UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2006

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

EURONET WORLDWIDE, INC.

Delaware (State or other jurisdiction of incorporation or organization)		74-2806888 (I.R.S. employer identification no.)

     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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

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

The number of shares of the issuer’s common stock, $0.02 par value, outstanding as of April 28, 2006 was 36,963,193 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			15
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			32
ITEM 4.		CONTROLS AND PROCEDURES			33
PART II—OTHER INFORMATION					33
ITEM 1.		LEGAL PROCEEDINGS			33
ITEM 1A.		RISK FACTORS			34
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			35
ITEM 6.		EXHIBITS			35

PART I—FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

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

		March 31,
		2006				December 31,
		(unaudited)				2005 (1)
ASSETS
Current assets:
Cash and cash equivalents		$	223,735			$	219,932
Restricted cash			75,958				73,942
Inventory — PINs and other			22,940				25,595
Trade accounts receivable, net of allowances for doubtful accounts of $1,784 at March 31, 2006 and $1,995 at December 31, 2005			145,360				166,451
Deferred income taxes, net			2,023				1,812
Prepaid expenses and other current assets			27,499				21,211
Total current assets			497,515				508,943
Property and equipment, net of accumulated depreciation of $72,803 at March 31, 2006 and $66,644 at December 31, 2005			50,400				44,852
Goodwill			269,159				267,195
Acquired intangible assets, net of accumulated amortization of $14,001 at March 31, 2006 and $11,918 at December 31, 2005			51,829				50,724
Deferred income taxes			6,366				6,994
Other assets, net of accumulated amortization of $8,449 at March 31, 2006 and $7,721 at December 31, 2005			15,408				15,644
Total assets		$	890,677			$	894,352
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	185,818			$	202,655
Accrued expenses and other current liabilities			63,078				77,101
Current portion of capital lease obligations			6,000				5,431
Short-term debt obligations			16,295				22,893
Income taxes payable			10,180				8,207
Deferred income taxes			3,091				3,023
Deferred revenue			10,346				8,013
Total current liabilities			294,808				327,323
Debt obligations			318,381				315,000
Capital lease obligations, net of current portion			14,531				12,229
Deferred income taxes			24,291				25,157
Other long-term liabilities			2,045				1,161
Minority interest			6,961				7,129
Total liabilities			661,017				687,999
Stockholders’ equity:
Preferred Stock, $0.02 par value. Authorized 10,000,000 shares; none issued			—				—
Common Stock, $0.02 par value. Authorized 60,000,000 shares; issued and outstanding 36,949,985 shares at March 31, 2006 and 35,776,431 at December 31, 2005			740				717
Additional paid-in-capital			326,451				312,025
Treasury stock			(196	)			(196	)
Subscriptions receivable			(14	)			(124	)
Accumulated deficit			(95,436	)			(104,787	)
Restricted reserve			776				776
Accumulated other comprehensive loss			(2,661	)			(2,058	)
Total stockholders’ equity			229,660				206,353
Total liabilities and stockholders’ equity		$	890,677			$	894,352

See accompanying notes to the unaudited consolidated financial statements.

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

		Three Months Ended March 31,
		2006				2005 (1)
Revenues:
EFT Processing Segment		$	29,868			$	23,889
Prepaid Processing Segment			110,961				89,381
Software Solutions Segment			6,141				3,936
Total revenues			146,970				117,206
Operating expenses:
Direct operating costs			101,353				82,372
Salaries and benefits			18,034				13,204
Selling, general and administrative			8,436				6,138
Depreciation and amortization			6,819				5,025
Total operating expenses			134,642				106,739
Operating income			12,328				10,467
Other income (expense):
Interest income			2,722				1,207
Interest expense			(3,597	)			(1,588	)
Income from unconsolidated affiliates			171				245
Foreign exchange gain (loss), net			1,558				(2,842	)
Other income (expense), net			854				(2,978	)
Income from continuing operations before income taxes and minority interest			13,182				7,489
Income tax expense			(3,570	)			(3,830	)
Minority interest			(261	)			(88	)
Net income			9,351				3,571
Translation adjustment			(603	)			(1,961	)
Comprehensive income		$	8,748			$	1,610
Earnings per share — basic:
Earnings per share		$	0.26			$	0.11
Basic weighted average shares outstanding			36,555,149				33,883,451
Earnings per share — diluted (see Note 3):
Earnings per share		$	0.24			$	0.10
Diluted weighted average shares outstanding			42,263,210				36,099,360

See accompanying notes to the unaudited consolidated financial statements.

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

		Three Months Ended March 31,
		2006				2005 (1)
Net income		$	9,351			$	3,571
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			6,819				5,025
Share-based compensation			1,894				1,340
Unrealized foreign exchange (gain) loss, net			(1,354	)			2,724
Gain on disposal of property and equipment			(53	)			(92	)
Deferred income tax expense (benefit)			(582	)			333
Income assigned to minority interest			261				88
Income from unconsolidated affiliates			(171	)			(245	)
Amortization of debt issuance expense			598				223
Changes in working capital, net of amounts acquired:
Income taxes payable			1,760				779
Restricted cash			(2,110	)			(38,596	)
Inventory — PINs and other			2,609				725
Trade accounts receivable			21,519				(1,270	)
Prepaid expenses and other current assets			(5,212	)			(6,801	)
Trade accounts payable			(18,740	)			33,968
Deferred revenue			2,909				(1,378	)
Accrued expenses and other current liabilities			(12,879	)			7,741
Other, net			(340	)			1,764
Net cash provided by operating activities			6,279				9,899
Cash flows from investing activities:
Acquisitions, net of cash acquired			(2,323	)			(55,969	)
Proceeds from sale of property and equipment			135				164
Purchases of property and equipment			(6,631	)			(3,041	)
Purchases of other long-term assets			(1,063	)			(465	)
Net cash used in investing activities			(9,882	)			(59,311	)
Cash flows from financing activities:
Proceeds from issuance of shares			10,415				3,369
Net repayments on short-term debt obligations and revolving credit agreements			(1,769	)			(710	)
Repayment of capital lease obligations			(1,715	)			(1,574	)
Other, net			(125	)			—
Net cash provided by financing activities			6,806				1,085
Effect of exchange differences on cash			600				(2,887	)
Increase (decrease) in cash and cash equivalents			3,803				(51,214	)
Cash and cash equivalents at beginning of period			219,932				124,198
Cash and cash equivalents at end of period		$	223,735			$	72,984
Interest paid during the period		$	901			$	624
Income taxes paid during the period			1,541				2,937

See accompanying notes to the unaudited consolidated financial statements.

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

(1) GENERAL

Basis of Presentation

The accompanying unaudited consolidated financial statements of Euronet Worldwide, Inc. and its subsidiaries (“Euronet” or the “Company”) have been prepared from the records of the Company, in conformity with U.S. generally accepted accounting principles and pursuant to the rules and regulations of the Securities and Exchange Commission. 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 March 31, 2006 and the results of its operations and cash flows for the three-month periods ended March 31, 2006 and 2005.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2005, including the notes thereto, set forth in the Company’s Form 10-K. Certain prior year amounts have been reclassified to conform to the current period consolidated financial statement presentation.

The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” (“SFAS No. 123R”) on January 1, 2006. The Company elected to adopt SFAS No. 123R utilizing the modified retrospective application method and, accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have been adjusted to reflect the fair value method of expensing prescribed by SFAS No. 123R. See Note 2 — Significant Accounting Policies and Practices and Note 7 — Stock Plans for further discussion.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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-month period ended March 31, 2006 are not necessarily indicative of the results to be expected for the full year ending December 31, 2006.

(2) SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Share-based compensation

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123R, which is a revision of SFAS No 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires the determination of the fair value of the share-based compensation at the grant date and the recognition of the related expense over the period in which the share-based compensation vests (“requisite service period”). The Company elected to adopt the modified retrospective application method as provided by SFAS No. 123R and, accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have been adjusted to reflect the fair value method of expensing prescribed by SFAS No. 123R. The Company believes that this method achieves the highest level of clarity and comparability among the presented periods.

As a result of adopting SFAS No. 123R, the Company’s deferred tax assets related to U.S. Federal and state net operating loss carryforwards, reported for U.S. GAAP purposes, and deferred compensation, increased by an estimated $8.1 million as of December 31, 2005. The Company’s initial estimate remains preliminary while management completes its analysis. However, since the Company records a valuation allowance for its entire U.S. net deferred tax asset position, upon adoption of SFAS No. 123R, the amount of net deferred tax assets did not, and is not expected to, change. The Company has chosen to use the Black-Scholes pricing model for the determination of fair value for future stock option grants. The amount of future compensation expense related to restricted share awards will continue to be based on the share price at the grant date. Share-based compensation expense is generally recognized as an expense of the Corporate division on a “straight-line” basis over the requisite service period. For awards with performance conditions, expense is recognized on a “graded attribution method.” The graded attribution method results in expense recognition on a straight-line basis over the requisite service period for each separately vesting portion of an award, as if the award was, in-substance, multiple awards. See Note 7 — Stock Plans for further disclosure.

For a description of other significant accounting policies of the Company, see Note 3 to the Audited Consolidated Financial Statements as of and for the year ended December 31, 2005, set forth in the Company’s Annual Report on Form 10-K.

(3) EARNINGS PER SHARE

Basic earnings per share has been computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share reflect the weighted-average shares outstanding during the respective period, after adjusting for the potential dilution upon the assumed conversion of the Company’s convertible

debentures and options to purchase the Company’s common stock. The following table provides a reconciliation of the weighted average number of common shares outstanding to the diluted weighted average number of common shares outstanding and a reconciliation of net income to net income available to common stockholders:

		Three Months Ended March 31,
(dollar amounts in thousands)		2006				2005 (1)
Basic weighted average shares outstanding			36,555,149				33,883,451
Additional shares from assumed conversion of 1.625% convertible debentures			4,162,950				—
Incremental shares from assumed conversion of stock options (1)			1,545,111				2,215,909
Potentially diluted weighted average shares outstanding			42,263,210				36,099,360
Net income		$	9,351			$	3,571
Add: interest expense of 1.625% convertible debentures			797				—
Earnings available to common stockholders		$	10,148			$	3,571

For the three month period ended March 31, 2006, the average market price of Euronet common stock exceeded the exercise price of all stock options outstanding. For the three month period ended March 31, 2005, there were 125,000 options that had an exercise price in excess of the average market price of Euronet common stock.

The Company has $140 million of 1.625% convertible debentures due 2024 and $175 million 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 4.2 million shares of Common Stock for the $140 million 1.625% issue, and 4.3 million shares of Common Stock for the $175 million 3.50% issue, initially in December 2009 and October 2012, respectively, or earlier upon the occurrence of certain conditions. As required by EITF Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” if dilutive, the impact of the contingently issuable shares must be included in the calculation of diluted net income 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 conversion of the 1.625% convertible debentures was dilutive for the three months ended March 31, 2006 and anti-dilutive for the three months ended March 31, 2005. Accordingly, the impact has been included in the above computation of potentially diluted weighted average shares outstanding for the three months ended March 31, 2006 and excluded from the above computation for the three months ended March 31, 2005. Under the if-converted method, the assumed conversion of the 3.50% convertible debentures was anti-dilutive for the three months ended March 31, 2006 and, accordingly, the impact has been excluded from the above computation of potentially weighted average shares outstanding. The 3.50% convertible debentures were not outstanding for the three months ended March 31, 2005.

(4) ACQUISITIONS

In accordance with SFAS No. 141, “Business Combinations,” the Company allocates the purchase price of its acquisitions to the tangible assets, liabilities and intangible assets acquired based on estimated fair values. The excess purchase price over those fair values is recorded as goodwill. The fair value assigned to intangible assets acquired is supported by valuations using estimates and assumptions provided by management. For certain large or unique acquisitions management engaged an appraiser to assist in the valuation.

2006 Acquisitions:

During the first quarter 2006, the Company completed the acquisition of the assets of Essentis Limited (“Essentis”) for approximately $3.2 million, which was comprised of $0.9 million in cash and assumed liabilities of approximately $2.3 million. Essentis is a U.K. company that owns a card issuing and merchant acquiring software package that will enhance Euronet’s outsourcing and software offerings to banks. Essentis is reported in the Company’s Software Solutions Segment. The Company’s allocation of the purchase price to the fair values of acquired tangible and intangible assets is preliminary and remains so while management completes its valuation of the fair value of the net assets acquired. The following table summarizes the estimated allocation of the purchase price to the fair values of the acquired tangible and intangible assets at the acquisition date:

		Estimated
(dollar amounts in thousands)		Life
Property and equipment		various		$	685
Software		5 years			2,500
Assets acquired				$	3,185

There are no potential additional purchase price or escrow arrangements associated with the Essentis acquisition.

2005 Acquisitions:

During 2005, the Company completed seven acquisitions for an aggregate purchase price of approximately $117.3 million. The Company’s allocation of the purchase price to the fair values of acquired tangible and intangible assets for certain acquisitions are preliminary and remain so while management completes its valuation of the fair value of the net assets acquired. The following table summarizes the allocation of the purchase price, including $2.9 million paid in prior years for acquisitions accounted for as step acquisitions, to the fair values of the acquired tangible and intangible assets at the acquisition dates.

		Estimated						Other
(dollar amounts in thousands)		Life		Telerecarga				Acquisitions				Total
Current assets				$	—			$	3,841			$	3,841
Property and equipment		various			1,415				1,412				2,827
Customer relationships		8 or 9 years			10,295				14,816				25,111
Software		5 years			655				900				1,555
Patent		7 years			—				1,699				1,699
Trade name		2 years			254				—				254
Non-compete agreements		5 years			147				—				147
Deferred income tax asset					—				1,055				1,055
Goodwill		Indefinite			42,144				51,713				93,857
Assets acquired					54,910				75,436				130,346
Current liabilities					—				(590	)			(590	)
Deferred income tax liability					(3,892	)			(5,619	)			(9,511	)
Net assets acquired				$	51,018			$	69,227			$	120,245

Acquisition of Telerecarga S.L.

In March 2005, to supplement the Company’s prepaid processing business in Spain, Euronet purchased 100% of the assets of Telerecarga S.L. (“Telerecarga”), a Spanish company that distributes prepaid mobile airtime and other prepaid products via Point of Sale (“POS”) terminals throughout Spain. The purchase price of €38.1 million (approximately $51.0 million) was settled through the assumption of €25.4 million (approximately $34.0 million) in liabilities and cash payments of €12.7 million (approximately $17.0 million).

Other acquisitions

During 2005, Euronet completed six other acquisitions described below for a total purchase price of $66.3 million, comprised of $39.6 million in cash, 754,589 shares of Euronet Common Stock, valued at $19.5 million, $4.9 million in liabilities assumed and a $2.3 million accrual for contingent purchase price arrangements that will be settled in Euronet Common Stock. Additionally, the purchase price for acquisitions accounted for as step acquisitions, in accordance with SFAS No. 141, include $2.9 million paid in prior years.

	•		In December 2005, EFT Services Holding B.V. (a wholly-owned subsidiary of Euronet) purchased 6.25% of Euronet Services Private Limited, the Company’s subsidiary in India (“Euronet India”), increasing its share ownership of Euronet India to 100%. Euronet India is included in the Company’s EFT Processing Segment and, since the Company’s ownership share previously exceeded 50%, has been a consolidated subsidiary since inception.
	•		In two separate transactions; one in April 2005 and one in December 2005, EFT Services Holding B.V. (a wholly-owned subsidiary of Euronet) purchased an additional 64% of Europlanet a.d. (“Europlanet”), a Serbian company, increasing its share ownership in Europlanet to 100%. Europlanet is a debit card processor that owns, operates and manages a network of ATMs and POS terminals. Upon obtaining a controlling interest in April 2005, Euronet began consolidating Europlanet’s financial position and results of operations. Euronet’s $0.2 million share of dividends declared prior to acquiring a controlling ownership share of Europlanet was recognized as income from unconsolidated affiliates during 2005.

	•		In October 2005, Euronet EFT Services Hellas EPE (a wholly-owned subsidiary of Euronet) acquired all of the share capital of Instreamline S.A. (“Instreamline”), a Greek company that provides credit card and POS outsourcing services in addition to debit card and transaction gateway switching services in Greece and the Balkan region. Instreamline will complement the Company’s EFT Processing Segment.
	•		In May 2005, Euronet acquired all of the outstanding membership interests in Continental Transfer, LLC and a wholly-owned subsidiary, TelecommUSA, Limited (“TelecommUSA”), a company based in North Carolina. TelecommUSA provides money transfer services, primarily to consumers in the U.S. to destinations in Latin America, and bill payment services within the U.S. This acquisition launched the Company’s money transfer and bill payment business.
	•		In March 2005, to enhance the Company’s U.S. prepaid processing business, PaySpot (a wholly-owned subsidiary of Euronet) purchased substantially all of the assets of Dynamic Telecom, Inc. (“Dynamic Telecom”), a company based in Iowa. Dynamic Telecom’s distribution network in convenience store chains throughout the U.S. provides several types of prepaid products including wireless, long distance and gift cards via POS terminals.
	•		In March 2005, the Company exercised its option to acquire an additional 41% of the shares of ATX Software, Ltd. (“ATX”) and increased its share ownership in ATX to 51%. Euronet originally acquired a 10% share in ATX in May 2004. Euronet’s $0.1 million share of dividends declared prior to acquiring the additional 41% ownership share of ATX was recognized as income from unconsolidated affiliates during 2005. With the increase in ownership from 10% to 51%, Euronet now consolidates ATX’s financial position and results of operations.

In connection with these six acquisitions, $3.5 million in cash remains in escrow. This cash has been reflected in the purchase price allocations because the Company has determined beyond a reasonable doubt that the performance criteria will be met. There are additional contingent payments to be calculated based on certain performance criteria as specified in the purchase agreements. During the first quarter 2006, the Company recorded $2.7 million in additional goodwill related to 2005 acquisitions because the amounts due under the contingent payment arrangements were either settled during the first quarter 2006 or the Company has determined a portion of the amount to be settled beyond a reasonable doubt. As of March 31, 2006, the Company estimates that remaining amounts due under these contingent payment arrangements could result in additional purchase price of up to approximately $2.0 million. When determined beyond a reasonable doubt, additional payments will be recorded as goodwill. Additional payments, if any, will be settled in Euronet Common Stock.

Pro Forma results:

The following unaudited pro forma financial information presents the condensed combined results of operations of Euronet for the three months ended March 31, 2006 and 2005, as if the acquisitions described above had occurred January 1, 2005. An adjustment was made to the combined results of operations, reflecting amortization of purchased intangible assets, net of tax, which would have been recorded if the acquisitions had occurred on January 1, 2005. The unaudited pro forma financial information is not intended to represent, or be indicative of, the consolidated results of operations or financial condition of Euronet that would have been reported had the acquisitions been completed as of the beginning of the periods presented. Moreover, the unaudited pro forma financial information should not be considered as representative of the future consolidated results of operations or financial condition of Euronet.

		Pro Forma for the Three
		Months Ended March 31,
(amounts in thousands, except per share data)		2006				2005
Revenues		$	146,970			$	130,972
Operating income		$	12,328			$	10,953
Net income		$	9,351			$	3,651
Per share data:
Earnings per share-basic		$	0.26			$	0.11
Earnings per share-diluted		$	0.24			$	0.10

(5) GOODWILL AND INTANGIBLE ASSETS

Intangible assets are carried at amortized cost, and goodwill, which is not amortized, is carried at cost. Intangible assets and goodwill are evaluated for impairment annually or more frequently if there is an indication of impairment. Goodwill represents the excess of the purchase price of the acquired businesses over the fair value of the underlying net tangible and intangible assets acquired. A summary of intangible assets and goodwill activity for the three months ended March 31, 2006, is presented below:

		Amortizable								Total
		Intangible								Intangible
(in thousands):		Assets				Goodwill				Assets
Balance as of January 1, 2006		$	50,724			$	267,195			$	317,919
Increases (decreases):
Acquisition of Essentis			2,500				—				2,500
Earn-out payment related to Dynamic Telecom acquisition			—				2,250				2,250
Adjustments to other 2005 acquisitions			345				(616	)			(271	)
Amortization			(2,054	)			—				(2,054	)
Other (primarily changes in foreign currency exchange rates)			314				330				644
Balance as of March 31, 2006		$	51,829			$	269,159			$	320,988

Estimated annual amortization expense on intangible assets with finite lives, before income taxes, as of March 31, 2006 is expected to be $8.4 million for 2006, $8.2 million for 2007, $8.0 million for 2008, $7.9 million for 2009, $7.7 million for 2010 and $5.4 million for 2011.

(6) DEBT OBLIGATIONS

A summary of the activity for the three months ended March 31, 2006 for all debt obligations 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				Total
Balance at January 1, 2006		$	7,343			$	15,550			$	17,660			$	140,000			$	175,000			$	355,553
Increases (decreases):
Indebtedness incurred			—				—				4,475				—				—				4,475
Repayments			(2,271	)			(993	)			(2,165	)			—				—				(5,429	)
Capital lease interest accrued			—				—				450				—				—				450
Foreign exchange loss			—				47				111				—				—				158
Balance at March 31, 2006			5,072				14,604				20,531				140,000				175,000				355,207
Less — current maturities			(5,072	)			(11,223	)			(6,000	)			—				—				(22,295	)
Long-term obligations at March 31, 2006		$	—			$	3,381			$	14,531			$	140,000			$	175,000			$	332,912

As of March 31, 2006, there were stand-by letters of credit of $5.8 million outstanding against the Company’s revolving credit facilities.

(7) STOCK PLANS

(a) Adoption of SFAS No. 123R

As discussed in Note 1 and Note 2, the Company elected to adopt SFAS No. 123R under the modified retrospective application method applied to all periods for which SFAS No 123 was effective. Accordingly, financial statement amounts for the prior periods presented in this Form 10-Q have been adjusted to reflect the fair value method of expensing prescribed by SFAS No. 123R. The following table outlines the impact of adopting SFAS No. 123R on previously reported results:

		As Previously				Impact of
(in thousands, except per share data)		Reported				Adoption				As Adjusted
For three months ended March 31, 2005:
Income before income taxes and minority interest		$	8,744			$	(1,255	)		$	7,489
Net income		$	4,826			$	(1,255	)		$	3,571
Earnings per share:
Basic		$	0.14			$	(0.03	)		$	0.11
Diluted		$	0.13			$	(0.03	)		$	0.10
As of December 31, 2005:
Additional paid-in capital		$	279,307			$	32,718			$	312,025
Accumulated deficit		$	(72,069	)		$	(32,718	)		$	(104,787	)

Changes to the Company’s consolidated statement of cash flows for the three months ended March 31, 2005 for the adoption of SFAS No. 123R were limited to the impact on net income shown above and the offsetting adjustment for share-based compensation as a non-cash expense.

The Company’s consolidated statements of income and comprehensive income includes $1.9 million and $1.3 million for the three-month periods ended March 31, 2006 and 2005, respectively, relating to share-based compensation, which was recorded as salaries and benefits expense. Of these amounts, less than $0.1 million was recorded as expense of our business segments during the three months ended March 31, 2006 and 2005. The Company recorded a tax benefit of $0.1 million during the three months ended March 31, 2006 for the portion of this expense that relates to foreign tax jurisdictions in which we expect to derive an income tax benefit. The Company did not record a tax benefit for the three months ended March 31, 2005.

(b) Stock options

The Company has established, and shareholders have approved, a share compensation plan (the “SCP”) that provides certain employees options to purchase shares of its Common Stock. These awards generally vest over periods ranging from three to five years from the date of grant and are generally exercisable during the shorter of a ten year term or the term of employment or consulting arrangements with the Company. As of March 31, 2006, the Company reserved 9,663,991 shares of Common Stock, of which 9,547,924 have been awarded to employees. Summary stock options activity is presented in the table below:

										Weighted
						Weighted				Average				Aggregate
						Average				Remaining				Intrinsic
		Number of				Exercise				Contractual				Value
		Shares				Price				Term				(thousands)
Outstanding at January 1, 2006			3,803,261			$	11.91			6.2 years				$	60,439
Exercised			(1,144,832	)			8.37								26,991
Forfeited			(45,730	)			20.90								774
Outstanding at March 31, 2006			2,612,699			$	13.41			6.5 years				$	63,793
Exercisable at January 1, 2006			2,142,090			$	8.75			5.2 years				$	40,807
Exercisable at March 31, 2006			1,057,278			$	9.14			5.6 years				$	30,336

There were no options granted during the three months ended March 31, 2006. The Company received cash of $9.6 million in connection with stock options exercised during the three months ended March 31, 2006. As of March 31, 2006, unrecognized compensation expense related to nonvested stock options totaled $6.1 million and will be recognized over the next 33 months, with an overall weighted average period of 1.1 years.

(c) Restricted stock

The SCP also allows the Compensation Committee of the Board of Directors to make grants of restricted shares to certain current and prospective key employees, directors and consultants of the Company. Generally, awards of restricted stock vest over periods ranging from three to seven years. Awards vest based on achievement of time-based service conditions and certain awards can be accelerated upon the achievement of established milestones or vest based solely on the achievement of performance goals established by the Compensation Committee. The assumed annual forfeiture rate is 5%.

During the three months ended March 31, 2006, 17,500 restricted shares were granted, 11,800 restricted shares were forfeited and 600 restricted shares vested. A summary of restricted stock outstanding as of March 31, 2006 is presented in the table below:

Unrecognized

Weighted

Compensation

Average

Aggregate

Cost on

Number of

Remaining

Intrinsic

Unvested

(dollar amounts in thousands)

Shares

Vesting Period

Value

Shares

Restricted stock vesting based on continued employment

301,200

6.0 years

$

11,394

$

8,064

Restricted stock vesting based on achievement of performance criteria

239,263

6.2 years

$

9,051

$

5,638

(d) Employee stock purchase plans

In 2003, the Company established a qualified Employee Stock Purchase Plan (the “ESPP”), which allows qualified employees (as defined by the plan documents) to participate in the purchase of rights to purchase designated shares of the Company’s Common Stock at a price equal to the lower of 85% of the closing price at the beginning or end of each quarterly offering period. The Company reserved 500,000 shares of Common Stock for purchase under the ESPP. Pursuant to the ESPP, during the three months ended March 31, 2006 the Company issued 15,313 rights to purchase shares of Common Stock at a price per share of $24.06. The following table provides the fair value of the ESPP stock purchase rights during the three months ended March 31, 2006 with a description of the assumptions used to calculate the fair value using the Black-Scholes pricing model:

		Three Months
		Ended March 31,
		2006
Volatility			34.7	%
Risk-free interest rates			4.0	%
Dividend yield			0.0	%
Expected lives		3 months
Weighted-average fair value (per share)		$	4.86

(8) BUSINESS SEGMENT INFORMATION

The Company operates in three principal business segments.

	1)		Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, Asia and Africa. The Company provides comprehensive electronic payment solutions consisting of ATM network participation, outsourced ATM and POS management solutions and electronic recharge services (for prepaid mobile airtime purchases via ATM or directly from the handset).
	2)		Through the Prepaid Processing Segment, the Company provides prepaid processing, or top-up services, for prepaid mobile airtime and other prepaid products. The Company operates a network of POS terminals providing electronic processing of prepaid mobile airtime services in the U.S., Europe, Africa and Asia Pacific. This segment includes the results of Euronet Payments and Remittance, a licensed money transfer and bill payment company.
	3)		Through the Software Solutions Segment, the Company offers a suite of integrated electronic financial transaction (“EFT”) software solutions for electronic payment and transaction delivery systems.

In addition, in its administrative division, “Corporate Services, Eliminations and Other,” the Company accounts for non-operating results, certain intercompany eliminations and the costs of providing corporate and other administrative services to the three business segments. These services are not directly identifiable with the Company’s business segments. Inter-segment transactions are not significant. Salaries and benefits expense related to share-based compensation is generally recorded as a corporate expense.

The following tables present the segment results of the Company’s operations for the three months ended March 31, 2006 and 2005:

		For the Three Months Ended March 31, 2006
														Corporate
														Services,
		EFT				Prepaid				Software				Eliminations
(in thousands)		Processing				Processing				Solutions				and Other				Consolidated
Total revenues		$	29,868			$	110,961			$	6,154			$	(13	)		$	146,970
Operating expenses:
Direct operating costs			12,426				88,487				440				—				101,353
Salaries and benefits			4,314				6,284				3,924				3,512				18,034
Selling, general and administrative			2,754				3,846				978				858				8,436
Depreciation and amortization			2,945				3,384				447				43				6,819
Total operating expenses			22,439				102,001				5,789				4,413				134,642
Operating income (loss)			7,429				8,960				365				(4,426	)			12,328
Other income (expense):
Interest income			62				978				1				1,681				2,722
Interest expense			(643	)			(366	)			—				(2,588	)			(3,597	)
Income (loss) from unconsolidated affiliates			(179	)			350				—				—				171
Foreign exchange gain, net			—				—				—				1,558				1,558
Total other income (expense)			(760	)			962				1				651				854
Income (loss) before income taxes and minority interest		$	6,669			$	9,922			$	366			$	(3,775	)		$	13,182
Total assets as of March 31, 2006		$	130,560			$	553,217			$	13,694			$	193,206			$	890,677

		For the Three Months Ended March 31, 2005
														Corporate
														Services,
		EFT				Prepaid				Software				Eliminations
(in thousands)		Processing				Processing				Solutions				and Other (1)				Consolidated
Total revenues		$	23,889			$	89,381			$	3,936			$	—			$	117,206
Operating expenses:
Direct operating costs			10,834				71,279				259				—				82,372
Salaries and benefits			3,703				4,903				2,127				2,471				13,204
Selling, general and administrative			1,308				3,120				390				1,320				6,138
Depreciation and amortization			2,465				2,243				282				35				5,025
Total operating expenses			18,310				81,545				3,058				3,826				106,739
Operating income (loss)			5,579				7,836				878				(3,826	)			10,467
Other income (expense):
Interest income			46				909				—				252				1,207
Interest expense			(569	)			(154	)			—				(865	)			(1,588	)
Income from unconsolidated affiliates			—				113				—				132				245
Foreign exchange loss, net			—				—				—				(2,842	)			(2,842	)
Total other income (expense)			(523	)			868				—				(3,323	)			(2,978	)
Income (loss) before income taxes and minority interest		$	5,056			$	8,704			$	878			$	(7,149	)		$	7,489
Total assets as of December 31, 2005		$	124,772			$	477,893			$	6,308			$	285,379			$	894,352

(9) RELATED PARTY TRANSACTIONS

See Note 4 — Acquisitions, for a description of notes payable, deferred payment and additional equity issued and contingently issuable to the former business owners (now Euronet shareholders) in connection with various acquisitions.

(10) CONTINGENCIES

From time to time, the Company is a party to litigation arising in the ordinary course of its business.

During 2005, a former cash supply contractor in Central Europe (the “Contractor”) claimed that the Company owed it approximately $2.0 million for the provision of cash during the fourth quarter 1999 and first quarter 2000 that has not been returned. This claim, based on events that purportedly occurred over five years ago, was made more than a year after the Company had terminated its business with the Contractor and established a cash supply agreement with another supplier. In the first quarter 2006, the Contractor initiated legal action in Budapest, Hungary regarding the claim. Management expects the Company to prevail in defending itself in this matter and, accordingly has not recorded any liability or expense related to this claim. The Company will continue to monitor and assess this claim until ultimate resolution.

Currently, there are no other 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.

(11) GUARANTEES

As of March 31, 2006, the Company had $28.0 million of bank guarantees issued on its behalf, of which $17.0 million are collateralized by cash deposits held by the respective issuing banks.

Euronet Worldwide, Inc. regularly grants guarantees of the obligations of its wholly-owned subsidiaries. As of March 31, 2006, the Company had granted guarantees in the following amounts:

	•		Cash in various ATM networks — $18.7 million over the terms of the cash supply agreements.
	•		Vendor supply agreements — $17.9 million over the term of the vendor agreements.
	•		Commercial obligations of the Company’s Australian Prepaid Processing subsidiary, including PIN inventory held on consignment with our customers, to a maximum of approximately $40 million.

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 obligations is not stated in the agreements. Our liability under such indemnification provision may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnity obligations include the following:

	•		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 our vendors and into 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
	•		In connection with the Company’s entry into the money transfer business, the Company has issued surety bonds in compliance with licensing requirements of those states.

To date, the Company is not aware of any significant claims made by the indemnified parties or parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of March 31, 2006 and December 31, 2005.

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

OVERVIEW

COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES

Euronet Worldwide, Inc. (“Euronet” or the “Company”) is a leading electronic transaction processor, offering ATM and POS outsourcing services, integrated electronic financial transaction (“EFT”) software, network gateways and electronic prepaid top-up services to financial institutions, mobile operators and retailers, as well as electronic consumer money transfer and bill payment services. We operate the largest independent pan-European ATM network, the largest national shared ATM network in India, and we are one of the largest providers of prepaid mobile airtime processing.

We operate in three principal business segments:

	•		An EFT Processing Segment, in which we process transactions for a network of 7,613 ATMs and more than 33,000 POS terminals across Europe, Asia and Africa. We provide comprehensive electronic payment solutions consisting of ATM network participation, outsourced ATM and POS management solutions, credit card outsourcing and electronic recharge services (for prepaid mobile airtime via an ATM or directly from the handset).
	•		A Prepaid Processing Segment, through which we provide distribution of prepaid mobile airtime and other prepaid products and collections services for various prepaid products, cards and services. We operate a network of more than 242,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services in the U.S., Europe, Africa and Asia Pacific. This segment also includes Euronet Payments and Remittance, Inc. (“Euronet Payments and Remittance”), which was formed upon the 2005 acquisition of TelecommUSA, and provides money transfer services to customers from the U.S. to destinations in Latin America and bill payment services to customers within the U.S.
	•		A Software Solutions Segment, through which we offer a suite of integrated EFT software solutions for electronic payment and transaction delivery systems.

We have seven processing centers in Europe, two in Asia and two in the U.S., and we have 16 principal offices in Europe, four in the Asia-Pacific region, three in the U.S. and one in the Middle East. Our executive offices are located in Leawood, Kansas, USA. With approximately 84% 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 (for more discussion, see Part II, Item 1A — Risk Factors and Item 7A — Quantitative and Qualitative Disclosure About Market Risk).

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 — Revenue in the EFT Processing Segment, which represents approximately 20% of total consolidated revenue for the first quarter 2006, is 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 banks for operating ATMs and processing credit cards under outsourcing agreements.

On 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 does not give authorization and iv) prepaid telecommunication recharges.

For the first quarter 2006, approximately 26% of total segment revenue was derived from ATMs we owned (excluding those leased by us in connection with outsourcing agreements, as discussed below) and the remainder was primarily derived from ATMs that we operate for banks on an outsourced basis. The percentage of revenues we generate from our proprietary network of ATMs has fallen significantly during the past three years. We believe this shift from a largely proprietary, Euronet-owned ATM network, to a greater focus on ATMs operated under outsourcing agreements will continue to provide lower total revenues, but higher marginal returns on investment. This is because we bear all costs of owning and operating ATMs on our proprietary network, including the capital investment represented by the cost of the ATMs themselves, whereas customer-owned ATMs operated under outsource service agreements require a nominal up-front capital investment because we do not purchase the ATMs. Additionally, in many instances operating costs are the responsibility of the owner and, therefore, recurring operating expenses per ATM are lower. In connection with certain long-term outsourcing agreements, we lease many of our ATMs under capital lease arrangements where, generally, we purchase a bank’s ATMs, and simultaneously sell the ATMs (often to an entity related to the bank). We then lease back the ATMs for purposes of fulfilling the ATM outsourcing agreement with the bank. We fully recover the related lease costs from the bank under the outsourcing agreements. See “Comparison of Operating Results for the Three Months Ended March 31, 2006 and 2005 — EFT Processing Segment — Revenues” for further discussion.

Prepaid Processing Segment — Revenue in the Prepaid Processing Segment, which represents approximately 76% of total consolidated revenue for the first quarter 2006, is primarily derived from commissions or processing fees received from mobile and other telecommunication operators or from distributors of prepaid wireless products for the distribution and/or processing of prepaid mobile airtime and other telecommunication 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 margin and operating income. In some markets, reductions in commissions can significantly impact our results as it may not be possible, either contractually or practically 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. The loss of any agreements with mobile operators in any market could materially and adversely affect our results.

Software Solutions Segment — Revenue in the Software Solutions Segment, which represents 4% of total consolidated revenue for the first quarter 2006, is derived from licensing, professional services and maintenance fees for software and sales of related hardware. Software license fees are the initial fees we charge to license our proprietary application software to customers. Professional fees consist of charges for customization, installation and consulting services to customers. Software maintenance revenue represents 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.

In January 2006, we acquired the assets of Essentis Limited (“Essentis”), a U.K. company that owns a leading card issuing and merchant acquiring software package. The assets, primarily consisting of the software source code, were purchased out of an administrative proceeding for approximately $3.2 million, including the assumption of certain liabilities. The Essentis software product allows us to add additional outsourcing and software offerings to banks. For further discussion, see Note 4 — Acquisitions to the Unaudited Consolidated Financial Statements. The results of Essentis are reported in the Software Solutions Segment and Part III, Item 1A — Risk Factors.

OPPORTUNITIES AND CHALLENGES

Our expansion plans and opportunities are focused on five primary areas:

	•		outsourced ATM and POS terminal management contracts;
	•		transactions processed on our network of owned and operated ATMs;
	•		our prepaid mobile airtime top-up processing services;
	•		our money transfer and bill payment services; and
	•		development of our credit and debit card outsourcing business.

EFT Processing Segment — The continued expansion and development of our ATM business will depend on various factors including 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;
	•		entering 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; and
	•		the ability to efficiently install ATMs contracted under newly awarded outsourcing agreements.

We carefully monitor the revenue and transactional growth of our ATM networks in each of our markets, and we adjust our plans depending on local market conditions, such as variations in the transaction fees we receive, competition, overall trends in ATM-transaction levels and performance of individual ATMs.

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

In January 2006, through Jiayintong (Beijing) Technology Development Co. Ltd., our 75% owned joint venture with Ray Holdings in China, we entered into an ATM outsourcing pilot agreement with Postal Savings and Remittance Bureau (“PSRB”), a financial institution located and organized in China. This pilot agreement makes us the first, and currently the only, provider of end-to-end ATM outsourcing services in China. Under the pilot contract, we have agreed to deploy and provide all of the day-to-day outsourcing services for a total of 90 ATMs in Beijing, Shanghai and Guandong, the three largest commercial centers in China. During the first quarter 2006, we successfully deployed 50 ATMs and we expect the remaining ATMs to become operational during the second quarter 2006. If this pilot agreement meets certain success criteria, we have agreed to take over additional existing ATMs and install new ATMs at PSRB’s request. We have established a processing center in Beijing to drive these ATMs. Our future success in China will depend on our ability to be successful in this pilot agreement, the willingness of PSRB to outsource additional ATMs to us and our ability to take over and install additional ATMs as required by the agreement. While we believe that we have the proper resources and skills in place to be successful, there can be no assurance that we will be successful in the pilot agreement or that we will be successful in our ability to take over existing ATMs or install new ATMs as expected by PSRB. Start up costs for this joint venture have been expensed as incurred.

Prepaid Processing Segment — We currently offer prepaid mobile phone top-up services in the U.S., Europe, Africa and Asia Pacific, money transfer services to customers from the U.S. to destinations in Latin America, and bill payment services to customers in the U.S. and Poland. We plan to expand our top-up business in these and other markets by taking advantage of our existing expertise together with relationships with mobile phone operators and retailers. We plan to expand our card-based money transfer and bill payment services by offering the product on many of our existing POS terminals in the U.S. and internationally.

Expansion will depend on various factors, including, but not necessarily limited to, the following:

	•		the ability to negotiate new agreements for other markets with mobile phone operators, agent banks and retailers;
	•		the continuation of the conversion trend 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 continuation of the trend of increased use of electronic money transfer and bill payment among immigrant workers and the unbanked population in our markets;
	•		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 obtain money transfer licenses to operate in many of the states within the U.S. and internationally;
	•		the ability to rapidly maximize the number of agents and retailers who sell our card-based money transfer and bill payment product in the U.S. and internationally; and
	•		the availability of financing for further expansion.

In mature markets, such as the U.K., Australia and Ireland, the conversion from scratch cards to electronic forms of distribution is either complete or nearing completion. Because of this factor we are likely to cease experiencing the organic increases in the number of transactions per terminal that we have experienced historically. Also in mature markets, competition among prepaid distributors results in the reduction of commissions and margins paid by mobile operators, as well as retailer churn. The combined impact of these factors in developed markets is a flattening of growth in the revenues and profits that we earn. In other markets in which we operate, such as Poland, Germany, Spain and the U.S., many of the factors that may contribute to rapid growth (conversion from scratch cards to electronic distribution, growth in the prepaid market, expansion of our network of retailers and access to all mobile operators’ products) remain present.

Growth in our money transfer and bill payment services business, Euronet Payments and Remittance, will be driven by the continuation of global worker migration patterns; our ability to manage rapid growth; our ability to maximize the opportunity to sell our card-based product over our existing POS terminals in the U.S. and internationally; and our ability to obtain licenses to operate in many of the states

within the U.S. as well as other countries. While we are currently focused on the U.S. and Latin America market, we plan to expand our money transfer services to other markets. We are focusing on increasing our sending locations in existing licensed states and obtaining licenses to operate in other key states. Through March 31, 2006, we expanded these operations from the original three states into six additional states and have 13 more states where licenses are pending approval. Expansion of our money transfer business internationally will require resolution of numerous licensing and regulatory issues in each market we intend to develop and no assurance can be given that these issues will be resolved.

Software Solutions Segment — Software products are an integral part of our product lines, and our investment in research, development, delivery and customer support reflects our ongoing commitment to an expanded customer base. We have been able to enter into agreements under which we use our software in lieu of cash as our initial capital contributions to new transaction processing joint ventures. Such contribution sometimes permits us to enter new markets without significant capital investment. Additionally, this segment supports our EFT Processing Segment and is a valuable element of our overall business strategy. The competitive factors in the Software Solutions business include price, technology development and the ability of software systems to interact with other leading products. Our success is dependent on our ability to design and implement software applications. Technical disruptions or errors in these systems could have a material adverse impact on our revenue and financial results. We also recently expanded the Software Solutions Segment with the January 2006 acquisition of Essentis, a U.K. company that owns a leading card issuing and merchant acquiring software package. This acquisition will allow us to offer additional outsourcing and software products to banks. We expect Essentis to incur operating losses for 2006 totaling approximately $1.5 million to $2.0 million.

Corporate Services, Eliminations and Other — In addition to operating in our principal business segments described above, our division, “Corporate Services, Elimination and Other” includes non-operating results, 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 most option and restricted stock grants. These services are not directly identifiable with our business segments.

We evaluate performance of our segments based on income or loss from continuing operations before income taxes, foreign exchange gain (loss), minority interest and other nonrecurring gains and losses. The impact of share-based compensation is recorded as an expense of the Corporate Services division, with certain limited exceptions related to grants of restricted stock to key members of management that vest based on the achievement of performance criteria by our subsidiaries.

SEGMENT SUMMARY RESULTS OF OPERATIONS

Revenue and operating income by segment revenue for the three months ended March 31, 2006 and 2005 are summarized in the tables below:

		Revenues for the three months
		ended March 31,								Year-over-Year Change
										Increase				Increase
										(Decrease)				(Decrease)
(dollar amounts in thousands)		2006				2005				Amount				Percent
EFT Processing		$	29,868			$	23,889			$	5,979			25%
Prepaid Processing			110,961				89,381				21,580			24%
Software Solutions			6,154				3,936				2,218			56%
Total			146,983				117,206				29,777			25%
Corporate services, eliminations and other			(13	)			—				(13	)		n/m
Total		$	146,970			$	117,206			$	29,764			25%

		Operating Income for the three
		months ended March 31,								Year-over-Year Change
										Increase				Increase
										(Decrease)				(Decrease)
(dollar amounts in thousands)		2006				2005 (1)				Amount				Percent
EFT Processing		$	7,429			$	5,579			$	1,850			33%
Prepaid Processing			8,960				7,836				1,124			14%
Software Solutions			365				878				(513	)		(58%)
Total			16,754				14,293				2,461			17%
Corporate services, eliminations and other			(4,426	)			(3,826	)			(600	)		(16%)
Total		$	12,328			$	10,467			$	1,861			18%

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005

EFT PROCESSING SEGMENT

The following table presents the results of operations for the three months ended March 31, 2006 and 2005 for our EFT Processing Segment:

		Results for the Three
		Months Ended March 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2006				2005				Amount				Percent
Total revenues		$	29,868			$	23,889			$	5,979			25%
Operating expenses:
Direct operating costs			12,426				10,834				1,592			15%
Salaries and benefits			4,314				3,703				611			17%
Selling, general and administrative			2,754				1,308				1,446			111%
Depreciation and amortization			2,945				2,465				480			19%
Total operating expenses			22,439				18,310				4,129			23%
Operating income		$	7,429			$	5,579			$	1,850			33%
Transactions processed (millions)			103.1				77.3				25.8			33%
ATMs as of March 31			7,613				6,201				1,412			23%
Average ATMs			7,394				6,042				1,352			22%

Impact of fluctuations in foreign currency exchange rates

For the first quarter 2006, the U.S. dollar was stronger against most of the currencies of markets in which we operated than during the first quarter 2005. Thus, this fluctuation in foreign currency exchange rates had the effect of reducing revenues, operating expenses and operating income when compared to the first quarter 2005. For the EFT Processing Segment, the U.S. dollar strengthened against foreign currencies where we operated at rates ranging from approximately 1% to 14%. This change resulted in decreased revenues of approximately $1.9 million and decreased operating income of approximately $0.5 million, when compared to the first quarter 2005. To avoid repetition, our discussion below is limited to operational items impacting changes in our results of operations with the understanding that the exchange rate fluctuation is also a significant factor.

Revenues

Our revenue for the first quarter 2006 increased from the first quarter 2005 primarily due to increases in the number of ATMs operated and, for owned ATMs, the number of transactions processed. Additionally, the first quarter 2006 includes the results of Instreamline and Europlanet. Instreamline was acquired in October 2005 and provides credit card and POS outsourcing services and transaction gateway switching services in Greece and the Balkan region. Our ownership in Europlanet was increased through two transactions; one in April 2005, in which we increased our ownership from 36% to 66%; and one in December 2005, in which we acquired the final 34% ownership. Europlanet provides debit card processing services and manages a network of ATMs and POS terminals in Serbia.

Revenue per average ATM was $4,039 for the first quarter 2006, compared to $3,954 for the first quarter 2005 and revenue per transaction was $0.29 for the first quarter 2006 compared to $0.31 for the first quarter 2005. The decrease in revenue per transaction is mainly the result of a continued shift from owning ATMs to managing them under outsourcing agreements. Under outsourcing agreements, we primarily earn revenue based on fixed recurring monthly management fee, with less dependence on transaction-based fees because incremental transactions have little impact on the fixed or variable costs of managing ATMs. Therefore, an overall increase in the number of transactions processed on ATMs that are managed under outsourcing agreements generally does not generate commensurate increases in revenues. We believe this shift from a largely proprietary, Euronet-owned ATM network to operating ATMs under outsourcing arrangements has provided, and will continue to provide, higher marginal returns on investment. While expansion of our network of owned ATMs is not one of our strategic initiatives, if opportunities were available to us, we would consider increasing future capital expenditures to expand this network in new or existing markets.

Of total segment revenue for the first quarter 2006, 26% was from ATMs we owned and 74% was from outsourcing services, compared to 30% and 70%, respectively, for the first quarter 2005.

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.

The increase in direct operating cost for the first quarter 2006 compared to the first quarter 2005 is attributed to the increase in the number of ATMs under operation. Direct operating costs decreased to 42% of revenues for the first quarter 2006, compared to 45% of revenues for the first quarter 2005. This reduction resulted from operating a greater percentage of outsourced ATMs, for which direct costs per ATM, and on a per transaction basis, are lower than the existing installed base of ATMs, together with leveraging the fixed and semi-fixed data center costs.

Gross margin

Gross margin, which is revenue less direct operating costs, increased to $17.4 million for the first quarter 2006 from $13.1 million for the first quarter 2005. Gross margin per average ATM was $2,359 for the first quarter 2006, an increase compared to $2,161 for the first quarter 2005. The increase in gross margin per average ATM is largely the result of increasing transactions for owned ATMs and related fees from the installed ATM base, together with the leveraged effect of adding additional ATM outsourcing revenues and profits to a direct cost structure that is more fixed than variable with transactional volume.

Gross margin per transaction was $0.17 for both the first quarter 2006 and 2005. Of first quarter 2006 total segment gross margin, approximately 22% was from ATMs we owned and 78% was from outsourcing services, compared to 27% and 73%, respectively, for the first quarter 2005. The changes are the result of increasing our outsourcing of ATMs and not expanding our ownership of ATMs.

Salaries and benefits

The increase in salaries and benefits for the first quarter 2006 compared to the first quarter 2005 is primarily due to the acquisitions of Instreamline and Europlanet, staffing costs to expand in emerging markets such as India and China, and general merit increases awarded to employees. Certain staffing increases were also necessary due to the larger number of ATMs under operation and transactions processed. These expenses as a percentage of revenue, however, continued to trend downward for the first quarter 2006 decreasing to 14%, compared to 16% for the first quarter 2005. This decrease as a percentage of revenue reflects increased leverage and scalability in our markets.

Selling, general and administrative

Similar to the increase in salaries and benefits, the increase in selling, general and administrative expenses for the first quarter 2006, compared to the first quarter 2005 is also due primarily to the acquisitions of Instreamline and Europlanet and staffing costs to expand in emerging markets such as India and China. As a percentage of revenue, these costs were 9% of revenue for the first quarter 2006, compared to 5% of revenue for the first quarter 2005. Offsetting these costs for the first quarter 2005 was $0.5 million for an insurance recovery. This insurance recovery related to a loss recorded in the fourth quarter 2003 on certain ATM disbursements resulting from a card association’s change in their data exchange format. Adjusting for this recovery, selling, general and administrative expenses as a percentage of revenue for the first quarter 2005 would have been 8%. The remaining increase as a percentage of revenue is primarily the result of costs incurred in connection with our expansion into China, where revenues for the first quarter 2006 were minimal.

Depreciation and amortization

The increase in depreciation and amortization expense from the first quarter 2005 to the first quarter 2006 is due to depreciation on additional ATMs under capital lease arrangements related to outsourcing agreements in India and depreciation and intangible amortization related to the acquisitions of Instreamline and Europlanet. As a percentage of revenue, these expenses were flat at 10% of revenue for both the first quarter 2006 and 2005. Approximately $0.3 million of depreciation and amortization for the first quarter 2006 represents amortization of acquired intangible assets related to the acquisitions of Instreamline and Europlanet. We expect that depreciation expense as a percentage of revenue, exclusive of amortization of acquired intangible assets, will continue to decrease as more ATMs reach the end of their depreciable lives (and ATMs are not replaced), and we continue to increase the number of ATMs that we operate under ATM management agreements rather than as owner/operators.

Operating income

The increase in operating income for the segment is generally the result of increased revenue, and the related gross margins, from new ATM outsourcing and network participation agreements and the impact of the acquisitions of Instreamline and Europlanet, combined with leveraging certain management cost structures. Operating income as a percentage of revenue was 25% for the first quarter 2006, compared to 23% for the first quarter 2005. Operating income per transaction was unchanged at $0.07 for the first quarters of 2006 and 2005. Operating income per average ATM was $1,005 for the first quarter 2006, compared to $923 for the first quarter 2005. The

continuing increases in operating income as a percentage of revenue and per ATM is due to increased leverage and scalability in our markets, as well as the continuing migration toward operating ATMs under outsourcing agreements rather than ownership arrangements. Additionally, operating income for the first quarter 2006 includes a net operating loss of $0.6 million related to our 75% owned joint venture in China. We expect to generate total operating losses in China for 2006 of approximately $1.5 million to $2.0 million as we continue to focus on expansion in this market.

PREPAID PROCESSING SEGMENT

Due to the rapid growth of this segment, the following discussion and analysis will focus on comparisons of both actual results for the first quarter 2006 and first quarter 2005 and, as appropriate, pro forma results prepared as if all acquisitions had taken place as of January 1, 2005. Our pro forma data is only adjusted for the timing of acquisitions and does not include adjustments for costs related to integration activities, cost savings or synergies that have or may be achieved by the combined businesses. In the opinion of management, this information is neither indicative of what our results would have been had we operated these businesses since January 1, 2005, nor is it indicative of our future results.

		Results for the Three Months
		Ended March 31,								Year-over-Year Change
										Increase				Increase
(dollar amounts in thousands)		2006				2005				Amount				Percent
Total revenues		$	110,961			$	89,381			$	21,580			24%
Operating expenses:
Direct operating costs			88,487				71,279				17,208			24%
Salaries and benefits			6,284				4,903				1,381			28%
Selling, general and administrative			3,846				3,120				726			23%
Depreciation and amortization			3,384				2,243				1,141			51%
Total operating expenses			102,001				81,545				20,456			25%
Operating income		$	8,960			$	7,836			$	1,124			14%
Transactions processed (millions)			96.4				67.2				29.2			43%