EEFT 9/30/2012 10Q
Table of Contents

 
 
 
 
 
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, 2012
OR
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 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
The number of shares of the issuer’s common stock, $0.02 par value, outstanding as of October 29, 2012 was 50,848,631 shares.
 
 
 
 
 



Table of Contents
 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,
2012
 
December 31,
2011
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
191,770

 
$
170,663

Restricted cash
93,152

 
73,305

Inventory — PINs and other
66,199

 
98,819

Trade accounts receivable, net of allowances for doubtful accounts of $19,004 at September 30, 2012 and $14,787 at December 31, 2011
316,087

 
349,543

Prepaid expenses and other current assets
60,833

 
61,640

Total current assets
728,041

 
753,970

Property and equipment, net of accumulated depreciation of $201,215 at September 30, 2012 and $175,875 at December 31, 2011
109,318

 
102,900

Goodwill
490,934

 
488,628

Acquired intangible assets, net of accumulated amortization of $135,652 at September 30, 2012 and $129,119 at December 31, 2011
84,897

 
99,878

Other assets, net of accumulated amortization of $23,084 at September 30, 2012 and $19,529 at December 31, 2011
58,448

 
60,953

Total assets
$
1,471,638

 
$
1,506,329

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
368,288

 
$
351,360

Accrued expenses and other current liabilities
206,219

 
216,794

Current portion of capital lease obligations
1,949

 
2,178

Short-term debt obligations and current maturities of long-term debt obligations
178,100

 
170,654

Income taxes payable
4,262

 
5,228

Deferred revenue
26,066

 
28,272

Total current liabilities
784,884

 
774,486

Debt obligations, net of current portion
78,596

 
161,694

Capital lease obligations, net of current portion
3,025

 
4,249

Deferred income taxes
23,772

 
26,003

Other long-term liabilities
12,764

 
13,152

Total liabilities
903,041

 
979,584

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; 52,486,286 issued at September 30, 2012 and 51,982,227 issued at December 31, 2011
1,050

 
1,040

Additional paid-in-capital
777,196

 
766,221

Treasury stock, at cost, 1,667,284 shares at September 30, 2012 and 1,543,441 shares at December 31, 2011
(24,173
)
 
(21,869
)
Accumulated deficit
(171,001
)
 
(204,550
)
Restricted reserve
1,014

 
1,001

Accumulated other comprehensive loss
(19,780
)
 
(21,408
)
Total Euronet Worldwide, Inc. stockholders’ equity
564,306

 
520,435

Noncontrolling interests
4,291

 
6,310

Total equity
568,597

 
526,745

Total liabilities and equity
$
1,471,638

 
$
1,506,329

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

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,
 
2012
 
2011
 
2012
 
2011
 
 
 
 
 
 
 
 
Revenues
$
316,356

 
$
299,507

 
$
916,355

 
$
841,902

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Direct operating costs
200,378

 
190,534

 
586,965

 
536,810

Salaries and benefits
45,549

 
43,969

 
134,624

 
124,062

Selling, general and administrative
30,071

 
30,058

 
86,738

 
80,344

Depreciation and amortization
16,163

 
14,824

 
48,137

 
44,547

Total operating expenses
292,161

 
279,385

 
856,464

 
785,763

Operating income
24,195

 
20,122

 
59,891

 
56,139

 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
877

 
1,745

 
3,493

 
4,332

Interest expense
(5,483
)
 
(5,180
)
 
(16,542
)
 
(15,686
)
Income from unconsolidated affiliates
185

 
624

 
795

 
1,464

Other (losses) gains, net
(25
)
 

 
4,146

 

Loss on early retirement of debt

 
(1,899
)
 

 
(1,899
)
Legal settlement

 

 

 
1,000

Foreign currency exchange gain (loss), net
1,419

 
(11,854
)
 
(1,237
)
 
1,083

Other expense, net
(3,027
)
 
(16,564
)
 
(9,345
)
 
(9,706
)
 
 
 
 
 
 
 
 
Income before income taxes
21,168

 
3,558

 
50,546

 
46,433

 
 
 
 
 
 
 
 
Income tax expense
(6,827
)
 
(6,483
)
 
(17,381
)
 
(19,433
)
 
 
 
 
 
 
 
 
Net income (loss)
14,341

 
(2,925
)
 
33,165

 
27,000

Less: Net loss (income) attributable to noncontrolling
  interests
289

 
(255
)
 
384

 
(1,007
)
Net income (loss) attributable to Euronet Worldwide, Inc.
$
14,630

 
$
(3,180
)
 
$
33,549

 
$
25,993

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Euronet Worldwide, Inc.
  stockholders — basic
$
0.29

 
$
(0.06
)
 
$
0.66

 
$
0.51

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
50,827,767

 
51,116,512

 
50,705,222

 
51,134,940

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Euronet Worldwide, Inc.
  stockholders — diluted
$
0.28

 
$
(0.06
)
 
$
0.65

 
$
0.50

 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
51,597,319

 
51,116,512

 
51,521,203

 
51,897,498

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net income (loss)
$
14,341

 
$
(2,925
)
 
$
33,165

 
$
27,000

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Translation adjustment
10,577

 
(46,731
)
 
1,919

 
(15,788
)
Comprehensive income (loss)
24,918

 
(49,656
)
 
35,084

 
11,212

Comprehensive loss (income) attributable to noncontrolling interests
222

 
257

 
435

 
(1,030
)
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.
$
25,140

 
$
(49,399
)
 
$
35,519

 
$
10,182

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
 
Nine Months Ended September 30,
 
2012
 
2011
Net income
$
33,165

 
$
27,000

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
48,137

 
44,547

Share-based compensation
8,812

 
7,957

Unrealized foreign exchange loss (gain), net
1,237

 
(1,083
)
Loss on early retirement of debt

 
1,899

Gain on step acquisition
(4,388
)
 

Deferred income taxes
(2,838
)
 
(1,222
)
Income from unconsolidated affiliates
(795
)
 
(1,464
)
Accretion of convertible debentures discount and amortization of debt issuance costs
7,032

 
6,962

Changes in working capital, net of amounts acquired:
 
 
 
Income taxes payable, net
(811
)
 
(4,217
)
Restricted cash
(18,767
)
 
15,494

Inventory — PINs and other
31,319

 
20,840

Trade accounts receivable
36,276

 
46,789

Prepaid expenses and other current assets
2,191

 
(5,894
)
Trade accounts payable
16,169

 
(57,922
)
Deferred revenue
(2,274
)
 
(2,896
)
Accrued expenses and other current liabilities
(13,678
)
 
(11,794
)
Changes in noncurrent assets and liabilities
3,627

 
(7,032
)
Net cash provided by operating activities
144,414

 
77,964

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(2,655
)
 
(54,070
)
Purchases of property and equipment
(33,247
)
 
(32,744
)
Purchases of other long-term assets
(3,463
)
 
(2,213
)
Other, net
1,106

 
(409
)
Net cash used in investing activities
(38,259
)
 
(89,436
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of shares
2,109

 
2,124

Repurchase of shares

 
(10,390
)
Borrowings from revolving credit agreements
282,055

 
247,475

Repayments of revolving credit agreements
(360,596
)
 
(172,200
)
Proceeds from long-term debt obligations

 
80,000

Repayments of long-term debt obligations
(3,000
)
 
(127,000
)
Repayments of capital lease obligations
(2,009
)
 
(2,183
)
Debt issuance costs
(938
)
 
(3,169
)
Purchase of subsidiary shares from noncontrolling interests
(3,321
)
 

Payment of acquisition contingent consideration

 
(5,455
)
Cash dividends paid to noncontrolling interests stockholders

 
(1,055
)
Other, net
147

 
582

Net cash (used in) provided by financing activities
(85,553
)
 
8,729

Effect of exchange rate changes on cash and cash equivalents
505

 
(3,547
)
Increase (Decrease) in cash and cash equivalents
21,107

 
(6,290
)
Cash and cash equivalents at beginning of period
170,663

 
187,235

Cash and cash equivalents at end of period
$
191,770

 
$
180,945

 
 
 
 
Interest paid during the period
$
7,518

 
$
7,140

Income taxes paid during the period
21,972

 
24,633

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. and its subsidiaries (the “Company” or “Euronet”) are 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 and other electronic payment products; 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 on a consolidated basis the financial position of the Company as of September 30, 2012, and the results of its operations for the three- and nine-month periods ended September 30, 2012 and 2011 and cash flows for the nine-month periods ended September 30, 2012 and 2011. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2011, including the notes thereto, set forth in the Company’s 2011 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, 2012 are not necessarily indicative of the results to be expected for the full year ending December 31, 2012.

(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. The Company adopted ASU 2011-08 effective January 1, 2012 and its adoption did not 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 Sheet and consist of amounts owed by the Company to money transfer recipients. As of September 30, 2012, the Company’s money transfer settlement obligations were $60.4 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, 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,
 
2012
 
2011
 
2012
 
2011
Computation of diluted weighted average shares outstanding:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
50,827,767

 
51,116,512

 
50,705,222

 
51,134,940

Incremental shares from assumed conversion of stock options and restricted stock
769,552

 

 
815,981

 
762,558

Diluted weighted average shares outstanding
51,597,319

 
51,116,512

 
51,521,203

 
51,897,498

The table includes the impact of all stock options and restricted stock that are dilutive to Euronet’s weighted average common shares outstanding during the three-month period ended September 30, 2012 and the first nine months of 2012 and 2011. For the three-month period ended September 30, 2011, the Company incurred a net loss; therefore, diluted loss per share is the same as basic for the period. 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 3,567,000 and 3,593,000 for the three- and nine-month periods ended September 30, 2012, respectively, and approximately 5,140,000 and 1,749,000 for the three- and nine-month periods ended September 30, 2011, 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 debentures outstanding 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 debentures was anti-dilutive for the three- and nine-month periods ended September 30, 2012 and 2011 and, accordingly, associated shares have been excluded from diluted weighted average shares outstanding.

(4) ACQUISITIONS

In January 2012, the Company acquired the remaining 51% of the common stock, which it did not previously own, of Euronet Middle East W.L.L. The purchase price of approximately $6.4 million was paid from cash on hand. Accordingly, all assets and liabilities of Euronet Middle East W.L.L. were recorded at fair value which resulted in a $4.4 million gain on the increase of the book value of the 49% interest previously owned.

The following table summarizes the fair values of the acquired net assets at the acquisition date:

(dollar amount in thousands)
Estimated Life
 
Current assets
 
$
4,413

Property and equipment
3-5 years
84

Customer relationships
8 years
2,735

Goodwill
Indefinite
5,869

Other non-current assets
 
1

Fair value of net assets
 
13,102

Current liabilities
 
(602
)
Net assets acquired
 
$
12,500




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Table of Contents

(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET
A summary of acquired intangible assets and goodwill activity for the nine-month period ended September 30, 2012 is presented below:
  (in thousands)
 
Acquired
Intangible
Assets
 
Goodwill
 
Total
Intangible
Assets
Balance as of December 31, 2011
 
$
99,878

 
$
488,628

 
$
588,506

Increases (decreases):
 
 
 
 
 
 
Acquisition
 
2,735

 
5,869

 
8,604

Amortization
 
(16,935
)
 

 
(16,935
)
Other (primarily changes in foreign currency exchange rates)
 
(781
)
 
(3,563
)
 
(4,344
)
Balance as of September 30, 2012
 
$
84,897

 
$
490,934

 
$
575,831


Estimated amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2012, is expected to total $5.3 million for the fourth quarter of 2012. Estimated annual amortization expense for the next five fiscal years is expected to total $17.7 million for 2013, $15.0 million for 2014, $9.8 million for 2015, $8.2 million for 2016 and $6.8 million for 2017.
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, 2011 resulted in no impairment charges. 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 material non-cash impairment charges during the year in which these changes take place.


(6) DEBT OBLIGATIONS
A summary of debt obligation activity for the nine-month period ended September 30, 2012 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, 2011
 
$
87,194

 
$
981

 
$
6,427

 
$
165,173

 
$
79,000

 
$
338,775

Increases (decreases):
 
 
 
 
 

 
 
 
 
 
 
Net additions (repayments)
 
(77,743
)
 
20

 
(1,661
)
 

 
(3,000
)
 
(82,384
)
Accretion
 

 

 

 
5,924

 

 
5,924

Capital lease interest
 

 

 
279

 

 

 
279

Foreign currency exchange (gain) loss
 
(855
)
 
2

 
(71
)
 

 

 
(924
)
Balance at September 30, 2012
 
8,596

 
1,003

 
4,974

 
171,097

 
76,000

 
261,670

Less — current maturities
 

 
(1,003
)
 
(1,949
)
 
(171,097
)
 
(6,000
)
 
(180,049
)
Long-term obligations at September 30, 2012
 
$
8,596

 
$

 
$
3,025

 
$

 
$
70,000

 
$
81,621


The 3.50% convertible debentures had principal amounts outstanding of $171.4 million and unamortized discounts outstanding of $0.3 million and $6.3 million as of September 30, 2012 and December 31, 2011, respectively. The discount will be amortized through October 15, 2012. Interest expense, including contractual interest and discount accretion, was $3.5 million and $3.4 million for the three-month periods ended September 30, 2012 and 2011, respectively, and $10.4 million and $10.3 million for the nine-month periods ended September 30, 2012 and 2011, respectively. The effective interest rate was 8.4% for the three- and nine-month periods ended September 30, 2012 and 2011.



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(7) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
As of September 30, 2012, the Company had foreign currency forward contracts outstanding with a notional value of $79.1 million, primarily in Australian dollars, euros and Mexican pesos, which were not designated as hedges and had a weighted average remaining maturity of two 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. At September 30, 2012 and December 31, 2011, the embedded derivative is recorded at fair value in the 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, 2012
 
December 31, 2011
Derivatives not designated as hedging instruments under ASC Topic 815
 
 
 
 
 
 
 
 
 
 
Liability Derivatives
Foreign currency derivative contracts — gross gains
 
Other current liabilities
 
$
155

 
$
100

Foreign currency derivative contracts — gross losses
 
Other current liabilities
 
(18
)
 
(178
)
Embedded derivative in foreign lease
 
Other long-term liabilities
 
(32
)
 
(141
)
Total derivatives
 
 
 
$
105

 
$
(219
)
 
 
 
 
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)
 
 
2012
 
2011
 
2012
 
2011
Derivatives not designated as hedging instruments under ASC Topic 815
 
 
 
 
 
 
 
 
 
 
Foreign currency derivative contracts
 
Foreign currency exchange gain (loss), net
 
$
46

 
$
682

 
$
755

 
$
(1,072
)
Embedded derivative in foreign lease
 
Foreign currency exchange gain (loss), net
 
14

 
(58
)
 
109

 
13

Total
 
 
 
$
60

 
$
624

 
$
864

 
$
(1,059
)
See Note 8, Fair Value Measurements, for the determination of the fair values of derivatives.



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(8) FAIR VALUE MEASUREMENTS
The carrying amounts of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt 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 the London Inter-Bank Offered Rate ("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, 2012
 
December 31, 2011
(in thousands)
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
3.50% convertible debentures, unsecured, due 2025
 
$
(171,097
)
 
$
(170,543
)
 
$
(165,173
)
 
$
(170,581
)
Foreign currency derivative contracts
 
137

 
137

 
(78
)
 
(78
)
Embedded derivative in foreign lease
 
(32
)
 
(32
)
 
(141
)
 
(141
)
The fair values disclosed above for the Company's convertible debentures are based on quoted prices in active markets for identical assets and liabilities (Level 1). The Company’s assets and liabilities recorded at fair value on a recurring basis using significant other observable inputs (Level 2) 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:
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 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, North America and South America.
3)
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, 2012 and 2011:
 
 
For the Three Months Ended September 30, 2012
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
64,888

 
$
171,529

 
$
80,042

 
$
(103
)
 
$
316,356

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
30,075

 
131,999

 
38,394

 
(90
)
 
200,378

Salaries and benefits
 
8,700

 
12,717

 
19,450

 
4,682

 
45,549

Selling, general and administrative
 
5,195

 
11,757

 
11,250

 
1,869

 
30,071

Depreciation and amortization
 
6,435

 
4,925

 
4,734

 
69

 
16,163

Total operating expenses
 
50,405

 
161,398

 
73,828

 
6,530

 
292,161

Operating income (expense)
 
$
14,483

 
$
10,131

 
$
6,214

 
$
(6,633
)
 
$
24,195


 
 
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 (expense)
 
$
9,004

 
$
13,282

 
$
4,801

 
$
(6,965
)
 
$
20,122


 
 
For the Nine Months Ended September 30, 2012
(in thousands)
 
EFT
Processing
 
epay
 
Money
Transfer
 
Corporate
Services,
Eliminations
and Other
 
Consolidated
Total revenues
 
$
173,114

 
$
514,543

 
$
228,960

 
$
(262
)
 
$
916,355

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
83,965

 
395,185

 
108,037

 
(222
)
 
586,965

Salaries and benefits
 
24,455

 
38,409

 
56,067

 
15,693

 
134,624

Selling, general and administrative
 
15,128

 
32,563

 
33,578

 
5,469

 
86,738

Depreciation and amortization
 
18,710

 
15,064

 
14,092

 
271

 
48,137

Total operating expenses
 
142,258

 
481,221

 
211,774

 
21,211

 
856,464

Operating income (expense)
 
$
30,856

 
$
33,322

 
$
17,186

 
$
(21,473
)
 
$
59,891





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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 (expense)
 
$
24,328

 
$
39,897

 
$
12,593

 
$
(20,679
)
 
$
56,139


 
(10) GUARANTEES
As of September 30, 2012, the Company had $93.2 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $36.9 million are outstanding under the revolving credit facility. The remaining stand-by letters of credit/bank guarantees are collateralized by $15.3 million of cash deposits held by the respective issuing banks.
Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2012, the Company had granted off balance sheet guarantees for cash in various ATM networks amounting to $17.1 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $35.9 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, 2012, the balance of ATM network cash for which the Company was responsible was approximately $345 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 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
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.

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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 September 30, 2012 or December 31, 2011.

(11) INCOME TAXES
The Company’s effective tax rates were 32.3% and 182.2% for the three-month periods ended September 30, 2012 and 2011, respectively, and 34.4% and 41.9% for the nine-month periods ended September 30, 2012 and 2011, respectively. The effective tax rates were significantly influenced by the foreign currency exchange gains and losses, a $4.4 million gain on acquisition during the nine-month period ended September 30, 2012, a $1.9 million loss on early retirement of debt during the three and nine-month periods ended September 30, 2011 and a $1.0 million gain on legal settlement during the nine-month period ended September 30, 2011. The effective tax rates were also influenced by other non-operating gains and losses during the three and nine-month periods ended September 30, 2012. Excluding these items from pre-tax income, as well as the related tax effects for these items, the Company’s effective tax rates were 34.4% and 39.0% for the three-month periods ended September 30, 2012 and 2011, respectively, and 36.6% and 42.4% for the nine-month periods ended September 30, 2012 and 2011, respectively.
The Company's effective tax rate, as adjusted, for the third quarter of 2012 was lower than the applicable statutory rate of 35% primarily because of the reduction in unrecognized tax benefits. The Company's effective tax rate, as adjusted, for the nine-month period ended September 30, 2012 was higher than the applicable statutory rate of 35% primarily because of our U.S. income tax positions, partly offset by the reduction in unrecognized tax benefits and tax return true-ups in foreign jurisdictions. For the nine-month period ended September 30, 2012, 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 our U.S. entities have not been recognized. There have not been any material changes in unrecognized income tax benefits since December 31, 2011.

(12) LITIGATION AND CONTINGENCIES

Contingencies

Computer Security Breach - A unit of the Company's European processing business was the subject of a criminal security breach in late 2011. The affected business represents less than 5% of the Company's revenues, profits and transactions. Euronet took immediate steps to remediate the breach and ensure its impact was contained.

Bank card association rules provide a process by which loss and expense arising from such breaches is allocated among card issuers, acquirers and service providers such as Euronet. The Company expects that some claims may be asserted against it under such rules or under its agreements with acquiring banks. However, the Company believes that any liability under such claims will be limited by a number of factors including the fact that the majority of cards processed by the affected business were EMV compliant chip and PIN cards to which such rules either do not apply or apply a lower level of liability. Losses from fraudulent card activity appear to have been limited to magnetic stripe transactions processed on the affected systems. In addition, the Company maintains insurance to cover the financial exposure for response costs, losses by card issuers and fines or penalties from such incidents.

At this time, the Company is unable to predict the possible range of loss, if any, associated with the resolution of claims against it in connection with the breach. However, the Company does not at this time expect the net financial impact of loss or expense from the breach after the probable insurance recovery to be material.

The Company is continuing take to aggressive measures to strengthen its security controls, and is working closely with computer security specialists in this regard.

Expenses related to the breach were $0.5 million in the first nine months of 2012, net of $1.9 million in amounts recovered from our insurance carrier.





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Antitrust Investigation - 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.
On September 26, 2012, the Company received notification from the DOJ that its investigation was completed.  The Company believes this brings the matter to a close without any further implications for CES. During the three- and nine-month periods ended September 30, 2012, no significant fees were incurred related to this investigation and related matters.
Litigation
From time to time, the Company is a party to litigation arising in the ordinary course of its business. Currently, there are no legal proceedings that management believes, either individually or in the aggregate, would have a material adverse effect upon the consolidated results of operations or financial condition of the Company. 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.

(13) SUBSEQUENT EVENTS

On October 11, 2012, the Company exercised its right to increase the aggregate commitments under its senior secured revolving credit facility by $125 million. In the process, additional financial institutions were added as lenders under the credit agreement (the "Credit Agreement"). Borrowing capacity under the senior secured revolving credit facility increased from $275 million to $400 million, and the Company remains entitled to increase the aggregate commitments under the senior secured revolving credit facility by an additional $80 million. All other terms of the Credit Agreement remain unchanged. In connection with the $125 million increase, the Company executed a commitment increase agreement. Additional financing costs of $1.0 million have been deferred and are being amortized over the remaining period of the revolving credit agreement.

On October 15, 2012, the Company repurchased $167.8 million in principal amount of its 3.50% debentures due 2025 submitted to the Company for repurchase. Under the terms of the debentures, holders had the right to require the Company to repurchase some or all of their debentures on such date. As a result of this repurchase, $3.6 million in principal amount of such debentures remains outstanding. The Company utilized cash on hand and borrowings on its revolving credit facility to fund the repurchase.



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Table of Contents

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. and its subsidiaries (“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, 2012, we operate in the following three principal operating segments:
The EFT Processing Segment, which processes transactions for a network of 17,370 ATMs and approximately 69,000 POS terminals across Europe, the Middle East and Asia-Pacific. We provide comprehensive electronic payment solutions consisting of ATM cash withdrawal services, ATM network participation, outsourced ATM and POS management solutions, credit and debit card outsourcing, and value added services, including dynamic currency conversion. 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 631,000 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. 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. 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 170,000 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 28 principal offices in Europe, six in North America, seven in Asia-Pacific, three in the Middle East, two in South America, and one in Africa. Our executive offices are located in Leawood, Kansas, USA. With approximately 77% 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 revenues are described below.
EFT Processing Segment — Revenues in the EFT Processing Segment, which represented approximately 19% of total consolidated revenues for the first nine months of 2012, are 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 and other value added services such as advertising, money transfers and foreign currency exchange margin on dynamic currency conversion transactions provided over ATMs. Through our proprietary network, we generally charge fees or earn margin on 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 56% of total consolidated revenues for the first nine months of 2012, are primarily derived from commissions or processing fees received from mobile phone operators 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

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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 subdistributors and/or 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 subdistributors and/or 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 2012, 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.
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.

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;
our ability to develop products or services, including value added 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;
our ability to obtain required licenses in markets we intend to enter or expand services;
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.
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:
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

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




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Table of Contents

SEGMENT SUMMARY RESULTS OF OPERATIONS
Revenues and operating income by segment for the three- and nine-month periods ended September 30, 2012 and 2011 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
(Decrease)
 
 
 
 
 
Increase
(Decrease)
 
Increase
(dollar amounts in thousands)
 
2012
 
2011
 
Amount
 
Percent
 
2012
 
2011
 
Amount
 
Percent
EFT Processing
 
$
64,888

 
$
50,246

 
$
14,642

 
29
 %
 
$
173,114

 
$
144,985

 
$
28,129

 
19
%
epay
 
171,529

 
174,269

 
(2,740
)
 
(2
)%
 
514,543

 
485,861

 
28,682

 
6
%
Money Transfer
 
80,042

 
75,103

 
4,939

 
7
 %
 
228,960

 
211,285

 
17,675

 
8
%
Total
 
316,459

 
299,618

 
16,841

 
6
 %
 
916,617

 
842,131

 
74,486

 
9
%
Eliminations
 
(103
)
 
(111
)
 
8

 
(7
)%
 
(262
)
 
(229
)
 
(33
)
 
14
%
Total
 
$
316,356

 
$
299,507

 
$
16,849

 
6
 %
 
$
916,355

 
$
841,902

 
$
74,453

 
9
%

 
 
Operating Income (Expense) for the Three Months Ended September 30,
 
Year-over-Year Change
 
Operating Income (Expense) for the Nine Months Ended September 30,
 
Year-over-Year Change
 
 
 
 
 
 
Increase
(Decrease)
 
Increase
(Decrease)
 
 
 
 
 
Increase
(Decrease)
 
Increase
(Decrease)
(dollar amounts in thousands)
 
2012
 
2011
 
Amount
 
Percent
 
2012
 
2011
 
Amount
 
Percent
EFT Processing
 
$
14,483

 
$
9,004

 
$
5,479

 
61
 %
 
$
30,856

 
$
24,328

 
$
6,528

 
27
 %
epay
 
10,131

 
13,282

 
(3,151
)
 
(24
)%
 
33,322

 
39,897

 
(6,575
)
 
(16
)%
Money Transfer
 
6,214

 
4,801

 
1,413

 
29
 %
 
17,186

 
12,593

 
4,593

 
36
 %
Total
 
30,828

 
27,087

 
3,741

 
14
 %
 
81,364

 
76,818

 
4,546

 
6
 %
Corporate services, eliminations and other
 
(6,633
)
 
(6,965
)
 
332

 
(5
)%
 
(21,473
)
 
(20,679
)
 
(794
)
 
4
 %
Total
 
$
24,195

 
$
20,122

 
$
4,073

 
20
 %
 
$
59,891

 
$
56,139

 
$
3,752

 
7
 %
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 stronger during the third quarter and first nine months of 2012 than it was during the comparable 2011 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 2012 reflected a negative impact due to the weaker 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 2012 was approximately 9% and 8% lower, respectively, when compared to the same periods of 2011 as a result of changes in foreign currency exchange rates. If significant, in our discussion we will refer to the impact of fluctuations in foreign currency exchange rates in our comparison of operating segment results for the three- and nine-month periods ended September 30, 2012 and 2011. To provide further perspective on the impact of foreign currency exchange rates, the following table shows the changes in currency values relative to the U.S. dollar from the third quarter and first nine months of 2011 to the same periods of 2012 for the countries and regions in which we have our most significant operations:

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Average Translation Rate
 
 
 
Average Translation Rate
 
 
 
 
Three Months Ended September 30,
 
 
 
Nine Months Ended September 30,
 
 
Currency (dollars per foreign currency)
 
2012
 
2011
 
 Decrease Percent
 
2012
 
2011
 
Decrease Percent
Australian dollar
 
$
1.0393

 
$
1.0504

 
(1
)%
 
$
1.0349

 
$
1.0396

 
 %
Brazilian real
 
$
0.4936

 
$
0.6138

 
(20
)%
 
$
0.5237

 
$
0.6137

 
(15
)%
British pound
 
$
1.5808

 
$
1.6106

 
(2
)%
 
$
1.5784

 
$
1.6147

 
(2
)%
euro
 
$
1.2520

 
$
1.4136

 
(11
)%
 
$
1.2825

 
$
1.4070

 
(9
)%
Hungarian forint
 
$
0.0044

 
$
0.0052

 
(15
)%
 
$
0.0044

 
$
0.0052

 
(15
)%
Indian rupee
 
$
0.0182

 
$
0.0219

 
(17
)%
 
$
0.0189

 
$
0.0221

 
(15
)%
Polish zloty
 
$
0.3033

 
$
0.3418

 
(11
)%
 
$
0.3054

 
$
0.3510

 
(13
)%
COMPARISON OF OPERATING RESULTS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2012 AND 2011
EFT PROCESSING SEGMENT
The following table presents the results of operations for the three- and nine-month periods ended September 30, 2012 and 2011 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
 
Increase
(dollar amounts in thousands)
 
2012
 
2011
 
Amount
 
Percent
 
2012
 
2011
 
Amount
 
Percent
Total revenues
 
$
64,888

 
$
50,246

 
$
14,642

 
29
 %
 
$
173,114

 
$
144,985

 
$
28,129

 
19
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
30,075

 
23,056

 
7,019

 
30
 %
 
83,965

 
68,521

 
15,444

 
23
%
Salaries and benefits
 
8,700

 
7,409

 
1,291

 
17
 %
 
24,455

 
22,330

 
2,125

 
10
%
Selling, general and administrative
 
5,195

 
5,607

 
(412
)
 
(7
)%
 
15,128

 
14,454

 
674

 
5
%
Depreciation and amortization
 
6,435

 
5,170

 
1,265

 
24
 %
 
18,710

 
15,352

 
3,358

 
22
%
Total operating expenses
 
50,405

 
41,242

 
9,163

 
22
 %
 
142,258

 
120,657

 
21,601

 
18
%
Operating income
 
$
14,483

 
$
9,004

 
$
5,479

 
61
 %
 
$
30,856

 
$
24,328

 
$
6,528

 
27
%
Transactions processed (millions)
 
302

 
247

 
55

 
22
 %
 
859

 
686

 
173

 
25
%
ATMs as of September 30
 
17,370

 
12,668

 
4,702

 
37
 %
 
17,370

 
12,668

 
4,702

 
37
%
Average ATMs
 
17,295

 
12,506

 
4,789

 
38
 %
 
16,414

 
11,714

 
4,700

 
40
%

Revenues
Our revenues for the third quarter and first nine months of 2012 increased when compared to the same periods of 2011, primarily due to an increase in the number of ATMs under management, including those added from 2011 acquisitions, the acquisition of the remaining 51% of Euronet Middle East W.L.L in January 2012 and growth in value added services, including dynamic currency conversion. These increases were partly offset by the impact of the weaker foreign currencies in 2012.

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Table of Contents

Average monthly revenue per ATM was $1,251 for the third quarter and $1,172 for the first nine months of 2012 compared to $1,339 for the third quarter and $1,375 for the first nine months of 2011. These decreases were primarily the result of ATM and transaction growth in India and Pakistan, where revenues per ATM and revenues per transaction are generally lower than those in Europe, and the impact of the weaker foreign currencies. Revenue per transaction was $0.21 for the third quarter and $0.20 for the first nine months of 2012 compared to $0.20 for the third quarter and $0.21 the first nine months of 2011. The increase for the third quarter of 2012 compared to the same period of 2011 was primarily due to an increase in revenues from value added services caused by seasonal growth in tourism activity in certain countries, partly offset by ATM and transaction growth in India and Pakistan, and the impact of the weaker foreign currencies. The decrease for the first nine months of 2012 compared to the same period of 2011, was primarily due to a higher percentage transactions that earned less revenue per transaction in the first half of 2012, primarily in India and Pakistan, and the impact of the weaker foreign currencies, partly offset by the increase in revenues from dynamic currency conversion services.
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 and first nine months of 2012 compared to the same periods of 2011, primarily due to the increase in the number of ATMs under management, partly offset by the impact of the weaker foreign currencies.
Gross profit
Gross profit, which is calculated as revenues less direct operating costs, was $34.8 million for the third quarter and $89.1 million for the first nine months of 2012 compared to $27.2 million for the third quarter and $76.5 million for the first nine months of 2011. The increase for the third quarter and first nine months of 2012 was primarily due to the increase in ATMs under management and the growth in revenues from value added services, including dynamic currency conversion, which we earn a higher gross profit than other services, partly offset by the impact of the weaker foreign currencies. Gross profit as a percentage of revenues (“gross margin”) was 53.7% for the third quarter and 51.5% for the first nine months of 2012 compared to 54.1% for the third quarter and 52.7% for the first nine months of 2011; these decreases were largely due to the greater number of newly installed ATMs in India during the first nine months of 2012.
Salaries and benefits
The increases in salaries and benefits for the third quarter and first nine months of 2012 were primarily due to adding employees to support the growth in ATMs under management, partly offset by the impact of the weaker foreign currencies. As a percentage of revenues, these costs decreased to 13.4% for the third quarter and 14.1% for the first nine months of 2012 compared to 14.7% for the third quarter and 15.4% for the first nine months of 2011; these decreases resulted from revenue growth that did not require similar increases in support costs.
Selling, general and administrative
The decrease in selling, general and administrative expenses for the third quarter of 2012 compared to the same period of 2011 was primarily due to cost control measures implemented during second the quarter of 2012, partly offset by increased expenses resulting from the acquisition of the remaining 51% of Euronet Middle East W.L.L in January 2012 and the impact of weaker foreign currencies. The increase in selling, general and administrative expenses for the first nine months of 2012 compared to the same period of 2011 was due to increased costs in growing markets during the first half of 2012 and the acquisition of the remaining 51% of Euronet Middle East W.L.L discussed above, partly offset by the impact of weaker foreign currencies. As a percentage of revenues, selling, general and administrative expenses decreased to 8.0% for the third quarter and 8.7% for the first nine months of 2012 from 11.2% for the third quarter and 10.0% for the first nine months of 2011. These decreases were primarily due to the growth in revenues from additional ATMs under management together with value added services, including dynamic currency conversion, which require minimal incremental support costs.

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Table of Contents

Depreciation and amortization
Depreciation and amortization expense increased for the third quarter and first nine months of 2012 compared to the same periods of 2011, primarily due to the increase in ATMs under management and the amortization of intangible assets related to the acquisition of the remaining 51% of Euronet Middle East W.L.L in January 2012, partly offset by the impact of the weaker foreign currencies. As a percentage of revenues, depreciation and amortization expense decreased to 9.9% for the third quarter of 2012 from 10.3% in the same period of 2011. This decrease is primarily due to an increase in revenues from additional ATMs under management together with higher revenues from value added services in certain countries, which require minimal incremental support costs, partly offset by the acquisition of the remaining 51% of Euronet Middle East W.L.L. For the first nine months of 2012, as a percentage of revenues, these expenses increased to 10.8% from 10.6% in the same period of 2011, mainly as a result of the amortization of intangible assets related to the acquisition of the remaining 51% of Euronet Middle East W.L.L and the growth ATMs under management. The increase as a percentage of revenues was partly offset by the increase in revenues from value added services.
Operating income
Operating income increased for the third quarter and first nine months of 2012 compared to the same periods of 2011, primarily due to an increase in ATMs under management and growth in value added services, including dynamic currency conversion, partly offset by the impact of the weaker foreign currencies. The increase for the first nine months was also partly offset by $1.2 million of previously deferred revenue recognized in the first quarter of 2011 related to a customer discontinuing a certain product in Greece. Operating income per transaction was $0.05 for the third quarter and $0.04 for the first nine months of 2012 compared to $0.04 for both the third quarter and first nine months of 2011. The increase in operating income per transaction for the third quarter of 2012 compared to 2011 was primarily due to the growth in value added services in certain countries, partly offset by the impact of weaker foreign currencies. Operating income as a percentage of revenues (“operating margin”) increased to 22.3% for the third quarter and 17.8% for the first nine months of 2012 compared to 17.9% for the third quarter and 16.8% for the first nine months of 2011. These increases are primarily due to an increase in the number of ATMs under management and growth in value added services, including dynamic currency conversion, as discussed above. The increase for the first nine months of 2012 compared to the same period of 2011 was partly offset by the additional revenues recognized in Greece in the first quarter of 2011.

EPAY SEGMENT
The following table presents the results of operations for the three- and nine-month periods ended September 30, 2012 and 2011 for our epay 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)
 
2012
 
2011
 
Amount
 
Percent
 
2012
 
2011
 
Amount
 
Percent
Total revenues
 
$
171,529

 
$
174,269

 
$
(2,740
)
 
(2
)%
 
$
514,543

 
$
485,861

 
$
28,682

 
6
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
131,999

 
133,198

 
(1,199
)
 
(1
)%
 
395,185

 
371,663

 
23,522

 
6
 %
Salaries and benefits
 
12,717

 
13,012

 
(295
)
 
(2
)%
 
38,409

 
34,952

 
3,457

 
10
 %
Selling, general and administrative
 
11,757

 
10,295

 
1,462

 
14
 %
 
32,563

 
25,869

 
6,694

 
26
 %
Depreciation and amortization
 
4,925

 
4,482

 
443

 
10
 %
 
15,064

 
13,480

 
1,584

 
12
 %
Total operating expenses
 
161,398

 
160,987

 
411

 
 %
 
481,221

 
445,964

 
35,257

 
8
 %
Operating income
 
$
10,131

 
$
13,282

 
$
(3,151
)
 
(24
)%
 
$
33,322

 
$
39,897

 
$
(6,575
)
 
(16
)%
Transactions processed (millions)
 
277

 
271

 
6

 
2
 %
 
815

 
778

 
37

 
5
 %

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Table of Contents

Revenues
The decrease in revenues for the third quarter of 2012 compared to the same period of 2011 was primarily due to revenue declines in Australia, Brazil, Spain and the U.K., as well as the impact of the weaker foreign currencies. Revenues in Australia decreased for the third quarter of 2012 compared to the same period of 2011 primarily due to the impact of certain large retailers entering into direct agreements with two mobile operators during the second half of 2011. Revenues in Brazil decreased for the third quarter compared to the same period of 2011 due to certain mobile operators modifying their distribution strategies beginning in the fourth quarter of 2011. These mobile operator changes are expected to negatively impact revenues for the remainder of 2012. The revenue declines in Spain and the U.K. were mostly driven by economic and competitive pressures. These decreases were partly offset by the impact of our September 2011 acquisition of cadooz Holding GmbH ("cadooz"), an increase in transactions processed in the U.S. and increased demand for non-mobile products in Germany. The increase in revenues for the first nine months of 2012 compared to the same period of 2011 was primarily due to nine months of revenues recognized during 2012 from our September 2011 acquisition of cadooz, an increase in transactions processed in the U.S. and increased demand for non-mobile products in Germany. These increases were partly offset by revenue declines for the first nine months of 2012 compared to the same period of 2011 in Australia, Brazil, Spain and the U.K, as discussed above, and the impact of weaker foreign currencies.
In certain markets, our revenues have declined or growth has slowed due to mobile phone operators driving competitive reductions in commissions or removing us from the airtime distribution chain by using alternative distribution strategies, 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 $0.62 for the third quarter and $0.63 for the first nine months of 2012 compared to $0.64 for the third quarter and $0.62 for the first nine months of 2011. The decrease in revenues per transaction for the third quarter of 2012 compared to the same period of 2011 was primarily due to changes in the mix of transactions, particularly due to growth in transactions at our ATX subsidiary, a decrease in revenues per transaction in Australia, Brazil, and Spain for the reasons discussed above and the impact of weaker foreign currencies. These decreases were partly offset by the impact of our cadooz transactions, which are recorded at gross value, in contrast to our other electronic payment products which are recorded at net value. 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 those recognized on average transactions, but with a strong contribution to gross profit. The increase in revenues per transaction for the first nine months of 2012 compared to the same period of 2011 was primarily due the impact of our September 2011 acquisition of cadooz, partly offset by growth in transactions at our ATX subsidiary, a decrease in revenues per transaction in Australia, Brazil, and Spain for the reasons discussed above and the impact of weaker 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, and the cost of vouchers sold and physical gifts fulfilled. The decrease in direct operating costs for the third quarter of 2012 compared to the same period of 2011, was primarily attributable to the decrease in the number of transactions processed in Australia, Brazil and Spain, and the impact of the weaker foreign currencies, partly offset by the impact of cadooz transactions and growth in transactions processed in the U.S. and Germany. The increase in direct operating costs for the first nine months of 2012 compared to the same period of 2011 is primarily due to the impact of the September 2011 acquisition of cadooz, as well as the growth in transactions in the U.S. and Germany, partly offset by the decrease in the number of transactions processed in Australia, Brazil, and Spain, and the impact of the weaker foreign currencies.

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Table of Contents

Gross profit
Gross profit, which represents revenues less direct costs, was $39.5 million for the third quarter and $119.4 million for the first nine months of 2012 compared to $41.1 million for the third quarter and $114.2 million for the first nine months of 2011. The primary factors behind the decrease for the third quarter of 2012 compared to the same period of 2011 are the declines in transaction volumes in Australia, Brazil and Spain, lower gross margin percentages in Brazil and Spain, as a result of the events described above, and the impact of weaker foreign currencies. These decreases were partly offset by the impact of the cadooz acquisition in September 2011, an increase in transactions processed in the U.S. and increased demand for non-mobile products in Germany. The increase in gross profit for the first nine months of 2012 compared to the same period of 2011 is due to the impact of the cadooz acquisition and increased transaction volumes in the U.S. and Germany. These increases were partly offset by a decline in transaction volume in Australia, Brazil and Spain and the impact of weaker foreign currencies. Gross margin was 23.0% for the third quarter and 23.2% for first nine months of 2012 compared to 23.6% for the third quarter and 23.5% for the first nine months of 2011. These decreases were primarily due to the impact of the cadooz transactions and lower gross margins in certain countries. Gross profit per transaction decreased to $0.14 for the third quarter of 2012 compared to $0.15 in the same period of 2011. This decrease reflects the impact of a higher percentage of lower profit transactions, particularly due to growth in transactions at our ATX subsidiary and the impact of weaker foreign currencies, partly offset by the impact of the cadooz transactions. Gross profit per transaction was flat at $0.15 for the first nine months of 2012 and 2011.
Salaries and benefits
The decrease in salaries and benefits for the third quarter of 2012 compared to the same period of 2011 was primarily due to a decrease in staff in response to the decline in revenue in Brazil and the impact of weaker foreign currencies, partly offset by the impact of the cadooz acquisition. The increase in salaries and benefits for the first nine months of 2012 compared to the same period of 2011 was primarily due to nine months of salaries and benefits during 2012 related to cadooz compared to one month of salaries and benefits during the same period of 2011 and an increase in staff in Germany primarily to support the growth of non-mobile transactions. These increases were partly offset by decreases in salaries and benefits in Brazil and the U.K., in response to declines in revenues, and the impact of the weaker foreign currencies. As a percentage of revenues, salaries and benefits decreased to 7.4% for the third quarter of 2012 from 7.5% in the same period of 2011. This decrease resulted from staff reductions in certain countries during the period. As a percentage of revenues, salaries and benefits increased to 7.5% for the first nine months of 2012 from 7.2% in the same period of 2011. This increase was primarily due to the impact of the cadooz acquisition.
Selling, general and administrative
The increase in selling, general and administrative expenses for the third quarter and first nine months of 2012 compared to the same periods of 2011 was mainly due to the impact of the cadooz acquisition, increased bad debt expense in Spain, and increased expenses in Germany as a result of the growth in non-mobile transaction volume and revenues, partly offset by the impact of the weaker foreign currencies. The increase for the first nine months of 2012 was also caused by an increase in bad debt expense in Australia during the second quarter of 2012. As a percentage of revenues, these expenses increased to 6.9% for the third quarter and 6.3% for the first nine months of 2012 from 5.9% for the third quarter and 5.3% for the first nine months of 2011, primarily because of the decreases in revenues in Australia, Brazil, and Spain and an increase in bad debt expense during the periods.
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 2012 compared to the same periods of 2011 mainly due to the impact of the cadooz acquisition, resulting in amortization of acquired intangible assets, and the addition of POS terminals in growing markets. These increases were partly offset by the impact of the weaker foreign currencies. As a percentage of revenues, these expenses increased to 2.9% for both the third quarter and first nine months of 2012 compared to 2.6% for the third quarter and 2.8% for the first nine months of 2011.

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Table of Contents

Operating income
The decrease in operating income for the third quarter and first nine months of 2012 compared to the same periods of 2011 was primarily due to transaction volume and revenue declines in Australia, Brazil and Spain, and the impact of the weaker foreign currencies. The declines in volume and revenues in Brazil were due to certain mobile operators modifying their distribution strategies beginning in the fourth quarter of 2011. These mobile operator changes are expected to negatively impact operating income for the remainder of 2012. The declines in volume and revenues in Spain were mostly driven by economic and competitive pressures. In addition, the declines in volume and revenues in Australia were due to certain large retailers entering into direct agreements with two mobile operators during the second half of 2011. These decreases were partly offset by increases in transaction volumes in the U.S. and Germany and the impact of the cadooz acquisition. Operating margin was 5.9% for the third quarter and 6.5% for the first nine months of 2012 compared to 7.6% for the third quarter and 8.2% for the first nine months of 2011. These decreases were primarily due to the revenue declines in Australia, Brazil and Spain and the increase in bad debt expense for both the third quarter and first nine months of 2012 compared to the same periods of 2011. The decrease for the third quarter of 2012 was also caused by changes in the mix of transactions, particularly due to growth in transactions at our ATX subsidiary which earns lower revenue per transaction than mobile top-up distribution. Operating income per transaction declined to $0.04 for both the third quarter and first nine months of 2012 compared to $0.05 for the same periods of 2011, primarily due to the declines in operating income discussed above.
As discussed earlier, in our epay Brazil operations, operating income has been negatively impacted by certain mobile operators' distribution strategies throughout 2012. To regain our desired profitability in Brazil, we are adjusting our strategy and making changes in the business to better align costs with revenues. Additionally, we expect to introduce other electronic payment products in this market during 2013 to increase revenues. However, if we are unable to achieve adequate profitability within epay Brazil in the longer term, it is possible that the goodwill or other acquired intangible assets of this reporting unit could become impaired. As of September 30, 2012, the carrying value of epay Brazil's goodwill and other acquired intangible assets were $24.1 million and $5.4 million, respectively.

MONEY TRANSFER SEGMENT
The following tables present the results of operations for the three- and nine-month periods ended September 30, 2012 and 2011 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
(Decrease)
 
Increase
(Decrease)
(dollar amounts in thousands)
 
2012
 
2011
 
Amount
 
Percent
 
2012
 
2011
 
Amount
 
Percent
Total revenues
 
$
80,042

 
$
75,103

 
$
4,939

 
7
 %
 
$
228,960

 
$
211,285

 
$
17,675

 
8
 %
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct operating costs
 
38,394

 
34,333

 
4,061

 
12
 %
 
108,037

 
96,797

 
11,240

 
12
 %
Salaries and benefits
 
19,450

 
18,517

 
933

 
5
 %
 
56,067

 
51,882

 
4,185

 
8
 %
Selling, general and administrative
 
11,250

 
12,366

 
(1,116
)
 
(9
)%
 
33,578

 
34,553

 
(975
)
 
(3
)%
Depreciation and amortization
 
4,734