 
 
As of
(in thousands)
 
June 30, 2015
 
December 31, 2014
Accrued expenses
 
$
112,689

 
$
97,115

Money transfer settlement obligations
 
184,934

 
137,285

Accrued amounts due to mobile operators and other content providers
 
46,751

 
64,839

Derivative liabilities
 
47,422

 
36,439

Deferred income taxes
 
1,275

 
683

Total
 
$
393,071

 
$
336,361



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(7) DEBT OBLIGATIONS
A summary of debt obligation activity for the six months ended June 30, 2015 is presented below:
(in thousands)
 
Revolving
Credit
Facilities
 
Other Debt
Obligations
 
Capital
Leases
 
1.5%
Convertible
Debentures
Due 2044
 
Term Loan A
 
Total
Balance as of December 31, 2014
 
$
5,316

 
$
6,035

 
$
4,364

 
$
337,986

 
$
72,187

 
$
425,888

Increases (decreases):
 
 
 
 
 

 
 
 
 
 
 
Net borrowings (repayments)
 
1,743

 
3,807

 
1,719

 

 
(2,344
)
 
4,925

Accretion
 

 

 

 
4,882

 

 
4,882

Capital lease interest
 

 

 
173

 

 

 
173

Foreign currency exchange gain
 
962

 
(466
)
 
(276
)
 

 

 
220

Balance as of June 30, 2015
 
8,021

 
9,376

 
5,980

 
342,868

 
69,843

 
436,088

Less — current maturities
 

 
(8,559
)
 
(2,241
)
 

 
(6,094
)
 
(16,894
)
Long-term obligations as of June 30, 2015
 
$
8,021

 
$
817

 
$
3,739

 
$
342,868

 
$
63,749

 
$
419,194


Credit Facility
As of June 30, 2015, the Company had a $675 million senior secured credit facility (the "Credit Facility") consisting of a $600 million revolving credit facility and a $75 million term loan ("Term Loan A"), which had been reduced to $69.8 million through principal amortization payments. The Credit Facility expires April 9, 2019.
Interest on borrowings under the revolving credit facility and Term Loan A varies based upon the Company's consolidated total leverage ratio, as defined in the Company's credit agreement, and during the second quarter of 2015 was based on a margin over the London Inter-Bank Offered Rate (“LIBOR”) rate or a margin over a base rate, as selected by the Company, with the applicable margin ranging from 1.375% to 2.375% for LIBOR loans or 0.375% to 1.375% for base rate loans. Accordingly, the weighted average interest rate for borrowings outstanding under the Company's revolving credit facility and Term Loan A was 10.75% and 1.81%, respectively, as of June 30, 2015, excluding amortization of deferred financing costs.
Convertible Debt
On October 30, 2014, the Company completed the sale of $402.5 million of Convertible Senior Notes due 2044 (“Convertible Notes”). The Convertible Notes have an interest rate of 1.5% per annum payable semi-annually in April and October, and are convertible into shares of Euronet Common Stock at a conversion price of approximately $72.18 per share if certain conditions are met (relating to the closing prices of Euronet Common Stock exceeding certain thresholds for specified periods). Holders of the Convertible Notes have the option to require the Company to purchase their notes at par on October 1, 2020, and have additional options to require the Company to purchase their notes at par on October 1, 2024, 2029, 2034, and 2039, or upon a change in control of the Company. In connection with the issuance of the Convertible Notes, the Company recorded $10.7 million in debt issuance costs, which are being amortized through October 1, 2020.
In accordance with Accounting Standards Codification ("ASC") 470-20-30-27, proceeds from the issuance of convertible debt are allocated between debt and equity components so that debt is discounted to reflect the Company's nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The allocation resulted in an increase to additional paid in capital of $66.1 million.
Contractual interest expense was $1.5 million and $3.0 million for the three and six months ended June 30, 2015. Accretion expense was $2.5 million and $4.9 million for the three and six months ended June 30, 2015. The effective interest rate was 4.7% for the three and six months ended June 30, 2015. As of June 30, 2015, the unamortized discount was $59.6 million, and will be amortized through October 1, 2020.
 
(8) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to foreign currency exchange risk resulting from (i) the collection of funds or the settlement of money transfer transactions in currencies other than the U.S. Dollar, (ii) derivative contracts written to its customers in connection with providing cross-currency money transfer services and (iii) short-term borrowings that are payable in currencies other than the U.S dollar. The Company enters into foreign currency derivative contracts, primarily foreign currency forwards and cross-

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currency swaps, to minimize its exposure related to fluctuations in foreign currency exchange rates. As a matter of Company policy, the derivative instruments used in these activities are economic hedges and are not designated as hedges under ASC Topic 815, Derivatives and Hedging, primarily due to either the relatively short duration of the contract term or the effects of fluctuations in currency exchange rates are reflected concurrently in earnings for both the derivative instrument and the transaction and have an offsetting effect.
Foreign currency exchange contracts - Ria Operations
In the United States, the Company uses short-duration foreign currency forward contracts, generally with maturities up to 14 days, to offset the fluctuation in foreign currency exchange rates on the collection of money transfer funds between initiation of a transaction and its settlement. Due to the short duration of these contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to these foreign currency forward contracts. Most derivative contracts executed with counterparties in the U.S. are governed by an International Swaps and Derivatives Association agreement that includes standard netting arrangements; therefore, asset and liability positions from forward contracts and all other foreign exchange transactions with the same counterparty are net settled upon maturity.
As of June 30, 2015, the Company had foreign currency forward contracts outstanding in the U.S. with a notional value of $158 million, primarily in Australian dollars, Canadian dollars, British pounds, euros and Mexican pesos.

Foreign currency exchange contracts - HiFX Operations
HiFX writes derivative instruments, primarily foreign currency forward contracts and cross-currency swaps, mostly with counterparties comprised of individuals and small-to-medium size businesses and derives a currency margin from this activity as part of its operations. HiFX aggregates its foreign currency exposures arising from customer contracts and hedges the resulting net currency risks by entering into offsetting contracts with established financial institution counterparties. Foreign exchange revenues from HiFX's total portfolio of positions were $15.9 million and $31.6 million for the three and six months ended June 30, 2015, respectively, and $7.1 million for the three months ended June 30, 2014. All of the derivative contracts used in the Company' s HiFX operations are economic hedges and are not designated as hedges under ASC Topic 815, Derivatives and Hedging. The duration of these derivative contracts is generally less than one year.
The fair value of HiFX's total portfolio of positions can change significantly from period to period based on, among other factors, market movements and changes in customer contract positions. HiFX manages counterparty credit risk (the risk that counterparties will default and not make payments according to the terms of the agreements) on an individual counterparty basis. It mitigates this risk by entering into contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. HiFX does not expect any significant losses from counterparty defaults.
The aggregate equivalent U.S. dollar notional amounts of foreign currency derivative customer contracts held by the Company in its HiFX operations as of June 30, 2015 was approximately $770 million. The majority of customer contracts are written in major currencies such as the euro, Canadian dollar, British pound, and Australian dollar.
Balance Sheet Presentation

The following table summarizes the fair value of the derivative instruments as recorded in the Consolidated Balance Sheets as of the dates below:
 
 
Asset Derivatives
 
Liability Derivatives
 
 
 
 
Fair Value
 
 
 
Fair Value
(in thousands)
 
Balance Sheet Location
 
June 30, 2015
 
December 31, 2014
 
Balance Sheet Location
 
June 30, 2015
 
December 31, 2014
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$
50,881

 
$
41,151

 
Other current liabilities
 
$
(47,422
)
 
$
(36,439
)

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The following tables summarize the gross and net fair value of derivative assets and liabilities as of June 30, 2015 and December 31, 2014 (in thousands):
Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of June 30, 2015
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts Presented in the Consolidated Balance Sheet
 
Financial Instruments
 
Cash Collateral Received
 
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
 
$
50,881

 
$

 
$
50,881

 
$
(31,897
)
 
$
(7,757
)
 
$
11,227

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
41,151

 
$

 
$
41,151

 
$
(28,113
)
 
$
(5,279
)
 
$
7,759

Offsetting of Derivative Liabilities
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the Consolidated Balance Sheet
 
 
As of June 30, 2015
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Consolidated Balance Sheet
 
Net Amounts Presented in the Consolidated Balance Sheet
 
Financial Instruments
 
Cash Collateral Paid
 
Net Amounts
Derivatives subject to a master netting arrangement or similar agreement
 
$
(47,422
)
 
$

 
$
(47,422
)
 
$
31,897

 
$
5,401

 
$
(10,124
)
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives subject to a master netting arrangement or similar agreement
 
$
(36,439
)
 
$

 
$
(36,439
)
 
$
28,113

 
$
176

 
$
(8,150
)

Income Statement Presentation
The following tables summarize the location and amount of gains and losses of derivatives in the Consolidated Statements of Income for the three and six months ended June 30, 2015 and 2014:
 
 
 
 
Amount of Loss Recognized in Income on Derivative Contracts (a)
 
 
Location of Gain (Loss) Recognized in Income on Derivative Contracts
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in thousands)
 
 
2015
 
2014
 
2015
 
2014
Foreign currency exchange contracts - Ria Operations
 
Foreign currency exchange loss, net
 
$
(1,923
)
 
$
(406
)
 
$
(34
)
 
$
(1,153
)
(a) The Company enters into derivative contracts such as foreign currency exchange forwards and cross-currency swaps as part of its HiFX operations. These derivative contracts are excluded from this table as they are part of the broader disclosure of foreign currency exchange revenues for this business discussed above.
See Note 9, Fair Value Measurements, for the determination of the fair values of derivatives.


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(9) FAIR VALUE MEASUREMENTS
Fair value measurements used in the unaudited consolidated financial statements are based upon the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. 
Level 2 – Valuations based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the inputs that market participants would use in pricing.
The following table details financial assets and liabilities measured and recorded at fair value on a recurring basis:
 
 
 
 
As of June 30, 2015
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
50,881

 
$

 
$
50,881

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(47,422
)
 
$

 
$
(47,422
)
 
 
 
 
As of December 31, 2014
(in thousands)
 
Balance Sheet Classification
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current assets
 
$

 
$
41,151

 
$

 
$
41,151

Liabilities
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange contracts
 
Other current liabilities
 
$

 
$
(36,439
)
 
$

 
$
(36,439
)

Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, trade accounts payable, accrued expenses and other current obligations approximate their fair values because of the relatively short-term maturities of these financial instruments. The carrying values of the Company’s long-term debt (other than the Convertible Notes), including the current portion, approximate fair value because interest is primarily based on LIBOR, which resets at various intervals of less than one year. The Company estimates the fair value of the Convertible Notes using quoted prices in inactive markets for identical liabilities (Level 2). As of June 30, 2015 and December 31, 2014, the fair values of the convertible notes were $448.5 million and $408.0 million, respectively, with carrying values of $342.9 million and $338.0 million, respectively.


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(10) SEGMENT INFORMATION
The Company’s reportable operating segments have been determined in accordance with ASC Topic 280, Segment Reporting. The Company currently operates in the following three reportable operating segments:
1)
Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East and Asia Pacific. The Company provides comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion and other value added services. Through this segment, the Company also offers a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
2)
Through the epay Segment, the Company provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products in Europe, the Middle East, Asia Pacific, the United States and South America.
3)
Through the Money Transfer Segment, the Company provides global money transfer services under the brand names Ria and HiFX. Ria provides global consumer-to-consumer money transfer services through a network of sending agents, Company-owned stores and a Company-owned website, disbursing money transfers through a worldwide correspondent network. HiFX offers account-to-account international payment services to high-income individuals and small-to-medium sized businesses. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services, foreign currency exchange services and mobile top-up. The Company provides cash management solutions and foreign currency risk management services to small-to-medium sized businesses under the brand name HiFM.
In addition, the Company accounts for non-operating activity, most share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.
The following tables present the Company’s reportable segment results for the three and six months ended June 30, 2015 and 2014:

 
 
For the Three Months Ended June 30, 2015
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
93,075

 
$
166,824

 
$
165,651

 
$
(402
)
 
$
425,148

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
45,075

 
126,519

 
86,860

 
(375
)
 
258,079

Salaries and benefits
 
11,598

 
12,382

 
33,301

 
7,479

 
64,760

Selling, general and administrative
 
6,610

 
9,015

 
21,772

 
1,219

 
38,616

Depreciation and amortization
 
7,754

 
2,728

 
5,964

 
67

 
16,513

Total operating expenses
 
71,037

 
150,644

 
147,897

 
8,390

 
377,968

Operating income (expense)
 
$
22,038

 
$
16,180

 
$
17,754

 
$
(8,792
)
 
$
47,180


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For the Three Months Ended June 30, 2014
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
89,472

 
$
181,979

 
$
124,318

 
$
(307
)
 
$
395,462

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
41,823

 
138,522

 
62,558

 
(266
)
 
242,637

Salaries and benefits
 
11,877

 
13,906

 
27,943

 
6,642

 
60,368

Selling, general and administrative
 
6,549

 
11,186

 
17,546

 
5,700

 
40,981

Depreciation and amortization
 
7,645

 
4,179

 
5,458

 
66

 
17,348

Total operating expenses
 
67,894

 
167,793

 
113,505

 
12,142

 
361,334

Operating income (expense)
 
$
21,578

 
$
14,186

 
$
10,813

 
$
(12,449
)
 
$
34,128


 
 
For the Six Months Ended June 30, 2015
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
167,755

 
$
342,749

 
$
310,457

 
$
(651
)
 
$
820,310

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
84,204

 
263,736

 
162,080

 
(584
)
 
509,436

Salaries and benefits
 
22,604

 
24,427

 
64,394

 
13,663

 
125,088

Selling, general and administrative
 
12,380

 
17,028

 
39,733

 
3,509

 
72,650

Depreciation and amortization
 
15,159

 
5,805

 
12,692

 
137

 
33,793

Total operating expenses
 
134,347

 
310,996

 
278,899

 
16,725

 
740,967

Operating income (expense)
 
$
33,408

 
$
31,753

 
$
31,558

 
$
(17,376
)
 
$
79,343

 
 
For the Six Months Ended June 30, 2014
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
164,077

 
$
367,043

 
$
218,318

 
$
(661
)
 
$
748,777

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
79,161

 
281,863

 
108,530

 
(579
)
 
468,975

Salaries and benefits
 
22,972

 
27,500

 
51,253

 
12,217

 
113,942

Selling, general and administrative
 
12,651

 
20,273

 
33,691

 
7,237

 
73,852

Depreciation and amortization
 
14,941

 
8,325

 
10,091

 
141

 
33,498

Total operating expenses
 
129,725

 
337,961

 
203,565

 
19,016

 
690,267

Operating income (expense)
 
$
34,352

 
$
29,082

 
$
14,753

 
$
(19,677
)
 
$
58,510


The following table presents the Company’s property and equipment and total assets by reportable segment:
 
 
Property and Equipment, net as of
 
Total Assets as of
(in thousands)
 
June 30, 2015
 
December 31, 2014
 
June 30, 2015
 
December 31, 2014
EFT Processing
 
$
84,254

 
$
72,749

 
$
537,011

 
$
390,398

epay
 
23,693

 
24,859

 
563,114

 
754,448

Money Transfer
 
31,972

 
27,528

 
940,638

 
837,360

Corporate Services, Eliminations and Other
 
151

 
171

 
32,187

 
69,353

   Total
 
$
140,070

 
$
125,307

 
$
2,072,950

 
$
2,051,559


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(11) INCOME TAXES
The Company's effective income tax rates were 28.1% and 29.8% for the three months ended June 30, 2015 and 2014, respectively, and 34.0% and 28.4% for the six months ended June 30, 2015 and 2014, respectively.
The Company's effective income tax rates for the three and six months ended June 30, 2015 and 2014 were lower than the applicable statutory income tax rate of 35% primarily because of the Company's U.S. income tax positions. The Company does not have a history of significant taxable income in the U.S.; therefore, the Company has recorded a valuation allowance against its U.S. federal tax net operating loss carryforwards. Accordingly, in instances when the Company's U.S. legal entities generate pre-tax U.S. GAAP income, no income tax expense is recognized to the extent there are net operating loss carryforwards to offset pre-tax U.S. GAAP income. Additionally, the effective income tax rate for the six months ended June 30, 2015 was significantly influenced by foreign currency exchange losses, most of which are not currently deductible for income tax purposes, resulting in a higher effective income tax rate.
(12) COMMITMENTS
As of June 30, 2015, the Company had $74.9 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $42.5 million are outstanding under the revolving credit facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $2.9 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of June 30, 2015, the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $14.5 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $24.4 million over the terms of agreements with the customers.
Once each of Euronet's subsidiaries reaches a certain size, it is required under the Credit Agreement to provide a guarantee of all or a portion of the outstanding obligations under the Credit Agreement depending upon whether the subsidiary is a domestic or foreign entity.
From time to time, the Company enters into agreements with commercial counterparties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Euronet's liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damage to ATMs and theft of ATM network cash that is not recorded on the Company’s Consolidated Balance Sheets. As of June 30, 2015, the balance of ATM network cash for which the Company was responsible was approximately $420 million. The Company maintains insurance policies to mitigate this exposure;
In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for losses suffered by its customers and other parties as a result of the breach of its computer systems, including in particular, losses arising from fraudulent transactions made using information stolen through its processing systems. The Company maintains insurance policies to mitigate this exposure;
In connection with the license of proprietary systems to customers, the Company provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions of operating units or assets made by Euronet, the Company has agreed to indemnify the seller against third-party claims made against the seller relating to the operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made; and

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Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to carrying out their respective duties under such agreements.
The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.
To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of June 30, 2015 or December 31, 2014.

(13) LITIGATION AND CONTINGENCIES

Contingencies
Unclaimed property compliance - In September 2013, the Company entered into a voluntary disclosure agreement with the Secretary of State of the State of Delaware to determine compliance with Delaware unclaimed property laws. Types of property under examination include, but are not limited to, certain unmatched receipts from money transfer agents, payroll checks, accounts payable checks and accounts receivable credits for the period 1996 through 2007. In June 2015, the Company reached an agreement with the State of Delaware regarding unclaimed property for this period and through periods ending in 2009 and remitted an amount which was not material to the Company's consolidated financial condition or results of operations.
Legal Proceedings
From time to time, the Company is a party to legal or regulatory proceedings arising in the ordinary course of its business. Currently, there are no legal proceeding or regulatory findings that management believes, either individually or in the aggregate, would have a material adverse effect on the Company's consolidated financial condition or results of operations. In accordance with U.S. GAAP, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case.

(14) SUBSEQUENT EVENT
On July 2, 2015, the Company completed the acquisition of all of the capital stock of XE Corporation, a global leader in digital foreign exchange information. XE Corporation is a Canadian company which operates the XE.com and x-rates.com websites, providing currency-related data and international payments services.
Under the terms of the purchase, the Company paid purchase consideration of $90.6 million in cash and 642,912 shares of Euronet common stock, with a fair value at date of acquisition of $40.1 million.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms "Euronet," the "Company," "we" and "us" as used herein refer to Euronet Worldwide, Inc. and its subsidiaries.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934 (“Exchange Act”). Generally, the words "believe," "expect," "anticipate," "intend," "estimate," "will" and similar expressions identify forward-looking statements. However, the absence of these words or similar expressions does not mean the statement is not forward-looking. All statements other than statements of historical facts included in this document are forward-looking statements, including, but not limited to, statements regarding the following:
our business plans and financing plans and requirements;
trends affecting our business plans and financing plans and requirements;
trends affecting our business;
the adequacy of capital to meet our capital requirements and expansion plans;
the assumptions underlying our business plans;
our ability to repay indebtedness;
our estimated capital expenditures;
the potential outcome of loss contingencies;
our expectations regarding the closing of any pending acquisitions;
business strategy;
government regulatory action;
technological advances; and
projected costs and revenues.

Although we believe that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to be correct.
Investors are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Actual results may materially differ from those in the forward-looking statements as a result of various factors, including, but not limited to, conditions in world financial markets and general economic conditions, including economic conditions in specific countries and regions; technological developments affecting the market for our products and services; our ability to successfully introduce new products and services; foreign currency exchange rate fluctuations; the effects of any breach of our computer systems, including our financial processing networks; our ability to renew existing contracts at profitable rates; changes in fees payable for transactions performed for cards bearing international logos or over switching networks such as card transactions on ATMs; our ability to comply with increasingly stringent regulatory requirements, including anti-money laundering, anti-terrorism and anti-bribery requirements; changes in laws and regulations affecting our business, including immigration laws; changes in our relationships with, or in fees charged by, our business partners; competition; the outcome of claims and other loss contingencies affecting Euronet; and those other factors referred to above and as set forth  and more fully described in Part I, Item 1A — Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2014. Our Annual Report on Form 10-K is available on the SEC's EDGAR website at www.sec.gov, and a copy may also be obtained by contacting the Company. All forward-looking statements made in this Form 10-Q speak only as of the date of this report. We do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements.


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OVERVIEW
COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES
We are a leading electronic payments provider. We offer payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. Our primary product offerings include comprehensive automated teller machine (“ATM”), point-of-sale (“POS”), card outsourcing, card issuing and merchant acquiring services, software solutions, electronic distribution of prepaid mobile airtime and other electronic payment products, and global money transfer services. We operate in the following three segments:
The EFT Processing Segment, which processes transactions for a network of 21,980 ATMs and approximately 89,000 POS terminals across Europe, the Middle East and Asia Pacific. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal and deposit services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, dynamic currency conversion, and other value added services. Through this segment, we also offer a suite of integrated electronic financial transaction software solutions for electronic payment and transaction delivery systems.
The epay Segment, which provides distribution, processing and collection services for prepaid mobile airtime and other electronic payment products. We operate a network of approximately 676,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic payment products in Europe, the Middle East, Asia Pacific, the United States and South America. We also provide vouchers and physical gift fulfillment services in Europe.
The Money Transfer Segment, which provides global consumer-to-consumer money transfer services, primarily under the brand name Ria and global account-to-account money transfer services under the brand name HiFX. We offer services under the brand name Ria, through a network of sending agents, Company-owned stores (primarily in North America and Europe) and our Ria website (riamoneytransfer.com), disbursing money transfers through a worldwide correspondent network that includes approximately 272,000 locations. We offer services under the brand name HiFX through our HiFX websites (www.hifx.co.uk and www.hifx.com.au) and HiFX customer service representatives. In addition to money transfers, we also offer customers bill payment services (primarily in the U.S.), payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services for a wide variety of issued checks, along with competitive foreign currency exchange services and mobile top-up. Through our HiFM brand, we offer cash management solutions and foreign currency risk management services to small-to-medium sized businesses.
We have five processing centers in Europe, four in Asia Pacific and two in North America. We have 30 principal offices in Europe, 12 in Asia Pacific, seven in North America, three in the Middle East, two in South America and one in Africa. Our executive offices are located in Leawood, Kansas, USA. With approximately 70% of our revenues denominated in currencies other than the U.S. dollar, any significant changes in foreign currency exchange rates will likely have a significant impact on our results of operations.

SOURCES OF REVENUES AND CASH FLOW
Euronet primarily earns revenues and income based on ATM management fees, transaction fees, commissions and foreign currency exchange margin. Each operating segment’s sources of revenues are described below.
EFT Processing Segment — Revenues in the EFT Processing Segment, which represented approximately 22% and 20% of our total consolidated revenues for the second quarter and first half of 2015, respectively, are primarily derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, fixed management fees and transaction fees we charge to customers for operating ATMs and processing debit and credit cards under outsourcing and cross-border acquiring agreements, foreign currency exchange margin on dynamic currency conversion transactions, and fees received for other value added services such as advertising, prepaid telecommunication recharges, bill payment, and money transfers provided over ATMs. Revenues in this segment are also derived from license fees, professional services and maintenance fees for proprietary application software and sales of related hardware.

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epay Segment — Revenues in the epay Segment, which represented approximately 39% and 42% of our total consolidated revenues for the second quarter and first half of 2015, respectively, are primarily derived from commissions or processing fees received from mobile phone operators for the processing and distribution of prepaid mobile airtime and commissions earned from the distribution of other electronic payment products, vouchers, and physical gifts. Due to certain provisions in our mobile phone operator agreements, the operators have the ability to reduce the overall commission paid on top-up transactions. However, by virtue of our agreements with retailers (distributors where POS terminals are located) in certain markets, not all of these reductions are absorbed by us because we are able to pass a significant portion of the reductions to retailers. Accordingly, under certain retailer agreements, the effect is to reduce revenues and reduce our direct operating costs, resulting in only a small impact on gross profit and operating income. In some markets, reductions in commissions can significantly impact our results as it may not be possible, either contractually or commercially in the concerned market, to pass a reduction in commissions to the retailers. In certain markets, retailers may negotiate directly with the mobile phone operators and prepaid content providers for their own commission rates, which also limits our ability to pass through reductions in commissions. Agreements with mobile operators and prepaid content providers are important to the success of our business. These agreements permit us to distribute prepaid mobile airtime and other electronic payment products to the end consumer. Other electronic payment products offered by this segment include prepaid long distance calling card plans, prepaid Internet plans, prepaid debit cards, gift cards, vouchers, transport payments, lottery payments, bill payment, money transfer and digital content such as music, games and software.
Money Transfer Segment — Revenues in the Money Transfer Segment, which represented approximately 39% and 38% of our total consolidated revenues for the second quarter and first half of 2015, respectively, are primarily derived from transaction fees, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to customers at retail exchange rates. We have a sending network in place comprised of agents, customer service representatives, Company-owned stores, primarily in North America and Europe, and our websites riamoneytransfer.com, www.hifx.co.uk and www.hifx.com.au, along with a worldwide network of correspondent agents, consisting primarily of financial institutions in the transfer destination countries. Sending and correspondent agents each earn fees for cash collection and distribution services, which are recognized as direct operating costs at the time of sale.
Corporate Services, Eliminations and Other - In addition to operating in our principal operating segments described above, our “Corporate Services, Eliminations and Other” category includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the operating segments, including most share-based compensation expense. These services are not directly identifiable with our reportable operating segments.

OPPORTUNITIES AND CHALLENGES
Our expansion plans and opportunities are currently focused on eight primary areas:
increasing the number of ATMs in our independent ATM networks;
increasing transactions processed on our network of owned and operated ATMs and POS devices;
signing new outsourced ATM and POS terminal management contracts;
expanding value added services in our EFT Processing Segment, including the sale of dynamic currency conversion services to banks and retailers;
expanding our epay processing network and portfolio of electronic payment products;
expanding our money transfer services, cross-currency payment products and bill payment network;
expanding our cash management solutions and foreign currency risk management services; and
developing our credit and debit card outsourcing business.
EFT Processing Segment — The continued expansion and development of our EFT Processing Segment business will depend on various factors including, but not necessarily limited to, the following:
the impact of competition by banks and other ATM operators and service providers in our current target markets;
the demand for our ATM outsourcing services in our current target markets;
our ability to develop products or services, including value added services, to drive increases in transactions and revenues;
the expansion of our various business lines in markets where we operate and in new markets;
our entry into additional card acceptance and ATM management agreements with banks;

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our ability to obtain required licenses in markets we intend to enter or expand services;
our ability to enter into and renew ATM network cash supply agreements with financial institutions;
the availability of financing for expansion;
our ability to efficiently install ATMs contracted under newly awarded outsourcing agreements;
our ability to renew existing contracts at profitable rates;
our ability to maintain pricing at current levels or mitigate price reductions in certain markets;
the impact of reductions in ATM interchange fees;
our ability to expand and sign additional customers for the cross-border merchant processing and acquiring business; and
the continued development and implementation of our software products and their ability to interact with other leading products.

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

Software products are an integral part of our product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base.
epay Segment — The continued expansion and development of our epay Segment business will depend on various factors, including, but not necessarily limited to, the following:
our ability to maintain and renew existing agreements, and to negotiate new agreements in additional markets with mobile phone operators, content providers, agent financial institutions and retailers;
our ability to use existing expertise and relationships with mobile operators, content providers and retailers to our advantage;
the continued use of third-party providers such as ourselves to supply electronic processing solutions for existing and additional content;
the development of mobile phone networks in the markets in which we do business and the increase in the number of mobile phone users;
the overall pace of growth in the prepaid mobile phone market, including consumer shifts between prepaid and postpaid services;
our market share of the retail distribution capacity;
the development of new technologies that may compete with POS distribution of prepaid mobile airtime and other products;
the level of commission that is paid to the various intermediaries in the electronic payment distribution chain;
our ability to fully recover monies collected by retailers;
our ability to add new and differentiated products in addition to those offered by mobile operators;
our ability to develop and effectively market additional value added services;
our ability to take advantage of cross-selling opportunities with our EFT Processing and Money Transfer Segments, including providing money transfer services through our distribution network; and
the availability of financing for further expansion.


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In all of the markets in which we operate, we are experiencing significant competition which will impact the rate at which we may be able to grow organically. Competition among prepaid mobile airtime distributors results in the increase of commissions paid to retailers and increases in retailer attrition rates. To grow, we must capture market share from other prepaid mobile airtime distributors, offer a superior product offering and demonstrate the value of a global network. In certain markets in which we operate, we believe that many of the factors that may contribute to rapid growth (growth in electronic payment products, expansion of our network of retailers and access to all mobile operators' products) remain present.
Money Transfer Segment — The continued expansion and development of our Money Transfer Segment business will depend on various factors, including, but not necessarily limited to, the following:
the continued growth in worker migration and employment opportunities;
the mitigation of economic and political factors that have had an adverse impact on money transfer volumes, such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the U.S.;
the continuation of the trend of increased use of electronic money transfer and bill payment services among high-income individuals, immigrant workers and the unbanked population in our markets;
our ability to maintain our agent and correspondent networks;
our ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;
the development of new technologies that may compete with our money transfer network;
the expansion of our services in markets where we operate and in new markets;
our ability to strengthen our brands;
our ability to fund working capital requirements;
our ability to recover from agents funds collected from customers and our ability to recover advances made to correspondents;
our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
our ability to take advantage of cross-selling opportunities with our epay Segment, including providing prepaid services through Ria’s stores and agents worldwide;
our ability to leverage our banking and merchant/retailer relationships to expand money transfer corridors to Europe, Asia and Africa, including high growth corridors to Central and Eastern European countries;
the availability of financing for further expansion;
the ability to maintain banking relationships necessary for us to service our customers; and
our ability to successfully expand our agent network in Europe using our payment institution licenses under the Payment Services Directive and in the United States.

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



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SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three and six months ended June 30, 2015 and 2014 are summarized in the tables below:
 
 
Revenues for the Three Months Ended June 30,
 
Year-over-Year Change
 
Revenues for the Six Months Ended June 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2015
 
2014
 
Increase
(Decrease)
Amount
 
Increase
(Decrease)
Percent
 
2015
 
2014
 
Increase
(Decrease) Amount
 
Increase
(Decrease) Percent
EFT Processing
 
$
93,075

 
$
89,472

 
$
3,603

 
4
 %
 
$
167,755

 
$
164,077

 
$
3,678

 
2
 %
epay
 
166,824

 
181,979

 
(15,155
)
 
(8
)%
 
342,749

 
367,043

 
(24,294
)
 
(7
)%
Money Transfer
 
165,651

 
124,318

 
41,333

 
33
 %
 
310,457

 
218,318

 
92,139

 
42
 %
Total
 
425,550

 
395,769

 
29,781

 
8
 %
 
820,961

 
749,438

 
71,523

 
10
 %
Corporate services, eliminations and other
 
(402
)
 
(307
)
 
(95
)
 
31
 %
 
(651
)
 
(661
)
 
10

 
(2
)%
Total
 
$
425,148

 
$
395,462

 
$
29,686

 
8
 %
 
$
820,310

 
$
748,777

 
$
71,533

 
10
 %
 
 
Operating Income (Expense) for the Three Months Ended June 30,
 
Year-over-Year Change
 
Operating Income (Expense) for the Six Months Ended June 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2015
 
2014
 
Increase
(Decrease)Amount
 
Increase
(Decrease)
Percent
 
2015
 
2014
 
Increase
(Decrease)Amount
 
Increase
(Decrease) Percent
EFT Processing
 
$
22,038

 
$
21,578

 
$
460

 
2
 %
 
$
33,408

 
$
34,352

 
$
(944
)
 
(3
)%
epay
 
16,180

 
14,186

 
1,994

 
14
 %
 
31,753

 
29,082

 
2,671

 
9
 %
Money Transfer
 
17,754

 
10,813

 
6,941

 
64
 %
 
31,558

 
14,753

 
16,805

 
114
 %
Total
 
55,972

 
46,577

 
9,395

 
20
 %
 
96,719

 
78,187

 
18,532

 
24
 %
Corporate services, eliminations and other
 
(8,792
)
 
(12,449
)
 
3,657

 
(29
)%
 
(17,376
)
 
(19,677
)
 
2,301

 
(12
)%
Total
 
$
47,180

 
$
34,128

 
$
13,052

 
38
 %
 
$
79,343

 
$
58,510

 
$
20,833

 
36
 %

Impact of changes in foreign currency exchange rates
Our revenues and local expenses are recorded in the functional currencies of our operating entities and translated into U.S. dollars for financial reporting purposes; therefore, amounts we earn outside the U.S. are negatively impacted by the stronger U.S. dollar and positively impacted by the weaker U.S. dollar. On average, the U.S. dollar was considerably stronger in the second quarter and first half of 2015 than the same periods of 2014 compared to currencies of most markets in which we operate. Considering the results by country and the associated functional currency, we estimate that our reported consolidated operating income for the second quarter and first half of 2015 was 17% and 16% less, respectively, due to the changes in foreign currency exchange rates when compared to the same periods of 2014.
To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in values relative to the U.S. dollar of the currencies of the countries in which we have our most significant operations:

 
 
Average Translation Rate
Three Months Ended June 30,
 
Decrease Percent
 
Average Translation Rate
Six Months Ended June 30,
 
Decrease Percent
Currency (dollars per foreign currency)
 
2015
 
2014
 
 
2015
 
2014
 
Australian dollar
 
$
0.7771

 
$
0.9330

 
(17
)%
 
$
0.7817

 
$
0.9146

 
(15
)%
Brazilian real
 
$
0.3257

 
$
0.4489

 
(27
)%
 
$
0.3382

 
$
0.4362

 
(22
)%
British pound
 
$
1.5327

 
$
1.6833

 
(9
)%
 
$
1.5238

 
$
1.6692

 
(9
)%
euro
 
$
1.1069

 
$
1.3714

 
(19
)%
 
$
1.1167

 
$
1.3708

 
(19
)%
Hungarian forint
 
$
0.0036

 
$
0.0045

 
(20
)%
 
$
0.0036

 
$
0.0045

 
(20
)%
Indian rupee
 
$
0.0158

 
$
0.0167

 
(5
)%
 
$
0.0159

 
$
0.0165

 
(4
)%
Polish zloty
 
$
0.2708

 
$
0.3295

 
(18
)%
 
$
0.2699

 
$
0.3286

 
(18
)%

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COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2015 AND 2014
EFT PROCESSING SEGMENT
The following table presents the results of operations for the three and six months ended June 30, 2015 and 2014 for our EFT Processing Segment:
 
 
Three Months Ended
June 30,
 
Year-over-Year Change
 
Six Months Ended
June 30,
 
Year-over-Year Change
(dollar amounts in thousands)
 
2015
 
2014
 
Increase (Decrease) Amount
 
Increase
(Decrease)
Percent
 
2015
 
2014
 
Increase (Decrease) Amount
 
Increase (Decrease) Percent
Total revenues
 
$
93,075

 
$
89,472

 
$
3,603

 
4
 %
 
$
167,755

 
$
164,077

 
$
3,678

 
2
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
45,075

 
41,823

 
3,252

 
8
 %
 
84,204

 
79,161

 
5,043

 
6
 %
Salaries and benefits
 
11,598

 
11,877

 
(279
)
 
(2
)%
 
22,604

 
22,972

 
(368
)
 
(2
)%
Selling, general and administrative
 
6,610

 
6,549

 
61

 
1
 %
 
12,380

 
12,651

 
(271
)
 
(2
)%
Depreciation and amortization
 
7,754

 
7,645

 
109

 
1
 %
 
15,159

 
14,941

 
218

 
1
 %
Total operating expenses
 
71,037

 
67,894

 
3,143

 
5
 %
 
134,347

 
129,725

 
4,622

 
4
 %
Operating income
 
$
22,038

 
$
21,578

 
$
460

 
2
 %
 
$
33,408

 
$
34,352

 
$
(944
)
 
(3
)%
Transactions processed (millions)
 
329

 
320

 
9

 
3
 %
 
632

 
621

 
11

 
2
 %
ATMs as of June 30,
 
21,980

 
19,313

 
2,667

 
14
 %
 
21,980

 
19,313

 
2,667

 
14
 %
Average ATMs
 
21,649

 
18,993

 
2,656

 
14
 %
 
21,132

 
18,702

 
2,430

 
13
 %


Revenues
Our revenues for the second quarter and first half of 2015 increased when compared to the same periods of 2014 primarily due to an increase in the number of ATMs under management being largely offset by the impact of the U.S. dollar strengthening against key foreign currencies. The increase in ATMs and POS devices under management also contributed to an increase in dynamic currency conversion ("DCC") revenues which were partly offset by a decrease in rates charged for certain debit and credit card outsourcing services as a result of our actions to amend and extend a contract with a large European customer during the first quarter of 2015.
Our EFT Processing business in Greece has been affected by the recent sovereign debt crisis in that country. First, due to capital controls on Greek banks, we have not been able to obtain the full amount of cash from them needed to fill our ATMs which potentially results in lost transactions when ATMs become empty. However, we have arranged alternative sources of cash to supplement those supplied by Greek banks which has largely mitigated ATM cash supply risks. Second, due to the uncertainty in Greece, tourist traffic is lower than usual which reduces the number of ATM withdrawals and DCC transactions processed. Further, some tourists who are concerned about their ability to withdraw cash from ATMs in Greece bring additional cash with them on their travels which results in fewer withdrawals from our ATMs, including DCC transactions. These circumstances are likely to continue to impact our operations in the near term, reducing the number of transactions processed and revenues recognized from what would otherwise be expected. Current developments appear to keep Greece as a member of the European Union and the Eurozone which allays the immediate risk of any currency conversion of our cash in Greece; however, the longer term risk of Greece exiting the European Union is still uncertain and any related currency conversion risk remains.
Average monthly revenues per ATM were $1,433 for the second quarter and $1,323 for the first half of 2015 compared to $1,570 for the second quarter and $1,462 for the first half of 2014. The decreases were primarily due to the strengthening of the U.S. dollar against key foreign currencies, partly offset by revenue growth from an increase in ATMs under management and DCC transactions. Revenues per transaction were $0.28 for the second quarter and $0.27 for the first half of 2015 compared to $0.28 for the second quarter and $0.26 for the first half of 2014. Revenue growth from DCC, which earns higher revenues per transaction than other ATM or card based services, was largely offset by the impact of the U.S. dollar strengthening against key foreign currencies.

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Direct operating costs
Direct operating costs consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications, data center operations-related personnel, as well as the processing centers’ facility-related costs and other processing center-related expenses and commissions paid to retail merchants, banks and card processors involved with POS DCC transactions. Direct operating costs increased for the second quarter and first half of 2015 compared to the same periods of 2014, primarily due to an increase in the number of ATMs under management, partly offset by the impact of the U.S. dollar strengthening against key foreign currencies.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $48.0 million for the second quarter and $83.6 million for the first half of 2015 compared to $47.6 million for the second quarter and $84.9 million for the first half of 2014. The slight variances in gross profit were primarily due to the impact of the U.S dollar strengthening against key foreign currencies and decreases in rates charged for certain debit and credit card outsourcing services being largely offset by the growth in revenues from DCC transactions and the increase in ATMs under management. Gross profit as a percentage of revenues (“gross margin”) was 51.6% for the second quarter and 49.8% for the first half of 2015 compared to 53.3% for the second quarter and 51.8% for the first half of 2014. The decreases in gross margin were primarily due to the decrease in rates charged for certain debit and credit card outsourcing services.
Salaries and benefits
The slight decreases in salaries and benefits for the second quarter and first half of 2015 compared to the same periods of 2014 were primarily due to the impact of the U.S. dollar strengthening against key foreign currencies being largely offset by additional headcount to support an increase in the number of ATMs and POS devices under management. As a percentage of revenues, these costs decreased to 12.5% for the second quarter and 13.5% for the first half of 2015 from 13.3% for first quarter and 14.0% for the first half of 2014. These decreases were primarily due to the growth in revenues earned from DCC and other value added service transactions on our ATMs under management, which require minimal incremental support costs.
Selling, general and administrative
Selling, general and administrative expenses were largely unchanged for the second quarter of 2015 compared to the same period of 2014. The slight decrease in these expenses for the first half of 2015 compared to the same period of 2014 was primarily due to the impact of the U.S. dollar strengthening against key foreign currencies, partly offset by increased support costs as a result of the increase in the number of ATMs under management. As a percentage of revenues, these expenses decreased to 7.1% for the second quarter and 7.4% for the first half of 2015 from 7.3% for the first quarter and 7.7% for the first half of 2014. These decreases were primarily due to the growth in revenues earned from DCC and other value added service transactions on our ATMs and POS devices under management, which require minimal incremental support costs.
Depreciation and amortization
The minor increases in depreciation and amortization expense for the second quarter and first half of 2015 compared to the same periods of 2014 were primarily due to an increase in depreciation on our ATMs under management and software assets, largely offset by the impact of the U.S. dollar strengthening against key foreign currencies. As a percentage of revenues, depreciation and amortization expense decreased slightly to 8.3% for the second quarter and 9.0% for the first half of 2015 from 8.5% for the first quarter and 9.1% for the first half of 2014, primarily due to revenue growth slightly outpacing the growth in our ATMs under management and the increase in software capitalization.
Operating income
The slight increase in operating income for the second quarter of 2015 compared to the same period of 2014 was primarily due to the increase in the number of ATMs under management and growth in revenues earned from DCC and other value added service transactions, largely offset by the impact of the U.S. dollar strengthening against key foreign currencies and the decrease in rates charged for certain debit and credit card management services. The slight decrease in in operating income for the first half of 2015 compared to the same period of 2014 is due to the impact of the strengthening U.S. dollar exceeding the operating improvements described above as seasonally fewer transactions are processed during the first quarter of the year, particularly DCC transactions.
Operating income as a percentage of revenues (“operating margin”) decreased to 23.7% for the second quarter and 19.9% for the first half of 2015 from 24.1% for the first quarter and 20.9% for the first half of 2014. The decreases in operating margin were primarily due to the decrease in rates charged for certain debit and credit card management services. Operating income per transaction remained at $0.07 for the second quarter of 2015 and 2014 and decreased slightly to $0.05 for the first half of 2015 from $0.06 for the same period of 2014.


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EPAY SEGMENT
The following table presents the results of operations for the three and six months ended June 30, 2015 and 2014 for our epay Segment: