Edgar Filing: EURONET WORLDWIDE INC

EEFT 9/30/2011 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-31648

EURONET WORLDWIDE, INC.

(Exact name of the 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 R 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 R 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 R	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 R

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of the issuer’s common stock, $0.02 par value, outstanding as of October 31, 2011 was 50,319,321 shares.

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PART I—FINANCIAL INFORMATION	3
ITEM 1. FINANCIAL STATEMENTS	3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
ITEM 4. CONTROLS AND PROCEDURES	33
PART II—OTHER INFORMATION	34
ITEM 1. LEGAL PROCEEDINGS	35
ITEM 1A. RISK FACTORS	35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	35
ITEM 5. OTHER INFORMATION	35
ITEM 6. EXHIBITS	37
EX-10.1
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EURONET WORLDWIDE, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share and per share data)



	As of
	September 30, 2011			December 31, 2010
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	180,945		$	187,235
Restricted cash	89,665			108,717
Inventory — PINs and other	83,305			97,225
Trade accounts receivable, net of allowances for doubtful accounts of $15,381 at September 30, 2011 and $14,924 at December 31, 2010	243,125			288,765
Prepaid expenses and other current assets	52,046			46,072
Total current assets	649,086			728,014
Property and equipment, net of accumulated depreciation of $183,034 at September 30, 2011 and $166,094 at December 31, 2010	93,352			91,527
Goodwill	483,783			445,713
Acquired intangible assets, net of accumulated amortization of $125,097 at September 30, 2011 and $109,726 at December 31, 2010	97,892			95,819
Other assets, net of accumulated amortization of $18,557 at September 30, 2011 and $20,805 at December 31, 2010	58,150			48,299
Total assets	$	1,382,263		$	1,409,372
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable	$	263,850		$	324,466
Accrued expenses and other current liabilities	203,057			218,006
Current portion of capital lease obligations	1,370			2,429
Short-term debt obligations and current maturities of long-term debt obligations	4,843			2,507
Income taxes payable	8,877			13,177
Deferred revenue	22,247			10,775
Total current liabilities	504,244			571,360
Debt obligations, net of current portion	314,557			286,105
Capital lease obligations, net of current portion	1,661			2,363
Deferred income taxes	24,417			21,958
Other long-term liabilities	10,698			8,709
Total liabilities	855,577			890,495
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; 51,844,857 issued at September 30, 2011 and 51,462,195 issued at December 31, 2010	1,037			1,029
Additional paid-in-capital	763,050			752,209
Treasury stock, at cost, 1,331,503 shares at September 30, 2011 and 482,839 shares at December 31, 2010	(18,592		)	(5,212		)
Accumulated deficit	(215,518		)	(241,511		)
Restricted reserve	1,000			974
Accumulated other comprehensive income (loss)	(10,689		)	5,122
Total Euronet Worldwide, Inc. stockholders’ equity	520,288			512,611
Noncontrolling interests	6,398			6,266
Total equity	526,686			518,877
Total liabilities and equity	$	1,382,263		$	1,409,372

See accompanying notes to the unaudited consolidated financial statements.

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EURONET WORLDWIDE, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010

Revenues	$	299,507		$	260,223		$	841,902		$	754,454
Operating expenses:
Direct operating costs	190,534			167,439			536,810			494,136
Salaries and benefits	43,969			35,007			124,062			98,627
Selling, general and administrative	30,058			23,226			80,344			64,269
Depreciation and amortization	14,824			14,289			44,547			42,389
Total operating expenses	279,385			239,961			785,763			699,421
Operating income	20,122			20,262			56,139			55,033
Other income (expense):
Interest income	1,745			831			4,332			1,958
Interest expense	(5,180		)	(5,074		)	(15,686		)	(15,059		)
Income from unconsolidated affiliates	624			34			1,464			1,035
Gain on settlements	—			3,110			1,000			3,110
Loss on early retirement of debt	(1,899		)	—			(1,899		)	—
Foreign currency exchange gain (loss), net	(11,854		)	8,956			1,083			(5,467		)
Other income (expense), net	(16,564		)	7,857			(9,706		)	(14,423		)
Income before income taxes	3,558			28,119			46,433			40,610
Income tax expense	(6,483		)	(7,054		)	(19,433		)	(17,185		)
Net income (loss)	(2,925		)	21,065			27,000			23,425
Less: Net income attributable to noncontrolling interests	(255		)	(100		)	(1,007		)	(1,117		)
Net income (loss) attributable to Euronet Worldwide, Inc.	$	(3,180	)	$	20,965		$	25,993		$	22,308

Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders — basic	$	(0.06	)	$	0.41		$	0.51		$	0.44

Basic weighted average shares outstanding	51,116,512			50,872,551			51,134,940			50,862,725

Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders — diluted	$	(0.06	)	$	0.41		$	0.50		$	0.43

Diluted weighted average shares outstanding	51,116,512			51,539,150			51,897,498			51,685,713

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						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net income (loss)	$	(2,925	)	$	21,065		$	27,000		$	23,425
Other comprehensive income (loss), net of tax:
Translation adjustment	(46,731		)	50,448			(15,788		)	(13,183		)
Comprehensive income (loss)	(49,656		)	71,513			11,212			10,242
Comprehensive (income) loss attributable to noncontrolling interests	257			(773		)	(1,030		)	(658		)
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.	$	(49,399	)	$	70,740		$	10,182		$	9,584

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)



	Nine Months Ended September 30,
	2011			2010
Net income	$	27,000		$	23,425
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,547			42,389
Share-based compensation	7,957			6,659
Unrealized foreign exchange (gain) loss, net	(1,083		)	5,669
Loss on early retirement of debt	1,899			—
Gain on dispute settlement	—			(3,110		)
Deferred income taxes	(1,222		)	(3,433		)
Income from unconsolidated affiliates	(1,464		)	(1,035		)
Accretion of convertible debentures discount and amortization of debt issuance costs	6,962			6,561
Changes in working capital, net of amounts acquired:
Income taxes payable, net	(4,217		)	(3,465		)
Restricted cash	15,494			(25,481		)
Inventory — PINs and other	20,840			38,274
Trade accounts receivable	46,789			28,221
Prepaid expenses and other current assets	(5,894		)	(9,373		)
Trade accounts payable	(57,922		)	29,466
Deferred revenue	(2,896		)	(4,514		)
Accrued expenses and other current liabilities	(11,794		)	(39,605		)
Changes in noncurrent assets and liabilities	(7,032		)	(4,883		)
Net cash provided by operating activities	77,964			85,765
Cash flows from investing activities:
Acquisitions, net of cash acquired	(54,070		)	(24,418		)
Purchases of property and equipment	(32,744		)	(21,075		)
Purchases of other long-term assets	(2,213		)	(3,287		)
Other, net	(409		)	2,074
Net cash used in investing activities	(89,436		)	(46,706		)
Cash flows from financing activities:
Proceeds from issuance of shares	2,124			1,458
Repurchase of shares	(10,390		)	—
Borrowings from revolving credit agreements	247,475			119,000
Repayments of revolving credit agreements	(172,200		)	(158,172		)
Proceeds from long-term debt obligations	80,000			—
Repayments of long-term debt obligations	(127,000		)	(2,727		)
Repayments of capital lease obligations	(2,183		)	(1,876		)
Payment of acquisition contingent consideration	(5,455		)	—
Debt issuance costs	(3,169		)	—
Cash dividends paid to noncontrolling interests stockholders	(1,055		)	(1,676		)
Other, net	582			437
Net cash provided by (used in) financing activities	8,729			(43,556		)
Effect of exchange rate changes on cash and cash equivalents	(3,547		)	(322		)
Decrease in cash and cash equivalents	(6,290		)	(4,819		)
Cash and cash equivalents at beginning of period	187,235			183,528
Cash and cash equivalents at end of period	$	180,945		$	178,709
Interest paid during the period	$	7,140		$	6,952
Income taxes paid during the period	24,633			20,056

See accompanying notes to the unaudited consolidated financial statements.

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EURONET WORLDWIDE, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1) GENERAL

Organization

Euronet Worldwide, Inc. and its subsidiaries (the “Company” or “Euronet”) is a leading global electronic payments provider. Euronet offers payment and transaction processing and distribution solutions to financial institutions, retailers, service providers and individual consumers. The Company's primary product offerings include: comprehensive automated teller machine (“ATM”), point-of-sale (“POS”) and card outsourcing services; electronic distribution of prepaid mobile airtime, other electronic payment products, vouchers and physical gifts; and global consumer 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 the financial position of the Company as of September 30, 2011, and the results of its operations for the three- and nine-month periods ended September 30, 2011 and 2010 and cash flows for the nine-month periods ended September 30, 2011 and 2010.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2010, including the notes thereto, set forth in the Company’s 2010 Annual Report on Form 10-K.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The results of operations for the three- and nine-month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Recent accounting pronouncements

In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. The qualitative assessment is applicable to the annual test of goodwill impairment as well as determining if an interim test of goodwill impairment is necessary. ASU 2011-08 is effective for public entities for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of ASU 2011-08 is not expected to materially affect the Company's financial statements.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. Finally, ASU 2011-05 requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The requirements apply to both annual and interim financial statements and should be applied retrospectively. ASU 2011-05 is effective for public entities for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of ASU 2011-05 is not expected to materially affect the Company's financial statements.

Money transfer settlement obligations

Money transfer settlement obligations are recorded in accrued expenses and other current liabilities on the Company’s unaudited Consolidated Balance Sheets and consist of amounts owed by the Company to money transfer recipients. As of September 30, 2011, the Company’s money transfer settlement obligations were $35.0 million.

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(3) 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 the assumed conversion of the Company’s convertible debentures, shares issuable in connection with acquisition obligations, restricted stock and options to purchase the Company’s common stock. The following table provides the computation of diluted weighted average number of common shares outstanding:



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding	51,116,512	50,872,551	51,134,940	50,862,725
Incremental shares from assumed conversion of stock options and restricted stock	—	666,599	762,558	822,988
Diluted weighted average shares outstanding	51,116,512	51,539,150	51,897,498	51,685,713

The table includes all stock options and restricted stock that are dilutive to Euronet’s weighted average common shares outstanding during the period. For the three months ended September 30, 2011, the Company incurred a net loss; therefore, diluted loss per share is the same as basic loss per share for the period. The calculation of diluted earnings (loss) 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 5,140,000 and 1,749,000 for the three- and nine-month periods ended September 30, 2011, respectively, and of approximately 2,360,000 and 2,350,000 for the three- and nine-month periods ended September 30, 2010, respectively.

The Company has convertible debentures that, if converted, would have a potentially dilutive effect on the Company’s stock. As required by Accounting Standards Codification (“ASC”) Topic 260, Earnings per Share, if dilutive, the impact of the contingently issuable shares must be included in the calculation of diluted earnings per share under the “if-converted” method, regardless of whether the conditions upon which the debentures would be convertible into shares of the Company’s common stock have been met. The Company’s outstanding 3.50% debentures are convertible into 4.2 million shares of common stock only upon the occurrence of certain conditions. Under the if-converted method, the assumed conversion of the 3.50% debentures was anti-dilutive for the three- and nine-month periods ended September 30, 2011 and 2010. The Company’s remaining 1.625% convertible debentures outstanding were repurchased in January 2010 and the assumed conversion of the then-outstanding debentures was anti-dilutive for the nine-month period ended September 30, 2010.

(4) ACQUISITIONS

Effective September 16, 2011, the Company acquired all the common stock of cadooz Holding GmbH and its wholly owned operating subsidiaries ("cadooz"), which added additional product offerings to the Company's epay operations in Europe. The purchase price of approximately $54.7 million was paid from cash on hand. Part of the net assets acquired includes a liability for additional purchase price consideration based upon the level of revenue achieved by one of cadooz's subsidiaries for the three-year period ending in February 2014. Additionally, $4.1 million in cash is being held in escrow to secure certain obligations of the sellers under the Sale and Purchase Agreement. The valuation of cadooz's net assets acquired remains preliminary while management completes its valuation, particularly the valuation of acquired intangible assets and the valuation of deferred revenue, which is a significant aspect of cadooz's business. In the second quarter of 2011, the Company also acquired the net assets of a Canada-based check-cashing company for approximately $3.4 million in cash.

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The following table summarizes the preliminary fair values of the acquired net assets at the respective acquisition dates:



(dollar amount in thousands)	Estimated Life
Current assets		$	31,062
Property and equipment	3-14 years	942
Customer relationships	8 -12 years	16,826
Trademarks and trade names	10 - 20 years	2,512
Software	3 years	390
Goodwill	Indefinite	43,080
Other non-current assets		57
Fair value of net assets		94,869
Current liabilities		(29,859		)
Deferred income tax liability		(5,435		)
Other non-current liabilities		(1,516		)
Net assets acquired		$	58,059

Gain on dispute settlement

In the third quarter of 2010, the Company reached a settlement regarding a dispute with the sellers of Ria Envia, Inc. (“Ria”). The Company received 226,634 shares of Euronet stock that had been held in escrow related to the Ria acquisition. The $3.5 million fair value of the shares on the date of settlement was recorded as an addition to treasury stock and $3.1 million, net of settlement costs, was recorded as a non-operating gain.

(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET

A summary of acquired intangible assets and goodwill activity for the nine-month period ended September 30, 2011 is presented below:



(in thousands)	Acquired Intangible Assets			Goodwill			Total Intangible Assets
Balance as of December 31, 2010	$	95,819		$	445,713		$	541,532
Increases (decreases):
Acquisitions	19,728			43,080			62,808
Amortization	(16,318		)	—			(16,318		)
Other (primarily changes in foreign currency exchange rates)	(1,337		)	(5,010		)	(6,347		)
Balance as of September 30, 2011	$	97,892		$	483,783		$	581,675

Estimated annual amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2011, is expected to total $18.0 million for 2011, $18.3 million for 2012, $13.7 million for 2013, $11.0 million for 2014, $5.8 million for 2015 and $4.2 million for 2016.

The Company’s annual goodwill impairment test is performed during the fourth quarter. The Company’s annual impairment test for the year ended December 31, 2010 resulted in the Company recording an estimated non-cash goodwill impairment charge of $70.9 million in the fourth quarter of 2010 related to its epay reporting units in the U.K., Spain and Romania. 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 estimates or assumptions could change, which may result in the Company recording additional material non-cash impairment charges during the year in which these changes take place.

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(6) DEBT OBLIGATIONS

A summary of debt obligation activity for the nine-month period ended September 30, 2011 is presented below:



(in thousands)	Revolving Credit Facilities		Other Debt Obligations			Capital Leases			3.5% Convertible Debentures Due 2025			Term Loans			Total
Balance at December 31, 2010	$	—	$	607		$	4,792		$	161,005		$	127,000		$	293,404
Increases (decreases):
Net additions (repayments)	75,275		(191		)	(1,944		)	(3,393		)	(47,000		)	22,747
Accretion	—		—			—			5,670			—			5,670
Capital lease interest	—		—			315			—			—			315
Foreign currency exchange loss	—		427			(132		)	—			—			295
Balance at September 30, 2011	75,275		843			3,031			163,282			80,000			322,431
Less — current maturities	—		(843		)	(1,370		)	—			(4,000		)	(6,213		)
Long-term obligations at September 30, 2011	$	75,275	$	—		$	1,661		$	163,282		$	76,000		$	316,218

On August 18, 2011, the Company and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (the "Credit Agreement") with a lending syndicate consisting of nine banks (the "Lenders") with Bank of America, N.A. serving as Administrative Agent and Collateral Agent and U.S. Bank National Association serving as Syndication Agent. Under the Credit Agreement, the Lenders have made available a $355 million senior secured credit facility (the "Credit Facility") consisting of a $265 million five-year revolving credit facility, a $10 million five-year India revolving credit facility and an $80 million five-year term loan which was fully drawn at closing. The revolving credit facility allows for borrowings in U.S. dollars, euro, British pound sterling, Australian dollars and/or Indian rupees. The Credit Agreement amends and extends the credit agreement dated as of April 4, 2007 and all subsequent amendments thereto, which consisted of a $100 million revolving line of credit and $126 million outstanding term loan maturing April 2012 and 2014, respectively.

The $265 million revolving credit facility contains a $200 million sublimit for the issuance of letters of credit and a $25 million sublimit for swingline loans. Subject to certain conditions, the Company has the option to increase the Credit Facility by up to an additional $205 million by requesting additional commitments from existing or new lenders. Fees and interest on borrowings vary based upon the Company's consolidated total leverage ratio (as defined in the Credit Agreement) and will be based, in the case of letter of credit fees, on a margin, and in the case of interest, on a margin over London Inter-Bank Offered Rate (“LIBOR”) or a margin over the base rate, as selected by the Company, with the applicable margin ranging from 1.5% to 2.5% (or 0.5% to 1.5% for base rate loans). The base rate is the highest of (i) the Bank of America prime rate, (ii) the Federal Funds rate plus 0.50% or (iii) the Fixed LIBOR rate plus 1.00%. The term loan is subject to scheduled quarterly amortization payments, as set forth in the Credit Agreement. The maturity date for the Credit Facility is five years from the closing date, at which time the outstanding principal balance and all accrued interest will be due and payable in full. The weighted average interest rate of the Company's borrowings was 3.0% under the revolving credit facility and 2.2% under the term loan as of September 30, 2011. Financing costs of $3.8 million have been deferred and are being amortized over the terms of the respective loans and $1.7 million were written off and included in loss on early retirement of debt in the Unaudited Consolidated Statement of Operations.

The Credit Agreement contains customary affirmative and negative covenants, events of default and financial covenants, including (all as defined in the Credit Agreement): (i) a Consolidated Total Leverage Ratio not to exceed 4.0 to 1.0; (ii) a Consolidated Senior Secured Leverage Ratio not to exceed 3.0 to 1.0; and (iii) a Consolidated Fixed Charge Coverage Ratio of not less than 1.5 to 1.0. Subject to meeting certain leverage ratio and liquidity requirements (as defined in the Credit Agreement), the Company is permitted to pay dividends, repurchase common stock and repurchase subordinated debt.

The Company and certain subsidiaries have guaranteed the repayment of obligations under the Credit Facility and have granted pledges of the shares of certain subsidiaries along with a security interest in certain other personal property collateral of the Company and certain subsidiaries.

In September 2011, the Company repurchased $3.6 million in principal amount of the 3.50% convertible debentures which resulted in a loss on early retirement of debt of $0.2 million. The 3.50% convertible debentures had principal amounts outstanding of $171.4 million and $175.0 million and unamortized discounts outstanding of $8.2 million and $14.0 million as of September 30, 2011 and December 31, 2010, respectively. The discount will be amortized through October 15, 2012. Interest

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expense, including contractual interest and discount accretion, was $3.4 million and $3.3 million for the three months ended September 30, 2011 and 2010, respectively, and $10.3 million and $9.8 million for the nine months ended September 30, 2011 and 2010, respectively. The effective interest rate was 8.4% for the three and nine months ended September 30, 2011 and 2010.

(7) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2011, the Company had foreign currency forward contracts outstanding with a notional value of $65.8 million, primarily in euros and U.S. dollars, which were not designated as hedges and had a weighted average remaining maturity of 3.7 days. Although the Company enters into foreign currency forward contracts to offset foreign currency exposure related to the notional value of money transfer transactions collected in currencies other than the U.S. dollar, they are not designated as hedges under ASC Topic 815, Derivatives and Hedging. This is mainly due to the relatively short duration of the contracts, typically 1 to 14 days, and the frequency with which the Company enters into them. Due to the short duration of the contracts and the Company’s credit profile, the Company is generally not required to post collateral with respect to its foreign currency forward contracts.

The Company has an office lease in a foreign country that requires payment in a currency that is not the functional currency of either party to the lease or the Company’s reporting currency. Therefore, the lease contains an embedded derivative per ASC Topic 815 and the fair value of the embedded derivative is recorded in the unaudited Consolidated Balance Sheets.

The required tabular disclosures for derivative instruments are as follows:



		Fair Values of Derivative Instruments as of
(in thousands)	Consolidated Balance Sheet Location	September 30, 2011			December 31, 2010
Derivatives not designated as hedging instruments under ASC Topic 815
		Asset Derivatives
Foreign currency derivative contracts — gross gains	Cash and cash equivalents	$	395		$	51
Foreign currency derivative contracts — gross losses	Cash and cash equivalents	(132		)	(547		)
Total		$	263		$	(496	)
		Liability Derivatives
Embedded derivative in foreign lease	Other long-term liabilities	$	(131	)	$	(144	)
Total derivatives		$	132		$	(640	)



		Amount of Gain (Loss) Recognized in Income on Derivative
	Location of Gain (Loss) Recognized in Income on Derivative	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	Location of Gain (Loss) Recognized in Income on Derivative	2011			2010			2011			2010
Derivatives not designated as hedging instruments under ASC Topic 815
Foreign currency derivative contracts	Foreign currency exchange gain (loss), net	$	682		$	(2,141	)	$	(1,072	)	$	706
Embedded derivative in foreign lease	Foreign currency exchange gain (loss), net	(58		)	24			13			46
Total		$	624		$	(2,117	)	$	(1,059	)	$	752

See Note 8, Fair Value Measurements, for the determination of the fair values of derivatives.

(8) FAIR VALUE MEASUREMENTS

The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt

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obligations approximate fair values due to their short maturities. The carrying values of the Company’s term loan due 2016 and revolving credit agreements approximate fair values because interest is based on LIBOR that resets at various intervals of less than one year. The following table provides the estimated fair values of the Company’s other financial instruments, based on quoted market prices or significant other observable inputs.



	As of
	September 30, 2011						December 31, 2010
(in thousands)	Carrying Value			Fair Value			Carrying Value			Fair Value
3.50% convertible debentures, unsecured, due 2025	$	(163,282	)	$	(169,295	)	$	(161,005	)	$	(172,267	)
Foreign currency derivative contracts	263			263			(496		)	(496		)
Embedded derivative in foreign lease	(131		)	(131		)	(144		)	(144		)

The Company’s assets and liabilities recorded at fair value on a recurring basis using significant other observable inputs are the foreign currency derivative contracts and the embedded derivative in foreign lease. The Company values foreign currency derivative contracts using foreign currency exchange quotations for similar assets and liabilities. The embedded derivative in foreign lease is valued using present value techniques and foreign currency exchange quotations.

(9) SEGMENT INFORMATION

Euronet’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:

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 network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing and electronic recharge services for prepaid mobile airtime. 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 and processing of prepaid mobile airtime and other electronic payment products and collection services in Europe, the Middle East, Asia Pacific, North America and South America. With the purchase of cadooz, we now provide vouchers and physical gift fulfillment services in Europe.

Through the Money Transfer Segment, the Company provides global consumer-to-consumer money transfer services through a network of sending agents and Company-owned stores (primarily in North America and Europe), disbursing money transfers through a worldwide correspondent network. The Company also offers customers bill payment services, payment alternatives such as money orders and prepaid debit cards, comprehensive check cashing services and foreign currency exchange services.

In addition, the Company accounts for non-operating activity, share-based compensation expense, certain intersegment eliminations and the costs of providing corporate and other administrative services to the three segments in its administrative division, “Corporate Services, Eliminations and Other.” These services are not directly identifiable with the Company’s reportable operating segments.

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The following tables present the segment results of the Company’s operations for the three- and nine-month periods ended September 30, 2011 and 2010:



	For the Three Months Ended September 30, 2011
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	50,246	$	174,269	$	75,103	$	(111	)	$	299,507
Operating expenses:
Direct operating costs	23,056		133,198		34,333		(53		)	190,534
Salaries and benefits	7,409		13,012		18,517		5,031			43,969
Selling, general and administrative	5,607		10,295		12,366		1,790			30,058
Depreciation and amortization	5,170		4,482		5,086		86			14,824
Total operating expenses	41,242		160,987		70,302		6,854			279,385
Operating income (loss)	$	9,004	$	13,282	$	4,801	$	(6,965	)	$	20,122



	For the Three Months Ended September 30, 2010
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	49,098	$	148,037	$	63,088	$	—		$	260,223
Operating expenses:
Direct operating costs	22,492		115,847		29,100		—			167,439
Salaries and benefits	7,055		8,600		14,924		4,428			35,007
Selling, general and administrative	4,152		7,619		10,191		1,264			23,226
Depreciation and amortization	4,894		4,173		5,148		74			14,289
Total operating expenses	38,593		136,239		59,363		5,766			239,961
Operating income (loss)	$	10,505	$	11,798	$	3,725	$	(5,766	)	$	20,262



	For the Nine Months Ended September 30, 2011
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	144,985	$	485,861	$	211,285	$	(229	)	$	841,902
Operating expenses:
Direct operating costs	68,521		371,663		96,797		(171		)	536,810
Salaries and benefits	22,330		34,952		51,882		14,898			124,062
Selling, general and administrative	14,454		25,869		34,553		5,468			80,344
Depreciation and amortization	15,352		13,480		15,460		255			44,547
Total operating expenses	120,657		445,964		198,692		20,450			785,763
Operating income (loss)	$	24,328	$	39,897	$	12,593	$	(20,679	)	$	56,139

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	For the Nine Months Ended September 30, 2010
(in thousands)	EFT Processing		epay		Money Transfer		Corporate Services, Eliminations and Other			Consolidated
Total revenues	$	144,152	$	431,106	$	179,196	$	—		$	754,454
Operating expenses:
Direct operating costs	69,210		341,200		83,726		—			494,136
Salaries and benefits	20,159		24,079		43,007		11,382			98,627
Selling, general and administrative	12,022		20,279		27,801		4,167			64,269
Depreciation and amortization	14,304		12,150		15,205		730			42,389
Total operating expenses	115,695		397,708		169,739		16,279			699,421
Operating income (loss)	$	28,457	$	33,398	$	9,457	$	(16,279	)	$	55,033

(10) GUARANTEES

As of September 30, 2011, the Company had $92.5 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $38.6 million are outstanding under the revolving credit facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $18.6 million of cash deposits held by the respective issuing banks and $5.0 million of trade accounts receivable.

Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2011, the Company granted off balance sheet guarantees for cash in various ATM networks amounting to $18.2 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $29.1 million over the terms of the agreements with the customers.

From time to time, Euronet enters into agreements with unaffiliated parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Our 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, generally, is not recorded on the Company’s Consolidated Balance Sheets. As of September 30, 2011, the balance of ATM network cash for which the Company was responsible was approximately $360 million. The Company maintains insurance policies to mitigate this exposure;


•	In connection with the license of proprietary systems to customers, Euronet 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 made by Euronet, the Company has agreed to indemnify the seller against third party claims made against the seller relating to the subject subsidiary, operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by 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;


•	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; and

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•	The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities.

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. 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 September 30, 2011 or December 31, 2010.

(11) INCOME TAXES

The Company’s effective tax rates were 182.2% and 25.1% for the three-month periods ended September 30, 2011 and 2010, respectively, and were 41.9% and 42.3% for the nine-month periods ended September 30, 2011 and 2010, respectively. The effective tax rates were significantly influenced by the foreign currency exchange gains and losses, gains on settlements and loss on early retirement of debt in the respective periods. Excluding these items from pre-tax income, as well as the related tax effects for these items, the Company’s effective tax rates were 39.0% and 43.0% for the three months ended September 30, 2011 and 2010, respectively, and 42.4% and 40.5% for the nine months ended September 30, 2011 and 2010, respectively.

The increases in the effective tax rates, as adjusted, for the three and nine months ended September 30, 2011 compared to the applicable statutory rate of 35% are primarily related to the Company’s U.S. income tax position. For the three- and nine-month periods ended September 30, 2011, we have recorded a valuation allowance against our U.S. income tax net operating losses as it is more likely than not that a tax benefit will not be realized. Accordingly, the income tax benefits associated with pre-tax book losses generated by the Company’s U.S. entities have not been recognized in these periods.

(12) LITIGATION AND CONTINGENCIES

Contingencies

In the second quarter of 2009, the Antitrust Division of the United States Department of Justice (the “DOJ”) served Continental Exchange Solutions, Inc. d/b/a Ria Financial Services (“CES”), an indirect, wholly-owned subsidiary of the Company, with a grand jury subpoena requesting documents from CES and its affiliates in connection with an investigation into possible price collusion related to money transmission services to the Dominican Republic (“D.R.”) during the period from January 1, 2004 to the date of the subpoena. The Company acquired all of the stock of Ria Envia, Inc., the parent of CES, in April 2007. CES foreign exchange transactions between the U.S and the D.R. generated approximately 0.3% of the Company’s 2009 consolidated revenues. The Company and CES are fully cooperating with the DOJ in its investigation.

The Company believes that, during the period covered by the DOJ investigation, CES generally derived part of its charge for exchanging U.S. dollars into D.R. pesos from a reference rate recommended by ADEREDI, a trade association in the D.R. composed of a CES subsidiary and other D.R. money transfer firms. The Company further believes, however, that CES set its own service fee on the D.R. transactions and its overall transaction price to customers. Customers were also free during this time period to use CES and other firms to transmit dollars into the D.R., without conversion into D.R. pesos, and the Company believes such transmissions occurred with increasing frequency over the course of this time period.

At this time, the Company is unable to predict the outcome of the DOJ investigation, or, if charges were to be brought against CES, the possible range of loss, if any, associated with the resolution of any such charges. Nor can the Company predict any potential effect on the Company’s business, results of operations or financial condition arising from such charges or potential collateral consequences, which could include fines, penalties, limitations on or revocation of CES’s license to engage in the money transfer business in one or more states, and civil liability. In addition, the Company has incurred and may continue to incur significant fees and expenses in connection with the DOJ investigation and related matters.

Litigation

During 2010, CES was served with a class action lawsuit filed by a former employee for alleged wage and hour violations related to overtime and meal and rest period requirements under California law. This lawsuit was dismissed on October 12, 2011 in consideration of payment of a nominal amount to the plaintiff.

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

OVERVIEW

COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES

Euronet Worldwide, Inc. (“Euronet,” the “Company,” “we” or “us”) is 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”) and card outsourcing services; electronic distribution of prepaid mobile airtime and other electronic payment products; and global consumer money transfer services. As of September 30, 2011, we operate in the following three principal operating segments:

•

The EFT Processing Segment, which processes transactions for a network of 12,668 ATMs and approximately 53,000 POS terminals across Europe, the Middle East and Asia Pacific. We provide comprehensive electronic payment solutions consisting of ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing and electronic recharge services for prepaid mobile airtime. Through this segment, we also offer a suite of integrated 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. Including terminals operated by unconsolidated subsidiaries, we operate a network of approximately 591,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services and other electronic payment products in Europe, the Middle East, Asia Pacific, North America and South America. With the purchase of cadooz, we now 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. We offer this service through a network of sending agents and Company-owned stores (primarily in North America and Europe), disbursing money transfers through a worldwide correspondent network that includes approximately 140,000 locations. 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.

We have four processing centers in Europe, two in Asia Pacific, two in North America and one in the Middle East. We have 30 principal offices in Europe, seven in North America, nine in Asia Pacific and one in South America. Our executive offices are located in Leawood, Kansas, USA. With approximately 79% of our revenues denominated in currencies other than the U.S. dollar, any significant changes in currency exchange rates will likely have a significant impact on our 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 spreads. Each operating segment’s sources of revenue are described below.

EFT Processing Segment — Revenues in the EFT Processing Segment, which represented approximately 17% of total consolidated revenues for the first nine months of 2011, are derived from fees charged for transactions made by cardholders on our proprietary network of ATMs, as well as 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. Through our proprietary network, we generally charge fees for four types of ATM transactions: i) cash withdrawals, ii) balance inquiries, iii) transactions not completed because the relevant card issuer did not give authorization, and iv) value-added services such as prepaid telecommunication recharges, dynamic currency conversion, bill payment and ATM advertising. Revenues in this segment are also derived from license fees, professional services and maintenance fees for proprietary application software and sales of related hardware.

epay Segment — Revenues in the epay Segment, which represented approximately 58% of total consolidated revenues for the first nine months of 2011, are primarily derived from commissions or processing fees received from telecommunications service providers for the sale and distribution of prepaid mobile airtime. We also generate revenues from 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

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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 Australia, certain retailers negotiate directly with the mobile phone operators for their own commission rates, which also limits our ability to pass through reductions in commissions. Agreements with mobile operators are important to the success of our business. These agreements permit us to distribute prepaid mobile airtime to the mobile operators’ customers. Other 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 25% of total consolidated revenues for the first nine months of 2011, are primarily derived from charging a transaction fee, as well as the margin earned from purchasing foreign currency at wholesale exchange rates and selling the foreign currency to consumers at retail exchange rates. We have a sending agent network in place comprised of agents and Company-owned stores primarily in North America and Europe and 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. These fees are recognized as direct operating costs at the time of sale.

OPPORTUNITIES AND CHALLENGES

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


•	the impact of competition by banks and other ATM operators and service providers in our current target markets;


•	the demand for our ATM outsourcing services in our current target markets;


•	the ability to develop products or services to drive increases in transactions;


•	the expansion of our various business lines in markets where we operate and in new markets;


•	the entrance into additional card acceptance and ATM management agreements with banks;


•	the ability to obtain required licenses in markets we intend to enter or expand services;


•	the availability of financing for expansion;


•	the ability to efficiently install ATMs contracted under newly awarded outsourcing agreements;


•	the ability to renew existing contracts at profitable rates;


•	the ability to maintain pricing at current levels or mitigate price reductions in certain markets;


•	the impact of reductions in ATM interchange fees;


•	the 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.

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


•	the ability to negotiate new agreements in additional markets with mobile phone operators, content providers, agent financial institutions and retailers;


•	the 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;

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•	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 phone operators;


•	the ability to take advantage of cross-selling opportunities with our Money Transfer Segment, including providing money transfer services through our distribution network; and


•	the availability of financing for further expansion.

Money Transfer Segment — The 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 immigrant workers and the unbanked population in our markets;


•	the ability to maintain our agent and correspondent networks;


•	the ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;


•	the 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;


•	the 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;


•	the ability to take advantage of cross-selling opportunities with our epay Segment, including providing prepaid services through Ria’s stores and agents worldwide;


•	the 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; and


•	our ability to successfully expand our agent network in Europe using our Payment Services Directive license.

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 share-based compensation expense. These services are not directly identifiable with our reportable operating segments.

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SEGMENT SUMMARY RESULTS OF OPERATIONS

Revenues and operating income by segment for the three- and nine-month periods ended September 30, 2011 and 2010 are summarized in the tables below:



	Revenues for the Three Months Ended September 30,					Year-over-Year Change					Revenues for the Nine Months Ended September 30,					Year-over-Year Change
						Increase (Decrease)			Increase							Increase (Decrease)			Increase
(dollar amounts in thousands)	2011			2010		Amount			Percent		2011			2010		Amount			Percent
EFT Processing	$	50,246		$	49,098	$	1,148		2	%	$	144,985		$	144,152	$	833		1	%
epay	174,269			148,037		26,232			18	%	485,861			431,106		54,755			13	%
Money Transfer	75,103			63,088		12,015			19	%	211,285			179,196		32,089			18	%
Total	299,618			260,223		39,395			15	%	842,131			754,454		87,677			12	%
Eliminations	(111		)	—		(111		)	n/m		(229		)	—		(229		)	n/m
Total	$	299,507		$	260,223	$	39,284		15	%	$	841,902		$	754,454	$	87,448		12	%



	Operating Income (Loss) for the Three Months Ended September 30,						Year-over-Year Change					Operating Income (Loss) for the Nine Months Ended September 30,						Year-over-Year Change
							Increase (Decrease)			Increase (Decrease)								Increase (Decrease)			Increase (Decrease)
(dollar amounts in thousands)	2011			2010			Amount			Percent		2011			2010			Amount			Percent
EFT Processing	$	9,004		$	10,505		$	(1,501	)	(14	)%	$	24,328		$	28,457		$	(4,129	)	(15	)%
epay	13,282			11,798			1,484			13	%	39,897			33,398			6,499			19	%
Money Transfer	4,801			3,725			1,076			29	%	12,593			9,457			3,136			33	%
Total	27,087			26,028			1,059			4	%	76,818			71,312			5,506			8	%
Corporate services and eliminations	(6,965		)	(5,766		)	(1,199		)	21	%	(20,679		)	(16,279		)	(4,400		)	27	%
Total	$	20,122		$	20,262		$	(140	)	(1	)%	$	56,139		$	55,033		$	1,106		2	%

________________________________________________

n/m — Not meaningful.

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Impact of changes in foreign currency exchange rates

Compared to most of the currencies of the foreign countries in which we operate, the U.S. dollar was weaker during the third quarter and first nine months of 2011 than it was during the comparable 2010 periods. Because our revenues and local expenses are recorded in the functional currencies of our operating entities, amounts we earned for the third quarter and first nine months of 2011 reflected a positive impact due to the stronger foreign currencies. Considering the results by country and the associated functional currency, we estimate that our consolidated operating income for the third quarter and first nine months of 2011 was approximately 12% and 11% higher, respectively, when compared to the same periods of 2010 as a result of changes in foreign currency exchange rates. If significant, in our discussion we will refer to the impact of fluctuation in foreign currency exchange rates in our comparison of operating segment results for the three- and nine-month periods ended September 30, 2011 and 2010. 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 from the third quarter and first nine months of 2010 to the same periods of 2011 of the currencies of the countries in which we have our most significant operations:



	Average Translation Rate						Average Translation Rate
	Three Months Ended		Three Months Ended				Nine Months Ended		Nine Months Ended
Currency (dollars per foreign currency)	September 30, 2011		September 30, 2010		Increase Percent		September 30, 2011		September 30, 2010		Increase Percent
Australian dollar	$	1.0504	$	0.9049	16	%	$	1.0396	$	0.8971	16	%
British pound	$	1.6106	$	1.5505	4	%	$	1.6147	$	1.5340	5	%
euro	$	1.4136	$	1.2921	9	%	$	1.4070	$	1.3164	7	%
Hungarian forint	$	0.0052	$	0.0046	13	%	$	0.0052	$	0.0048	8	%
Indian rupee	$	0.0219	$	0.0216	1	%	$	0.0221	$	0.0218	1	%
Polish zloty	$	0.3418	$	0.3231	6	%	$	0.3510	$	0.3295	7	%

COMPARISON OF OPERATING RESULTS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010

EFT PROCESSING SEGMENT

The following table presents the results of operations for the three- and nine-month periods ended September 30, 2011 and 2010 for our EFT Processing Segment:



	Three Months Ended September 30,				Year-over-Year Change					Nine Months Ended September 30,				Year-over-Year Change
					Increase (Decrease)			Increase (Decrease)						Increase (Decrease)			Increase (Decrease)
(dollar amounts in thousands)	2011		2010		Amount			Percent		2011		2010		Amount			Percent
Total revenues	$	50,246	$	49,098	$	1,148		2	%	$	144,985	$	144,152	$	833		1	%
Operating expenses:
Direct operating costs	23,056		22,492		564			3	%	68,521		69,210		(689		)	(1	)%
Salaries and benefits	7,409		7,055		354			5	%	22,330		20,159		2,171			11	%
Selling, general and administrative	5,607		4,152		1,455			35	%	14,454		12,022		2,432			20	%
Depreciation and amortization	5,170		4,894		276			6	%	15,352		14,304		1,048			7	%
Total operating expenses	41,242		38,593		2,649			7	%	120,657		115,695		4,962			4	%
Operating income	$	9,004	$	10,505	$	(1,501	)	(14	)%	$	24,328	$	28,457	$	(4,129	)	(15	)%
Transactions processed (millions)	247		199		48			24	%	686		584		102			17	%
ATMs as of September 30	12,668		10,519		2,149			20	%	12,668		10,519		2,149			20	%
Average ATMs	12,506		10,492		2,014			19	%	11,714		10,356		1,358			13	%

Table of Contents

Revenues

Our revenues for the third quarter of 2011 increased when compared to the third quarter of 2010 primarily due to the impact of the stronger foreign currencies, growth in value-added services and an increase in the number of ATMs under management. Because our revenues are recorded in the functional currencies of our operating entities, amounts we earn in foreign currencies are positively impacted by the stronger foreign currencies. Partly offsetting the increase were decreases in transaction fees in Germany and lower software revenues. We were able to increase transaction fees in Germany beginning in mid-2009 and were generally able to maintain them through 2010; however, we experienced reductions in these fees beginning in 2011 as a result of market and regulatory factors. Accordingly, we expect that the EFT Processing Segment’s revenues and operating income will continue to reflect these reductions for the full year 2011. The decrease in software revenues was mainly due to having three significant sales in the third quarter of 2010 without similar sales in the third quarter of 2011. The increase in revenues for the first nine months of 2011 when compared to the first nine months of 2010 also reflects $1.2 million recognized in the first quarter of 2011 from the acceleration of previously deferred revenue related to a customer discontinuing a certain product in Greece. The increase was partly offset by decreased interchange fee revenues in Poland beginning in the second quarter of 2010. Further, we had significant sales of POS terminals in Slovakia during the first quarter of 2010 that did not recur in 2011.

Average monthly revenue per ATM was $1,339 for the third quarter and $1,375 for the first nine months of 2011, compared to $1,560 for the third quarter and $1,547 for the first nine months of 2010. The decrease in the third quarter of 2011 from the third quarter of 2010 is primarily due to the reductions in transaction fees in Germany that took effect in the first quarter of 2011, partly offset by the impact of the stronger foreign currencies and growth in value-added services. The decrease in the first nine months of 2011 compared to the same period in 2010 was also the result of the decrease in interchange fee revenues in Poland that took effect in the second quarter of 2010. Revenue per transaction was $0.20 for the third quarter and $0.21 for the first nine months of 2011 compared to $0.25 for both the third quarter and first nine months of 2010. These decreases are primarily the result of the reductions in transaction fees in Germany, the lower software sales and the growth of Cashnet (Euronet's shared ATM network in India) transactions, which generate lower revenues per transaction than those on owned or outsourced ATMs. These decreases were partly offset by the impact of the stronger foreign currencies and growth in value-added services. The decrease in the first nine months of 2011 compared to the same period of 2010 also reflects the decreased interchange fee revenues in Poland.

Direct operating costs

Direct operating costs consist primarily of site rental fees, cash delivery costs, cash supply costs, maintenance, insurance, telecommunications and the cost of data center operations-related personnel, as well as the processing centers’ facility-related costs and other processing center-related expenses. Direct operating costs increased in the third quarter of 2011 compared to the third quarter of 2010 primarily due to the impact of the stronger foreign currencies and the increase in the number of ATMs under management, partly offset by operating cost improvements in Poland and lower costs corresponding to the lower software revenues. The decrease in direct operating costs for the first nine months of 2011, compared to the first nine months of 2010, is mainly attributed to the cost of the POS terminal sales in Slovakia in the first quarter of 2010 that did not recur in 2011 along with operating cost improvements in Poland, partly offset by the increase in the number of ATMs under management and the impact of the stronger foreign currencies.

Gross profit

Gross profit, which is calculated as revenues less direct operating costs, was $27.2 million for the third quarter and $76.5 million for the first nine months of 2011 compared to $26.6 million for the third quarter and $74.9 million for the first nine months of 2010. The increase for the third quarter of 2011 is primarily due to the impact of the stronger foreign currencies, growth in value-added services and the increase in ATMs under management, partly offset by reduced transaction fees in Germany and lower software sales. The increase in the first nine months of 2011 also reflects the reduced interchange fees in Poland and the deferred revenue recognized in Greece. Gross profit as a percentage of revenues (“gross margin”) was 54% for the third quarter and 53% for the first nine months of 2011 compared to 54% for the third quarter and 52% for the first nine months of 2010.

Salaries and benefits

The increase in salaries and benefits for the third quarter and first nine months of 2011 was primarily due to the impact of the stronger foreign currencies and increased bonus expense in the current year. As a percentage of revenues, these costs increased to 14.7% for the third quarter and 15.4% for the first nine months of 2011 compared to 14.4% for the third quarter and 14.0% for the first nine months of 2010, as a result of increased costs and the impact on revenues from the reduced transaction fees in Poland and Germany.

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Selling, general and administrative

The increase in selling, general and administrative expenses for the third quarter and first nine months of 2011 compared to the same periods of 2010 is primarily due to increased costs in growing markets and the impact of the stronger foreign currencies. The increase for the first nine months of 2011 also reflects increased bad debt expense as a result of unusually low bad debt expense in the first quarter of 2010 due to the collection of certain amounts that had been previously written off. As a percentage of revenues, selling, general and administrative expenses increased to 11.2% for the third quarter of 2011 from 8.5% for the third quarter of 2010. The first nine months of 2011 increased to 10.0% compared to 8.3% for the first nine months of 2010 as a result of increased costs and the impact on revenues from the reduced transaction fees in Poland and Germany.

Depreciation and amortization

Depreciation and amortization expense increased for the third quarter and first nine months of 2011 compared to the same periods of 2010 primarily due to the impact of the stronger foreign currencies. As a percentage of revenues, depreciation and amortization expense increased to 10.3% for the third quarter and 10.6% for the first nine months of 2011 compared to 10.0% for the third quarter and 9.9% for the first nine months of 2010, as a result of the impact on revenues from the reduced transaction fees in Poland and Germany.

Operating income

Operating income decreased for the third quarter of 2011 compared to the third quarter of 2010 primarily due to the increase in selling, general and administrative costs and the reduced transaction fees in Germany, partly offset by the impact of the stronger foreign currencies, growth in value-added services and the increase in ATMs under management. The decrease in operating income for the first nine months of 2011 from the first nine months of 2010 also reflects the decreased interchange fee revenues in Poland. Operating income per transaction was $0.04 for the third quarter of 2011 and $0.05 for the third quarter of 2010 reflecting the reduced transaction fees in Germany, the increase in selling, general and administrative costs and the increase in Cashnet transactions, which have lower-than-average operating income per transaction, being largely offset by the impact of the stronger foreign currencies and the growth in value-added services. Operating income per transaction for the first nine months of 2011 was $0.04 compared to $0.05 for the same period of 2010, which also reflects the reduced interchange fee revenues in Poland and the deferred revenue recognized in Greece in the first quarter of 2011. Operating income as a percentage of revenues (“operating margin”) for the third quarter of 2011 was 17.9% compared to 21.4% for the third quarter of 2010, which is primarily due to the reduced transaction fees in Germany and the increased selling, general and administrative costs, partly offset by the growth in value-added services. Operating margin for the first nine months of 2011 was 16.8% compared to 19.7% for the same period of 2010, which also reflects the reduced interchange fee revenues in Poland and the deferred revenue recognized in Greece.

EPAY SEGMENT

The following table presents the results of operations for the three- and nine-month periods ended September 30, 2011 and 2010 for our epay Segment:



	Three Months Ended September 30,				Year-over-Year Change				Nine Months Ended September 30,				Year-over-Year Change
					Increase		Increase						Increase		Increase
(dollar amounts in thousands)	2011		2010		Amount		Percent		2011		2010		Amount		Percent
Total revenues	$	174,269	$	148,037	$	26,232	18	%	$	485,861	$	431,106	$	54,755	13	%
Operating expenses:
Direct operating costs	133,198		115,847		17,351		15	%	371,663		341,200		30,463		9	%
Salaries and benefits	13,012		8,600		4,412		51	%	34,952		24,079		10,873		45	%
Selling, general and administrative	10,295		7,619		2,676		35	%	25,869		20,279		5,590		28	%
Depreciation and amortization	4,482		4,173		309		7	%	13,480		12,150		1,330		11	%
Total operating expenses	160,987		136,239		24,748		18	%	445,964		397,708		48,256		12	%
Operating income	$	13,282	$	11,798	$	1,484	13	%	$	39,897	$	33,398	$	6,499	19	%
Transactions processed (millions)	271		227		44		19	%	778		631		147		23	%

Table of Contents

Revenues

The increase in revenues for the third quarter and first nine months of 2011 compared to the same periods of 2010 was primarily due to the impact of the stronger foreign currencies, the impact of our third quarter 2010 acquisition of Telecomnet, Inc., now known as epay Brazil, and an increase in transactions processed in Germany – mainly from increased demand for non-mobile products – and the impact of our third quarter 2011 acquisition of cadooz Holding GmbH ("cadooz"). This increase was partly offset by declines in the number of transactions processed in Australia and the U.K., which were mostly driven by economic and competitive pressures, lower-cost plans and the impact of certain large retailers entering into direct agreements with two mobile operators in Australia.

In certain markets, our revenue growth has slowed due to mobile phone operators driving competitive reductions in commissions and distributing airtime directly through retailers, as well as overall economic conditions impacting customers' buying decisions. We expect most of our future revenue growth to be derived from: (i) additional electronic payment products sold over the base of POS terminals, (ii) developing markets or markets in which there is organic growth in the electronic top-up sector overall, and (iii) acquisitions, if available and commercially appropriate.

Revenues per transaction were $0.64 for the third quarter and $0.62 for the first nine months of 2011 compared to $0.65 for the third quarter and $0.68 for the first nine months of 2010. The decrease in revenues per transaction is due mainly to the changes in the mix of transactions, particularly due to growth in India, where revenues per transaction are considerably lower than average, and our ATX subsidiary. ATX provides only transaction processing services without significant direct costs and other operating costs related to installing and managing terminals; therefore, the revenues we recognize from these transactions are a fraction of that recognized on average transactions, but with strong contribution to gross profit. The decreases were partly offset by the impact of the stronger foreign currencies.

Direct operating costs

Direct operating costs in the epay Segment include the commissions we pay to retail merchants for the distribution and sale of prepaid mobile airtime and other prepaid products, as well as expenses required to operate POS terminals. The increase in direct operating costs is generally attributable to the impact of the stronger foreign currencies, the impact of epay Brazil, increases in transactions processed in certain markets and the addition of cadooz. These increases are partly offset by declines in the number of transactions processed in Australia and the U.K. and a higher mix of lower cost transactions.

Gross profit

Gross profit, which represents revenues less direct costs, was $41.1 million for the third quarter and $114.2 million for the first nine months of 2011 compared to $32.2 million for the third quarter and $89.9 million for the first nine months of 2010. The primary causes of the increase in gross profit are the impact of the stronger foreign currencies, the impact of epay Brazil, the increased transaction volumes in Germany – mainly from increased demand for non-mobile products – and the addition of cadooz, partly offset by transaction volume declines in Australia. Gross margin increased to 24% for the third quarter and the first nine months of 2011 compared to 22% for the third quarter and 21% for the first nine months of 2010, mainly reflecting the impact of epay Brazil and the growth in Germany. Gross profit per transaction increased to $0.15 for the third quarter and first nine months of 2011 compared to $0.14 for the same periods of 2010, reflecting the impact of the stronger foreign currencies being largely offset by the impact of a higher percentage of lower profit transactions.

Salaries and benefits

The increase in salaries and benefits for the third quarter and first nine months of 2011 compared to the same periods of 2010 is primarily due to the impacts of epay Brazil and the stronger foreign currencies, along with additional headcount to support development of new products and growing markets. As a percentage of revenues, salaries and benefits increased to 7.5% for the third quarter and 7.2% for the first nine months of 2011 from 5.8% for the third quarter and 5.6% for the first nine months of 2010.

Selling, general and administrative

The increase in selling, general and administrative expenses for the third quarter and first nine months of 2011 compared to the same periods of 2010 is mainly due to the impacts of epay Brazil, the acquisition of cadooz and the stronger foreign currencies, along with additional overhead to support development of new products and growing markets. As a percentage of revenues, these expenses increased to 5.9% for the third quarter and 5.3% for the first nine months of 2011 from 5.1% for the third quarter and 4.7% for the first nine months of 2010.

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Depreciation and amortization

Depreciation and amortization expense primarily represents amortization of acquired intangible assets and the depreciation of POS terminals we install in retail stores. Depreciation and amortization expense increased for the third quarter and first nine months of 2011 compared to the same periods of 2010 mainly due to the impacts of epay Brazil and the stronger foreign currencies, partly offset by decreased expense in mature markets where acquired intangible assets are becoming fully amortized and POS terminals are becoming fully depreciated at a faster rate than new terminals are being installed. As a percentage of revenues, these expenses decreased slightly to 2.6% for the third quarter of 2011 from 2.8% for the third quarter of 2010 and remained flat at 2.8% for the first nine months of 2011 and 2010.

Operating income

The increases in operating income for the third quarter and first nine months of 2011 compared to the same periods of 2010 are primarily due to the impact of our September 2010 acquisition of epay Brazil, the growth in Germany – mainly from increased demand for non-mobile products – and the impact of the stronger foreign currencies, partly offset by increased overall operating expenses as described above and decreased profitability in Australia. Operating margin was 7.6% for the third quarter and 8.2% for the first nine months of 2011 compared to 8.0% for the third quarter and 7.7% for the first nine months of 2010. The decrease for the third quarter 2011 compared to the same period of 2010 is primarily due to the impact of our acquisition of cadooz which added revenues but had very little effect on operating income because of the acquisition-related expenses. The increase for the first nine months of 2011 compared to the same period of 2010 is mainly due to the growth in Germany. Operating income per transaction remained flat at $0.05 for the third quarter and first nine months of 2011 and 2010.

MONEY TRANSFER SEGMENT

The following tables present the results of operations for the three- and nine-month periods ended September 30, 2011 and 2010 for the Money Transfer Segment:



	Three Months Ended September 30,				Year-over-Year Change					Nine Months Ended September 30,				Year-over-Year Change
					Increase (Decrease)			Increase (Decrease)						Increase		Increase
(dollar amounts in thousands)	2011		2010		Amount			Percent		2011		2010		Amount		Percent
Total revenues	$	75,103	$	63,088	$	12,015		19	%	$	211,285	$	179,196	$	32,089	18	%
Operating expenses:
Direct operating costs	34,333		29,100		5,233			18	%	96,797		83,726		13,071		16	%
Salaries and benefits	18,517		14,924		3,593			24	%	51,882		43,007		8,875		21	%
Selling, general and administrative	12,366		10,191		2,175			21	%	34,553		27,801		6,752		24	%
Depreciation and amortization	5,086		5,148		(62		)	(1	)%	15,460		15,205		255		2	%
Total operating expenses	70,302		59,363		10,939			18	%	198,692		169,739		28,953		17	%
Operating income	$	4,801	$	3,725	$	1,076		29	%	$	12,593	$	9,457	$	3,136