UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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.)
4601 COLLEGE BOULEVARD, SUITE 300
LEAWOOD, KANSAS		66211
(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o    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. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares of the issuer’s common stock, $0.02 par value, outstanding as of October 30, 2009 was 50,768,784 shares.

 

 

Table of Contents

PART I—FINANCIAL INFORMATION			3
ITEM 1. FINANCIAL STATEMENTS			3
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			36
ITEM 4. CONTROLS AND PROCEDURES			37
PART II—OTHER INFORMATION			38
ITEM 1. LEGAL PROCEEDINGS			38
ITEM 1A. RISK FACTORS			38
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			38
ITEM 5. OTHER INFORMATION			39
ITEM 6. EXHIBITS			39
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I—FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share data)

		As of
		September 30,				December 31,
		2009				2008
ASSETS
Current assets:
Cash and cash equivalents		$	220,210			$	181,341
Restricted cash			94,271				131,025
Inventory — PINs and other			57,143				61,279
Trade accounts receivable, net of allowances for doubtful accounts of $11,455 at September 30, 2009 and $9,445 at December 31, 2008			241,047				261,084
Prepaid expenses and other current assets			39,406				40,676
Current assets of discontinued operations			3,636				3,729
Total current assets			655,713				679,134
Property and equipment, net of accumulated depreciation of $152,508 at September 30, 2009 and $125,258 at December 31, 2008			100,972				89,532
Goodwill			502,581				488,305
Acquired intangible assets, net of accumulated amortization of $83,648 at September 30, 2009 and $62,920 at December 31, 2008			118,171				125,313
Other assets, net of accumulated amortization of $19,288 at September 30, 2009 and $15,785 at December 31, 2008			38,950				21,957
Non-current assets of discontinued operations			5,217				4,053
Total assets		$	1,421,604			$	1,408,294
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable		$	230,960			$	245,671
Accrued expenses and other current liabilities			229,410				226,191
Current portion of capital lease obligations			4,020				4,614
Short-term debt obligations and current maturities of long-term debt obligations			46,115				68,646
Income taxes payable			18,709				16,590
Deferred revenue			11,193				14,914
Current liabilities of discontinued operations			3,170				3,359
Total current liabilities			543,577				579,985
Debt obligations, net of current portion			282,031				294,355
Capital lease obligations, net of current portion			3,799				6,356
Deferred income taxes			23,231				23,769
Other long-term liabilities			8,682				7,919
Total liabilities			861,320				912,384
Equity:
Euronet Worldwide, Inc. stockholders’ equity
Preferred Stock, $0.02 par value. Authorized 10,000,000 shares; none issued			—				—
Common Stock, $0.02 par value. 90,000,000 shares authorized; 50,999,780 issued at September 30, 2009 and 50,605,909 issued at December 31, 2008			1,020				1,012
Additional paid-in-capital			738,599				729,907
Treasury stock, at cost, 248,298 shares at September 30, 2009 and 225,072 shares at December 31, 2008			(1,201	)			(784	)
Accumulated deficit			(211,345	)			(233,456	)
Restricted reserve			1,045				996
Accumulated other comprehensive income (loss)			24,979				(9,350	)
Total Euronet Worldwide, Inc. stockholders’ equity			553,097				488,325
Noncontrolling interests			7,187				7,585
Total equity			560,284				495,910
Total liabilities and equity		$	1,421,604			$	1,408,294

See accompanying notes to the unaudited consolidated financial statements.

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Revenues:
EFT Processing Segment		$	50,939			$	54,408			$	142,737			$	155,005
Prepaid Processing Segment			153,610				166,784				433,386				463,642
Money Transfer Segment			60,271				59,511				171,008				171,299
Total revenues			264,820				280,703				747,131				789,946
Operating expenses:
Direct operating costs			173,493				191,999				492,094				537,362
Salaries and benefits			34,733				32,979				94,414				96,737
Selling, general and administrative			20,069				22,460				60,048				63,459
Goodwill and acquired intangible assets impairment			—				—				9,884				—
Depreciation and amortization			14,440				14,497				40,884				43,091
Total operating expenses			242,735				261,935				697,324				740,649
Operating income			22,085				18,768				49,807				49,297
Other income (expense):
Interest income			644				2,631				2,498				8,531
Interest expense			(6,042	)			(9,259	)			(19,762	)			(28,285	)
Income from unconsolidated affiliates			474				353				1,508				834
Gain on sale of (impairment loss on) investment securities			1,751				—				1,751				(18,760	)
Gain (loss) on early retirement of debt			—				1,017				(253	)			771
Foreign currency exchange gain (loss), net			7,766				(19,346	)			6,825				(6,647	)
Other income (expense), net			4,593				(24,604	)			(7,433	)			(43,556	)
Income (loss) from continuing operations before income taxes			26,678				(5,836	)			42,374				5,741
Income tax (expense) benefit			(8,110	)			8,679				(19,824	)			(3,070	)
Income from continuing operations			18,568				2,843				22,550				2,671
Discontinued operations, net			452				(302	)			537				(1,611	)
Net income			19,020				2,541				23,087				1,060
Less: Net income attributable to noncontrolling interests			(155	)			(674	)			(976	)			(1,910	)
Net income (loss) attributable to Euronet Worldwide, Inc.		$	18,865			$	1,867			$	22,111			$	(850	)
Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders — basic:
Continuing operations		$	0.36			$	0.05			$	0.43			$	0.01
Discontinued operations			0.01				(0.01	)			0.01				(0.03	)
Total		$	0.37			$	0.04			$	0.44			$	(0.02	)
Basic weighted average shares outstanding			50,560,371				49,002,842				50,426,113				48,909,078
Earnings (loss) per share attributable to Euronet Worldwide, Inc. stockholders — diluted:
Continuing operations		$	0.35			$	0.04			$	0.42			$	0.01
Discontinued operations			0.01				—				0.01				(0.03	)
Total		$	0.36			$	0.04			$	0.43			$	(0.02	)
Diluted weighted average shares outstanding			51,906,902				50,808,010				51,206,363				48,909,078

See accompanying notes to the unaudited consolidated financial statements.

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income		$	19,020			$	2,541			$	23,087			$	1,060
Other comprehensive income (loss), net of tax:
Translation adjustment			15,887				(69,513	)			34,010				(34,343	)
Gain on investment securities			601				669				1,631				97
Reclassification adjustment related to sale of investment securities			(1,751	)			—				(1,751	)			—
Unrealized gain on interest rate swaps			—				399				830				372
Comprehensive income (loss)			33,757				(65,904	)			57,807				(32,814	)
Comprehensive (income) loss attributable to noncontrolling interests			(442	)			577				(1,367	)			(1,395	)
Comprehensive income (loss) attributable to Euronet Worldwide, Inc.		$	33,315			$	(65,327	)		$	56,440			$	(34,209	)

See accompanying notes to the unaudited consolidated financial statements.

EURONET WORLDWIDE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited, in thousands)

		Nine Months Ended September 30,
		2009				2008
Net income		$	23,087			$	1,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			40,884				44,048
Share-based compensation			5,972				7,695
Unrealized foreign exchange (gain) loss, net			(6,763	)			6,522
Non-cash impairment of goodwill and acquired intangible assets			9,884				—
(Gain on sale of) impairment loss on investment securities			(1,751	)			18,760
Deferred income tax benefit			(3,434	)			(14,967	)
Income from unconsolidated affiliates			(1,508	)			(834	)
Accretion of convertible debentures discount and amortization of debt issuance costs			8,578				12,132
(Gain) loss on repurchase of bonds			116				(1,734	)
Changes in working capital, net of amounts acquired:
Income taxes payable, net			1,578				1,991
Restricted cash			55,403				(13,051	)
Inventory — PINs and other			7,947				(21,270	)
Trade accounts receivable			41,017				1,136
Prepaid expenses and other current assets			3,641				6,510
Trade accounts payable			(27,490	)			(70,427	)
Deferred revenue			(3,866	)			(1,730	)
Accrued expenses and other current liabilities			(26,321	)			74,929
Changes in noncurrent assets and liabilities			(9,631	)			(1,939	)
Net cash provided by operating activities			117,343				48,831
Cash flows from investing activities:
Acquisitions, net of cash acquired			(10,262	)			(5,400	)
Purchases of property and equipment			(26,203	)			(29,111	)
Purchases of other long-term assets			(1,726	)			(2,656	)
Proceeds from sale of investment securities			2,981				—
Acquisition escrow			—				26,000
Other, net			(161	)			838
Net cash used in investing activities			(35,371	)			(10,329	)
Cash flows from financing activities:
Proceeds from issuance of shares			1,957				1,246
Borrowings from revolving credit agreements classified as non-current liabilities			296,400				140,820
Repayments of revolving credit agreements classified as non-current liabilities			(311,165	)			(181,744	)
Repayments of long-term debt obligations			(27,558	)			(80,913	)
Repayments of capital lease obligations			(4,438	)			(5,876	)
Cash dividends paid to noncontrolling interests stockholders			(2,413	)			—
Other, net			(793	)			(63	)
Net cash used in financing activities			(48,010	)			(126,530	)
Effect of exchange differences on cash			5,744				(4,626	)
Increase (decrease) in cash and cash equivalents			39,706				(92,654	)
Cash and cash equivalents at beginning of period (includes cash of discontinued operations of $552 in 2009 and $722 in 2008)			181,893				267,591
Cash and cash equivalents at end of period (includes cash of discontinued operations of $1,389 in 2009 and $1,074 in 2008)		$	221,599			$	174,937
Interest paid during the period		$	8,754			$	15,244
Income taxes paid during the period			23,199				14,661

See accompanying notes to the unaudited consolidated financial statements.

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 an industry leader in processing secure electronic financial transactions in three principal business segments. Euronet’s Prepaid Processing Segment is one of the world’s largest providers of “top-up” services for prepaid products, primarily prepaid mobile airtime, distributing these products in Europe, the Middle East, Asia Pacific and the Americas. The EFT Processing Segment provides end-to-end solutions relating to operations of automated teller machine (“ATM”) and point-of-sale (“POS”) networks, and debit and credit card processing in Europe, the Middle East and Asia Pacific. The Money Transfer Segment, comprised primarily of the Company’s RIA Envia, Inc. (“RIA”) subsidiary and its operating subsidiaries, is the third-largest global money transfer company based upon revenues and volumes, and provides services through a sending network of agents and Company-owned stores primarily in North America and Europe, disbursing money transfers through a worldwide payer network.

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, 2009, and the results of its operations for the three- and nine-month periods ended September 30, 2009 and 2008 and its cash flows for the nine-month periods ended September 30, 2009 and 2008.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2008, including the notes thereto, set forth in the Company’s 2008 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 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, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009. Certain amounts in prior years have been reclassified to conform to current period presentation.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Accounting standards codification

In June 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 168 authorized the FASB Accounting Standards Codification™ (“ASC”) to become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws remain sources of authoritative U.S. GAAP for SEC registrants. On the effective date of SFAS No. 168, the ASC superseded all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the ASC became nonauthoritative. All guidance contained in the ASC carries an equal level of authority. Certain accounting treatments that entities have followed, and continue to follow, which are not part of the ASC are grandfathered because they were adopted before a certain date or certain accounting standards have allowed for the continued application of superseded accounting standards. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s adoption of SFAS No. 168 did not have a material impact on the Consolidated Financial Statements. However, all references to U.S. GAAP recognized by the FASB now use ASC citations except for those to grandfathered accounting literature.

Convertible debentures

Effective January 1, 2009, the Company adopted ASC provisions dealing with accounting for convertible debt instruments that may be settled in cash upon conversion. ASC 470-20-30-22 (formerly FASB Staff Position (“FSP”) APB 14-1) requires the proceeds from the issuance of such convertible debt instruments to be allocated between debt and equity components so that debt is discounted to reflect the Company’s nonconvertible debt borrowing rate. ASC 470-20-35-13 requires the debt discount to be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. This treatment impacts the accounting associated with the Company’s convertible debentures. The Company’s Unaudited Consolidated Balance Sheets, Statements of Operations,

Statements of Comprehensive Income (Loss) and Statements of Cash Flows have been adjusted to reflect the retrospective application of the provisions to prior periods.

Noncontrolling interests

Effective January 1, 2009, the Company adopted ASC provisions regarding noncontrolling interests in consolidated financial statements. ASC 810-10-45-16 (formerly SFAS No. 160) requires noncontrolling interests (previously referred to as minority interests) to be reported as a component of equity, which changes the accounting for transactions with noncontrolling interest holders. The presentation of the Company’s Unaudited Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income (Loss) and Statements of Cash Flows has been adjusted to reflect the retrospective application of the provisions to prior periods.

Business combinations

Effective January 1, 2009, the Company adopted ASC provisions regarding business combinations. ASC 805 (formerly SFAS No. 141(R)) applies to all business combinations and requires most identifiable assets, liabilities, noncontrolling interests and goodwill acquired in a business combination to be recorded at “full fair value” at the acquisition date. Additionally, ASC 805 requires transaction-related costs to be expensed in the period incurred, rather than capitalizing these costs as a component of the respective purchase price.

Accounting for derivative instruments and hedging activities

The Company accounts for derivative instruments and hedging activities in accordance with ASC 815 (formerly SFAS No. 133), which requires that all derivative instruments be recognized as either assets or liabilities on the balance sheet at fair value. During the second quarter 2007, the Company entered into derivative instruments to manage exposure to interest rate risk that are considered cash flow hedges under the provisions of ASC 815. To qualify for hedge accounting, the details for the hedging relationship must be formally documented at the inception of the arrangement, including the Company’s hedging strategy, risk management objective, the specific risk being hedged, the derivative instrument being used, the item being hedged, an assessment of hedge effectiveness and how effectiveness will continue to be assessed and measured. For the effective portion of a cash flow hedge, changes in the value of the hedge instrument are recorded temporarily in equity and the Unaudited Consolidated Statements of Comprehensive Income (Loss) as a component of other comprehensive income and then recognized as an adjustment to interest expense over the term of the hedging instrument.

In the Money Transfer Segment, 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. These forward contracts are considered derivative instruments under ASC 815; however, the Company does not designate such instruments as hedges. Accordingly, changes in the value of these contracts are recognized immediately as a component of foreign currency exchange gain (loss), net in the Unaudited Consolidated Statements of Operations. The impact of changes in value of these forward contracts, together with the impact of the change in value of the related foreign currency denominated receivable, on the Company’s Unaudited Consolidated Statements of Operations is not significant.

Cash flows resulting from derivative instruments are classified as cash flows from operating activities in the Company’s Unaudited Consolidated Statements of Cash Flows. The Company enters into derivative instruments with financial institutions it believes to be highly credit-worthy and does not use derivative instruments for trading or speculative purposes.

Additionally, effective January 1, 2009, the Company adopted certain provisions of ASC 815 (formerly SFAS No. 161), which requires an entity to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Topic 815, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. See Note 7, Derivative Instruments and Hedging Activities, for these disclosures and a further discussion of derivative instruments.

Fair value measurements

Effective January 1, 2008, the Company adopted ASC provisions regarding fair value measurements for financial assets and liabilities. ASC 820 (formerly SFAS No. 157) defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions apply whenever other accounting pronouncements require or permit fair value measurements. Accordingly, the provisions do not require any new fair value measurements. Beginning January 1, 2009, the Company adopted the provisions for certain nonfinancial assets and liabilities, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment and investments in unconsolidated subsidiaries.

Effective for the quarterly reporting period ended June 30, 2009, the Company adopted certain provisions of ASC 825 (formerly FSP FAS 107-1 and APB 28-1), which requires the annual fair value disclosures about financial instruments within the scope of ASC 825 to also be made in interim financial statements.

See Note 9, Fair Value Measurements, for the required fair value disclosures.

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 Euronet to money transfer recipients. As of September 30, 2009, the Company’s money transfer settlement obligations were $28.9 million.

Investment in MoneyGram International, Inc.

During the third quarter 2009, the Company sold its investment in MoneyGram International, Inc. (“MoneyGram”) and recognized a gain of $1.8 million. During 2008, the value of the Company’s investment in MoneyGram declined and the Company determined the decline to be other than temporary. Accordingly, in 2008, the Company recognized impairment losses associated with the investment of $18.8 million and reversed the $0.6 million gain recorded as of December 31, 2007 in accumulated other comprehensive income. The investment was classified as available-for-sale and included in other current assets on the Company’s Unaudited Consolidated Balance Sheet as of December 31, 2008.

Adjustment of deferred income tax assets and liabilities

As of September 30, 2009, the Company netted certain deferred income tax assets with deferred income tax liabilities for balances within the same tax jurisdiction. As of December 31, 2008, an adjustment to the Unaudited Consolidated Balance Sheet reduced current deferred income tax assets and liabilities by $3.2 million and reduced noncurrent income tax assets and liabilities by $39.1 million. This immaterial adjustment had no impact on equity or the Company’s Unaudited Consolidated Statements of Operations, Statements of Comprehensive Income (Loss) or Statements of Cash Flows.

Subsequent events

In May 2009, the FASB issued financial accounting standards related to subsequent events. The standards incorporate into authoritative accounting literature certain guidance that already existed within generally accepted auditing standards, but the rules concerning recognition and disclosure of subsequent events remain essentially unchanged. ASC 855-10-25 and 50 (formerly SFAS No. 165) provide general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted these provisions for the quarter ended June 30, 2009. The adoption of these provisions did not have a material effect on the Consolidated Financial Statements. The Company has evaluated subsequent events through November 5, 2009, the date the financial statements were issued.

Recent accounting pronouncements

In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-13 (formerly Emerging Issues Task Force Consensus 08-01). ASU 2009-13 adds estimated selling price as acceptable evidence of fair value of undelivered products and services in revenue arrangements with multiple deliverables. Estimated selling price can be used if there is no vendor specific objective evidence or third-party evidence of fair value. Additionally, ASU 2009-13 eliminates the use of the residual method of allocating revenue and establishes the relative selling price method as the appropriate means to allocate revenue to each deliverable of an arrangement. ASU 2009-13 is effective on a prospective basis for revenue arrangements entered into or modified for fiscal years beginning on or after June 15, 2010 with earlier application permitted. The Company is evaluating the impact that the adoption of ASU 2009-13 will have on its financial statements and whether it will elect early application; however, the impact is not expected to be material.

(3) EARNINGS PER SHARE

Basic earnings per share has been computed by dividing net income (loss) attributable to Euronet Worldwide, Inc. by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share has been computed by dividing net income (loss) attributable to Euronet Worldwide, Inc. 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 September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding			50,560,371				49,002,842				50,426,113				48,909,078
Incremental shares from assumed conversion of stock options and restricted stock			1,346,531				689,925				780,250				—
Weighted average shares issuable in connection with acquisition obligations			—				1,115,243				—				—
Diluted weighted average shares outstanding			51,906,902				50,808,010				51,206,363				48,909,078

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 nine months ended September 30, 2008, 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 per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding for the three- and nine-month periods ended September 30, 2009 of approximately 954,000 and 1,878,000, respectively. 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 for the three- and nine-month periods ended September 30, 2008 of approximately 1,667,000 and 3,085,000, respectively. Additionally, for the nine months ended September 30, 2008, the calculation of diluted loss per share excludes approximately 1,115,000 shares issuable in connection with acquisition obligations that are anti-dilutive to the Company’s weighted average common shares outstanding.

The Company has $44.2 million principal amount of 1.625% convertible debentures due 2024 and $175.0 million principal amount of 3.50% convertible debentures due 2025 outstanding that, if converted, would have a potentially dilutive effect on the Company’s stock. These debentures are convertible into 1.3 million shares of Common Stock for the $44.2 million 1.625% issue, and 4.3 million shares of Common Stock for the $175.0 million 3.50% issue, only upon the occurrence of certain conditions. As required by ASC 260, 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. Under the if-converted method, the assumed conversions of the 1.625% and 3.50% convertible debentures were anti-dilutive for the three- and nine-month periods ended September 30, 2009 and 2008.

(4) DISCONTINUED OPERATIONS

During the second quarter 2008, the Company committed to a plan to sell Euronet Essentis Limited (“Essentis”), a U.K. software entity, in order to focus its investments and resources on its transaction processing businesses. The Company has signed an agreement to sell the assets of the business and expects the sale to close in the fourth quarter of 2009. Accordingly, Essentis’s results of operations are shown as discontinued operations in the Unaudited Consolidated Statements of Operations for all periods presented. Previously, Essentis’s results were reported in the EFT Processing Segment. The segment results in Note 8, Segment Information, also reflect the reclassification of Essentis’s results to discontinued operations. The following amounts related to Essentis have been segregated from continuing operations and reported as discontinued operations:

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2009				2008				2009				2008
Revenues		$	2,288			$	2,254			$	5,547			$	7,388
Income (loss) before income taxes		$	646			$	(496	)		$	765			$	(2,282	)
Net income (loss)		$	452			$	(302	)		$	537			$	(1,611	)

The Unaudited Consolidated Balance Sheets include Essentis’s net assets expected to be sold and the major classes of its assets and liabilities are presented below:

		September 30,				December 31,
(in thousands)		2009				2008
ASSETS
Current assets
Cash and cash equivalents		$	1,389			$	552
Trade accounts receivable, net of allowance for doubtful accounts			1,613				2,187
Prepaid expenses and other current assets			634				990
Total current assets			3,636				3,729
Property and equipment, net of accumulated depreciation			475				427
Acquired intangible assets, net of accumulated amortization			1,085				991
Other assets, net of accumulated amortization			3,657				2,635
Total assets		$	8,853			$	7,782
LIABILITIES
Current liabilities
Trade accounts payable		$	235			$	250
Accrued expenses and other current liabilities			1,118				760
Deferred revenue			1,817				2,349
Total current liabilities			3,170				3,359
Deferred income taxes			683				624
Other long-term liabilities			3				3
Total liabilities		$	3,856			$	3,986
Net assets		$	4,997			$	3,796

A summary of acquired intangible assets and goodwill activity for the nine-month period ended September 30, 2009 is presented below:

		Acquired								Total
		Intangible								Intangible
(in thousands)		Assets				Goodwill				Assets
Balance as of December 31, 2008		$	125,313			$	488,305			$	613,618
Increases (decreases):
Impairment			(1,111	)			(8,773	)			(9,884	)
Acquisitions			7,048				—				7,048
Amortization			(17,247	)			—				(17,247	)
Other (primarily changes in foreign currency exchange rates)			4,168				23,049				27,217
Balance as of September 30, 2009		$	118,171			$	502,581			$	620,752

Estimated annual amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2009, is expected to total $23.3 million for 2009, $23.9 million for 2010, $19.8 million for 2011, $17.4 million for 2012, $12.7 million for 2013 and $9.8 million for 2014.

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, 2008 resulted in the Company recording an estimated non-cash goodwill impairment charge of $219.8 million in the fourth quarter of 2008 related to its RIA money transfer business and its Spanish prepaid business. Additionally, the Company recorded a non-cash impairment charge of $0.3 million in the fourth quarter of 2008 related to certain trade names and customer relationships of the RIA money transfer business. The Company completed the impairment testing in the first quarter of 2009 and recorded an additional non-cash goodwill impairment charge of $8.8 million and a $1.1 million non-cash impairment charge related to a money transfer intangible asset in the first quarter of 2009.

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.

(6) DEBT OBLIGATIONS

A summary of debt obligation activity for the nine-month period ended September 30, 2009 is presented below:

														1.625%				3.50%
		Revolving												Convertible				Convertible
		Credit				Other Debt				Capital				Debentures				Debentures
(in thousands)		Facilities				Obligations				Leases				Due 2024				Due 2025				Term Loan				Total
Balance at December 31, 2008		$	16,719			$	288			$	10,970			$	66,548			$	147,446			$	132,000			$	373,971
Increases (decreases):
Net borrowings (repayments)			(14,765	)			110				(4,207	)			(24,966	)			—				(2,475	)			(46,303	)
Accretion			—				—				—				2,182				4,807				—				6,989
Capital lease interest			—				—				1,007				—				—				—				1,007
Foreign currency exchange loss			105				147				49				—				—				—				301
Balance at September 30, 2009			2,059				545				7,819				43,764				152,253				129,525				335,965
Less — current maturities			—				(451	)			(4,020	)			(43,764	)			—				(1,900	)			(50,135	)
Long-term obligations at September 30, 2009		$	2,059			$	94			$	3,799			$	—			$	152,253			$	127,625			$	285,830

During the first nine months of 2009, the Company repurchased in privately negotiated transactions $25.8 million in principal amount of the 1.625% convertible debentures due 2024. During the nine months ended September 30, 2009, the Company repaid $2.5 million of the term loan, of which $1.4 million were scheduled repayments. The remaining $1.1 million represents prepayment of amounts not yet due and, along with the convertible debentures repurchases, resulted in the Company recognizing a $0.3 million pre-tax loss on early retirement of debt.

As discussed in Note 2, Summary of Significant Accounting Policies and Practices, the Company adopted the provisions of ASC 470-20 (formerly FSP APB 14-1), which resulted in the adjustment of amounts previously reported for the Company’s convertible debentures. The 1.625% convertible debentures had principal amounts outstanding of $44.2 million and $70.0 million and unamortized discounts outstanding of $0.4 million and $3.5 million as of September 30, 2009 and December 31, 2008, respectively. The discount will be amortized through December 15, 2009. Contractual interest expense was $0.2 million and $0.7 million and discount accretion was $0.6 million and $2.2 million for the three and nine months ended September 30, 2009, respectively. Contractual interest expense was $0.6 million and $1.7 million and discount accretion was $1.8 million and $5.2 million for the three and nine months ended September 30, 2008, respectively. The effective interest rate was 7.1% for the three and nine months ended September 30, 2009 and 2008. The carrying amount of the equity portion was $32.3 million as of September 30, 2009 and December 31, 2008.

The 3.50% convertible debentures had principal amounts outstanding of $175.0 million and unamortized discounts outstanding of $22.7 million and $27.6 million as of September 30, 2009 and December 31, 2008, respectively. The discount will be amortized through October 15, 2012. Contractual interest expense was $1.5 million and $4.6 million for the respective three- and nine-month periods ended September 30, 2009 and 2008. Discount accretion was $1.6 million and $4.8 million for the three and nine months ended September 30, 2009, respectively, and $1.5 million and $4.4 million for the three and nine months ended September 30, 2008, respectively. The effective interest rate was 8.4% for the three and nine months ended September 30, 2009 and 2008. The carrying amount of the equity portion was $45.1 million as of September 30, 2009 and December 31, 2008.

(7) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

As of September 30, 2009, the Company had foreign currency forward contracts outstanding with a notional value of $44.1 million, primarily in euros, which were not designated as hedges and had a weighted average maturity of 4.4 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. 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.

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 and its fair value is recorded in the Unaudited Consolidated Balance Sheet.

During 2007, the Company entered into interest rate swap agreements for a total notional amount of $50 million to manage interest rate exposure related to a portion of the term loan. The interest rate swap agreements were determined to be cash flow hedges and effectively converted $50 million of the term loan to a fixed interest rate of 7.3% through the May 2009 maturity date of the swap agreements. The swap agreements required no payment by either party at their maturities.

Below are the tabular disclosures required for derivative instruments:

						Fair Values of Derivative
						Instruments
		Consolidated Balance Sheet				September 30,				December 31,
(in thousands)		Location				2009				2008
						Liability Derivatives
Derivatives designated as hedging instruments under ASC 815
		Accrued expenses and
Interest rate swaps related to floating rate debt		other current liabilities				$	—			$	(830	)
						Asset Derivatives
Derivatives not designated as hedging instruments under ASC 815
Foreign currency derivative contracts — gross gains		Cash and cash equivalents				$	65			$	433
Foreign currency derivative contracts — gross losses		Cash and cash equivalents					(107	)			(155	)
Total						$	(42	)		$	278
						Liability Derivatives
Embedded derivative in foreign lease		Other long-term liabilities				$	(243	)		$	—
Total derivatives						$	(285	)		$	(552	)

		Amount of Gain								Amount of Gain
		Recognized in OCI on Derivative								Recognized in OCI on Derivative
		(Effective Portion)								(Effective Portion)
		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2009				2008				2009				2008
Derivatives in ASC 815 Cash Flow Hedging Relationships
Interest rate swaps related to floating rate debt		$	—			$	399			$	830			$	372

						Amount of Gain								Amount of Gain (Loss)
		Location of Gain (Loss)				Recognized in Income on Derivative								Recognized in Income on Derivative
		Recognized in Income on				Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		Derivative				2009				2008				2009				2008
Derivatives not designated as hedging instruments under ASC 815
Foreign currency derivative contracts		Foreign currency exchange gain (loss), net				$	5			$	57			$	10			$	59
Embedded derivative in foreign lease		Foreign currency exchange gain (loss), net					50				—				(243	)			—
Total						$	55			$	57			$	(233	)		$	59

(8)

SEGMENT INFORMATION

Euronet’s reportable operating segments have been determined in accordance with ASC 280 (formerly SFAS No. 131). 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 and electronic recharge services for prepaid mobile airtime. Through this segment, the Company also offers a suite of integrated electronic financial transaction (“EFT”) software solutions for electronic payment, merchant acquiring, card issuing and transaction delivery systems.
	2)		Through the Prepaid Processing Segment, the Company provides distribution of prepaid mobile airtime and other prepaid products and collection services in Europe, the Middle East, Asia Pacific and the Americas.

3)

Through the Money Transfer Segment, the Company provides global money transfer and bill payment services through a sending network of agents and Company-owned stores primarily in North America and Europe, disbursing money transfers through a worldwide payer network. Bill payment services are offered primarily in the U.S.

In addition, in its administrative division, “Corporate Services, Eliminations and Other,” 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. These services are not directly identifiable with the Company’s reportable operating segments. The following tables present the segment results of the Company’s operations for the three- and nine-month periods ended September 30, 2009 and 2008:

		For the Three Months Ended September 30, 2009
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	50,939			$	153,610			$	60,271			$	—			$	264,820
Operating expenses:
Direct operating costs			21,973				123,423				28,097				—				173,493
Salaries and benefits			7,890				7,486				14,626				4,731				34,733
Selling, general and administrative			3,992				5,219				9,680				1,178				20,069
Depreciation and amortization			4,835				3,934				5,293				378				14,440
Total operating expenses			38,690				140,062				57,696				6,287				242,735
Operating income (loss)		$	12,249			$	13,548			$	2,575			$	(6,287	)		$	22,085

		For the Three Months Ended September 30, 2008
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	54,408			$	166,784			$	59,511			$	—			$	280,703
Operating expenses:
Direct operating costs			26,000				136,474				29,525				—				191,999
Salaries and benefits			8,518				7,733				13,172				3,556				32,979
Selling, general and administrative			6,508				5,689				8,874				1,389				22,460
Depreciation and amortization			5,126				4,273				4,788				310				14,497
Total operating expenses			46,152				154,169				56,359				5,255				261,935
Operating income (loss)		$	8,256			$	12,615			$	3,152			$	(5,255	)		$	18,768

		For the Nine Months Ended September 30, 2009
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	142,737			$	433,386			$	171,008			$	—			$	747,131
Operating expenses:
Direct operating costs			60,584				349,800				81,710				—				492,094
Salaries and benefits			22,345				20,703				39,549				11,817				94,414
Selling, general and administrative			12,296				15,170				27,342				5,240				60,048
Goodwill and acquired intangible assets impairment			—				—				9,884				—				9,884
Depreciation and amortization			13,554				11,178				15,138				1,014				40,884
Total operating expenses			108,779				396,851				173,623				18,071				697,324
Operating income (loss)		$	33,958			$	36,535			$	(2,615	)		$	(18,071	)		$	49,807

		For the Nine Months Ended September 30, 2008
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	155,005			$	463,642			$	171,299			$	—			$	789,946
Operating expenses:
Direct operating costs			72,362				378,934				86,066				—				537,362
Salaries and benefits			25,539				21,217				37,964				12,017				96,737
Selling, general and administrative			14,896				16,423				24,903				7,237				63,459
Depreciation and amortization			14,768				12,699				14,705				919				43,091
Total operating expenses			127,565				429,273				163,638				20,173				740,649
Operating income (loss)		$	27,440			$	34,369			$	7,661			$	(20,173	)		$	49,297

(9)

FAIR VALUE MEASUREMENTS

The carrying amount of cash and cash equivalents, trade accounts receivable, trade accounts payable and short-term debt obligations approximates fair value, due to their short maturities. The carrying value of the Company’s term loan due 2014 and revolving credit agreements approximate fair value 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, 2009								December 31, 2008
		Carrying								Carrying
(in thousands)		Value				Fair Value				Value				Fair Value
1.625% convertible senior debentures, unsecured, due 2024		$	43,764			$	43,841			$	66,548			$	63,522
3.50% convertible debentures, unsecured, due 2025			152,253				160,125				147,446				112,131
Foreign currency derivative contracts			(43	)			(43	)			278				278
Embedded derivative in foreign lease			(243	)			(243	)			—				—
Available-for-sale investment securities			—				—				1,351				1,351
Interest rate swaps related to floating rate debt			—				—				(830	)			(830	)

The Company’s assets and liabilities recorded at fair value on a recurring basis are set forth in the following table:

		September 30, 2009
						Fair Value
						Measurements
						Using Signifcant
						Other Observable
(in thousands)		Carrying Value				Inputs
Foreign currency derivative contracts		$	(43	)		$	(43	)
Embedded derivative in foreign lease			(243	)			(243	)

The Company values available-for-sale investment securities using quoted prices from the securities’ primary exchange. Foreign currency derivative contracts are valued 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.

Certain assets are measured at fair value on a non-recurring basis. During the first quarter of 2009, the Company finalized the assessment of the fair value of the goodwill related to its RIA money transfer business and its Spanish prepaid business and recorded an impairment charge of $8.8 million as discussed in Note 5, Goodwill and Acquired Intangible Assets, Net. The fair values were determined using significant unobservable inputs. The $258.8 million fair value of goodwill was determined by calculating its implied fair value as the excess of the fair value of the respective entity over the fair value of its net assets. Additionally, during the first quarter of 2009, management determined that an acquired intangible asset associated with a previous acquisition in the Money Transfer Segment had no value and, accordingly, the Company wrote off the remaining net book value of the intangible asset of $1.1 million. No assets were measured at fair value on a non-recurring basis in the second or third quarter of 2009.

(10) GUARANTEES

As of September 30, 2009, the Company had $61.8 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $10.6 million are collateralized by cash deposits held by the respective issuing banks.

Under certain circumstances, Euronet grants guarantees in support of obligations of subsidiaries. As of September 30, 2009, the Company granted off balance sheet guarantees for cash in various ATM networks amounting to $19.2 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $27.9 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 damages to ATMs and theft of ATM network cash that, generally, is not recorded on the Company’s Consolidated Balance Sheet. As of September 30, 2009, the balance of ATM network cash for which the Company was responsible was approximately $310 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 the carrying out of their respective duties under such agreements; and

•

The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities and has agreed to reimburse the surety for any amounts that they are required to pay in connection with such bonds.

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, 2009 or December 31, 2008.

(11) INCOME TAXES

The Company’s effective tax rates for continuing operations were 30.4% and 148.7% for the three-month periods ended September 30, 2009 and 2008, respectively, and were 46.8% and 53.5% for the nine-month periods ended September 30, 2009 and 2008, respectively. The effective tax rates were significantly influenced by certain non-taxable items, including the goodwill and acquired intangible assets impairment charge in the first quarter 2009, the impairment losses on investment securities during the first half of 2008 and the gain on sale of investment securities in the third quarter of 2009. Additionally, foreign currency exchange rates fluctuated significantly during the reported periods creating foreign currency exchange gains and losses that impacted the effective tax rates. Excluding foreign currency exchange results, the impairments to goodwill and acquired intangible assets and the gains and losses related to investment securities from pre-tax income, as well as the related tax effects for these items, the Company’s effective tax rates were 46.3% and 44.1% for the three months ended September 30, 2009 and 2008, respectively, and 45.0% and 32.4% for the nine months ended September 30, 2009 and 2008, respectively.

The increase in the effective tax rates, as adjusted, for the first nine months of 2009 compared to the same period in 2008 is primarily related to the Company’s U.S. tax position. For the nine months ended September 30, 2009, the Company has recorded a valuation allowance against its U.S. federal tax net operating losses as it has determined that it is more likely than not that a tax benefit will not be realized. Accordingly, the federal income tax benefit associated with pre-tax book losses generated by the Company’s U.S. entities has not been recognized in this period. For the nine months ended September 30, 2008, no valuation allowance was recorded against its U.S. federal tax net operating losses, resulting in a tax benefit associated with the pre-tax loss generated by the Company’s U.S. operations. Additional reasons for the increase in the Company’s effective tax rates include the accrual of incremental state income tax expense in the first nine months of 2009 compared to the same period in 2008, mainly due to exhausting certain state net operating losses, and the

recognition of a one-time tax benefit in the first nine months of 2008 resulting from the successful conclusion of a tax audit in one of the Company’s foreign jurisdictions. Finally, the loss of certain income tax deductions in Spain as a result of the goodwill and acquired intangible assets impairment charges increased income tax expense in the first nine months of 2009.

(12) CONTINGENCIES

In the second quarter 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 money transmission services to the Dominican Republic during the period from January 1, 2004 to the date of the subpoena. The Company and CES are fully cooperating with the DOJ in its investigation.

At this time, the Company is unable to predict whether this investigation will result in the DOJ bringing charges against CES. Accordingly, the Company is unable to predict the outcome of this investigation, the possible loss or possible range of loss, if any, associated with the resolution of any charges that may be brought against CES, or any potential effect on the Company’s business, results of operations or financial condition.

The Company acquired all of the stock of RIA Envia, Inc., the parent of CES, in April 2007.

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. (together with our subsidiaries, “we,” “us,” “Euronet” or the “Company”) is a leading electronic payments provider, offering automated teller machine (“ATM”) and point-of-sale (“POS”) and card outsourcing services, card issuing and merchant acquiring services, integrated electronic financial transaction (“EFT”) software, network gateways, electronic distribution of top-up services for prepaid mobile airtime and other prepaid products, electronic consumer money transfer and bill payment services to financial institutions, mobile operators, retailers and individual customers. As of September 30, 2009, we operate in the following three principal business segments:

	•		An EFT Processing Segment, which processes transactions for a network of 9,473 ATMs and approximately 51,000 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 EFT software solutions for electronic payment and transaction delivery systems.
	•		A Prepaid Processing Segment, which provides distribution of prepaid mobile airtime and other prepaid products and collection services for various prepaid products, cards and services. We are one of the largest international providers of prepaid mobile airtime processing. Including terminals operated by unconsolidated subsidiaries, we operate a network of approximately 475,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services in Europe, the Middle East, Asia Pacific and the Americas.
	•		A Money Transfer Segment, which provides global consumer to consumer money transfer services. We offer this service through a sending network of agents and Company-owned stores primarily in Europe and North America, disbursing money transfers through a worldwide payer network. Bill payment services are offered primarily in the U.S. Based on revenues and volumes, we are the third-largest global money transfer company. The Money Transfer Segment originates and terminates transactions through a network of approximately 81,000 locations, which include sending agents and Company-owned stores, and an extensive payer network in more than 100 countries.

We have six processing centers in Europe, two in Asia Pacific and two in North America. We have 23 principal offices in Europe, seven in North America, five in Asia Pacific and one in the Middle East. Our executive offices are located in Leawood, Kansas, USA. With approximately 75% 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 growth in revenues, operating income and diluted earnings per share.

SOURCES OF REVENUES AND CASH FLOW

Euronet earns revenues and income based on ATM management fees, transaction fees and commissions, professional services, software licensing fees and software maintenance agreements. Each business segment’s sources of revenue 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 2009, are derived from fees charged for transactions effected 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 credit cards under outsourcing 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) prepaid telecommunication recharges. Revenues in this segment are also derived from license fees, professional services and maintenance fees for software and sales of related hardware. Software license fees are the fees we charge to license our proprietary application software to customers. Professional service fees consist of charges for customization, installation and consulting services to customers. Software maintenance revenues represent the ongoing fees charged for maintenance and support for customers’ software products. Hardware sales are derived from the sale of computer equipment necessary for the respective software solution.

Prepaid Processing Segment — Revenues in the Prepaid Processing Segment, which represented approximately 58% of total consolidated revenues for the first nine months of 2009, 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 prepaid products. Due to certain provisions in our mobile phone operator agreements, the operators have the ability to reduce the overall commission paid on each top-up transaction. However, by virtue of our agreements with retailers (distributors where POS terminals are located) in certain markets, not all of these reductions are absorbed by us because we are able to pass a significant portion of the reductions to retailers. Accordingly, under certain retailer agreements, the effect is to reduce revenues and reduce our direct operating costs resulting in only a small impact on gross profit and operating income. In some markets, reductions in commissions can significantly impact our results as it may not be possible, either contractually or commercially in the concerned market, to pass a

reduction in commissions to the retailers. In 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 products offered by this segment include prepaid long distance calling card plans, prepaid internet plans, prepaid debit cards, prepaid gift cards, prepaid transportation products, bill payment, money transfer and prepaid mobile content such as music, ringtones and games.

Money Transfer Segment — Revenues in the Money Transfer Segment, which represented approximately 23% of total consolidated revenues for the first nine months of 2009, are primarily derived from charging a transaction fee, as well as the difference between purchasing foreign currencies at wholesale exchange rates and selling foreign currencies to consumers at retail exchange rates. We have an origination network in place comprised of agents and Company-owned stores primarily in Europe and North America and a worldwide network of correspondent agents, consisting primarily of financial institutions in the transfer destination countries. Origination 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 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.

Prepaid Processing Segment — The continued expansion and development of the Prepaid Processing 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, agent financial institutions and retailers;
	•		the ability to use existing expertise and relationships with mobile operators and retailers to our advantage;
	•		the continuation of the trend towards conversion from scratch card solutions to electronic processing solutions for prepaid mobile airtime among mobile phone users and the continued use of third-party providers such as ourselves to supply this service;
	•		the development of mobile phone networks in these markets and the increase in the number of mobile phone users;
	•		the overall pace of growth in the prepaid mobile phone market;
	•		our market share of the retail distribution capacity;
	•		the level of commission that is paid to the various intermediaries in the prepaid mobile airtime distribution chain;
	•		our ability to add new and differentiated prepaid products in addition to those offered by mobile operators;
	•		the ability to take advantage of cross-selling opportunities with our Money Transfer Segment, including providing money transfer services through our prepaid locations; and
	•		the availability of financing for further expansion.

Money Transfer Segment — The expansion and development of our money transfer 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 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 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 Prepaid Processing 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 continue to successfully integrate RIA with our existing operations.

Corporate Services, Eliminations and Other — In addition to operating in our principal business segments described above, our “Corporate Services, Elimination and Other” category includes non-operating activity, certain inter-segment eliminations and the cost of providing corporate and other administrative services to the business segments, including share-based compensation expense related to stock option and restricted stock grants. These services are not directly identifiable with our business segments.

SEGMENT SUMMARY RESULTS OF OPERATIONS

Revenues and operating income (loss) by segment for the three- and nine-month periods ended September 30, 2009 and 2008 are summarized in the tables below:

		Revenues for the Three																Revenues for the Nine
		Months Ended September 30,								Year-over-Year Change								Months Ended September 30,								Year-over-Year Change
										Increase				Increase
										(Decrease)				(Decrease)												Decrease				Decrease
(dollar amounts in thousands)		2009				2008				Amount				Percent				2009				2008				Amount				Percent
EFT Processing		$	50,939			$	54,408			$	(3,469	)		(6%)				$	142,737			$	155,005			$	(12,268	)		(8%)
Prepaid Processing			153,610				166,784				(13,174	)		(8%)					433,386				463,642				(30,256	)		(7%)
Money Transfer			60,271				59,511				760			1%					171,008				171,299				(291	)		—
Total		$	264,820			$	280,703			$	(15,883	)		(6%)				$	747,131			$	789,946			$	(42,815	)		(5%)
		Operating Income (Loss)																Operating Income (Loss)
		for the Three Months																for the Nine Months Ended
		Ended September 30,								Year-over-Year Change								September 30,								Year-over-Year Change
										Increase				Increase												Increase				Increase
										(Decrease)				(Decrease)												(Decrease)				(Decrease)
(dollar amounts in thousands)		2009				2008				Amount				Percent				2009				2008				Amount				Percent
EFT Processing		$	12,249			$	8,256			$	3,993			48%				$	33,958			$	27,440			$	6,518			24%
Prepaid Processing			13,548				12,615				933			7%					36,535				34,369				2,166			6%
Money Transfer			2,575				3,152				(577	)		(18%)					(2,615	)			7,661				(10,276	)		n/m
Total			28,372				24,023				4,349			18%					67,878				69,470				(1,592	)		(2%)
Corporate services			(6,287	)			(5,255	)			(1,032	)		20%					(18,071	)			(20,173	)			2,102			(10%)
Total		$	22,085			$	18,768			$	3,317			18%				$	49,807			$	49,297			$	510			1%