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 September 30, 2007

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

EURONET WORLDWIDE, INC.

Delaware		74-2806888
(State or other jurisdiction of incorporation or organization)		(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 October 31, 2007 was 48,711,295 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			18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			37
ITEM 4. CONTROLS AND PROCEDURES			38
PART II—OTHER INFORMATION			38
ITEM 1. LEGAL PROCEEDINGS			38
ITEM 1A. RISK FACTORS			38
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITES AND USE OF PROCEEDS			42
ITEM 6. EXHIBITS			43

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

		As of September				As of
		30, 2007				December 31,
		(unaudited)				2006
ASSETS
Current assets:
Cash and cash equivalents		$	251,435			$	321,058
Restricted cash			107,538				80,703
Inventory — PINs and other			41,071				49,511
Trade accounts receivable, net of allowances for doubtful accounts of $6,023 at September 30, 2007 and $2,137 at December 31, 2006			312,075				212,631
Deferred income taxes, net			27,686				9,356
Prepaid expenses and other current assets			25,656				15,212
Total current assets			765,461				688,471
Property and equipment, net of accumulated depreciation of $116,359 at September 30, 2007 and $91,883 at December 31, 2006			76,864				55,174
Goodwill			756,173				297,134
Acquired intangible assets, net of accumulated amortization of $39,316 at September 30, 2007 and $23,073 at December 31, 2006			162,043				50,649
Deferred income taxes, net			19,718				19,004
Other assets, net of accumulated amortization of $13,431 at September 30, 2007 and $10,542 at December 31, 2006			24,644				19,208
Total assets		$	1,804,903			$	1,129,640
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	274,163			$	269,212
Accrued expenses and other current liabilities			186,818				99,039
Current installments on capital lease obligations			5,514				6,592
Short-term debt obligations and current maturities of long-term debt obligations			5,498				4,378
Income taxes payable			20,415				9,463
Deferred income taxes			6,954				4,108
Deferred revenue			12,327				11,318
Total current liabilities			511,689				404,110
Debt obligations, net of current portion			501,633				349,073
Capital lease obligations, excluding current installments			12,260				13,409
Deferred income taxes			75,825				44,094
Other long-term liabilities			2,639				1,811
Minority interest			9,171				8,350
Total liabilities			1,113,217				820,847
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; 48,823,598 and 37,647,782 issued at September 30, 2007 and December 31, 2006, respectively			972				749
Additional paid-in-capital			653,087				338,216
Treasury stock, at cost, 205,919 and 207,755 shares at September 30, 2007 and December 31, 2006, respectively			(387	)			(196	)
Subscriptions receivable			(39	)			(170	)
Accumulated deficit			(25,531	)			(59,409	)
Restricted reserve			953				780
Accumulated other comprehensive income			62,631				28,823
Total stockholders’ equity			691,686				308,793
Total liabilities and stockholders’ equity		$	1,804,903			$	1,129,640

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 September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
Revenues:
EFT Processing Segment		$	48,113			$	40,539			$	135,844			$	116,166
Prepaid Processing Segment			144,631				120,240				414,442				343,957
Money Transfer Segment			53,573				874				103,581				2,303
Total revenues			246,317				161,653				653,867				462,426
Operating expenses:
Direct operating costs			165,079				112,488				446,154				319,602
Salaries and benefits			32,437				18,676				82,155				56,164
Selling, general and administrative			16,889				9,971				45,104				27,684
Depreciation and amortization			13,478				7,512				34,333				21,575
Total operating expenses			227,883				148,647				607,746				425,025
Operating income			18,434				13,006				46,121				37,401
Other income (expense):
Interest income			4,053				3,682				12,494				9,791
Interest expense			(7,474	)			(3,802	)			(18,837	)			(11,055	)
Income from unconsolidated affiliates			(9	)			197				867				555
Loss on early retirement of debt			(411	)			—				(411)				—
Foreign currency exchange gain, net			8,561				1,090				10,302				5,420
Other income, net			4,720				1,167				4,415				4,711
Income from continuing operations before income taxes and minority interest			23,154				14,173				50,536				42,112
Income tax expense			(6,634	)			(3,599	)			(15,451	)			(10,712	)
Minority interest			(599	)			(243	)			(1,551	)			(716	)
Income from continuing operations			15,921				10,331				33,534				30,684
Gain from discontinued operations, net			—				—				344				—
Net income			15,921				10,331				33,878				30,684
Translation adjustment			22,395				5,321				34,390				14,047
Unrealized loss on interest rate swaps			(553	)			—				(582	)			—
Comprehensive income		$	37,763			$	15,652			$	67,686			$	44,731
Earnings per share — basic:
Continuing operations		$	0.33			$	0.28			$	0.76			$	0.83
Discontinued operations			—				—				0.01				—
Total		$	0.33			$	0.28			$	0.77			$	0.83
Basic weighted average shares outstanding			48,523,643				37,230,518				44,222,453				36,938,652
Earnings per share — diluted:
Continuing operations		$	0.31			$	0.26			$	0.72			$	0.78
Discontinued operations			—				—				0.01				—
Total		$	0.31			$	0.26			$	0.73			$	0.78
Diluted weighted average shares outstanding			54,439,296				42,525,511				49,905,599				42,463,401

See accompanying notes to the unaudited consolidated financial statements.

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

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. Euronet’s Prepaid Processing Segment is one of the world’s largest providers of “top-up” services for prepaid products, primarily prepaid mobile airtime. 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. The Money Transfer Segment, comprised primarily of the Company’s subsidiary, RIA Envia, Inc. (“RIA”), 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 in the U.S., the Caribbean, Europe and Asia, 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, 2007, the results of its operations for the three- and nine-month periods ended September 30, 2007 and 2006 and cash flows for the nine-month periods ended September 30, 2007 and 2006.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2006, including the notes thereto, set forth in the Company’s 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, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007. Certain amounts in prior years have been reclassified to conform to current period presentation.

During the third quarter 2007 the Company corrected an immaterial error related to foreign currency translation adjustments for goodwill and acquired intangible assets recorded in connection with acquisitions completed in periods prior to December 31, 2006. The impact of this adjustment increased goodwill by $18.4 million, acquired intangible assets by $3.1 million, deferred income tax liabilities by $1.0 million and accumulated other comprehensive income by $21.4 million as of December 31, 2006. Additionally, the adjustment increased intangible amortization expense by $0.1 million and $0.3 million for the three- and nine-month periods ended September 30, 2006, respectively, and increased comprehensive income by $3.0 million and $10.1 million for the three- and nine-month periods ended September 30, 2006, respectively. This correction did not impact the Company’s cash flows from operating, financing or investing activities.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Money transfer settlement obligations

Money transfer settlement obligations are recorded in accrued expenses and other current liabilities on the Company’s unaudited consolidated balance sheet and consist of amounts owed by Euronet to money transfer recipients. As of September 30, 2007, the Company’s money transfer settlement obligations were $43.0 million.

Accounting for derivative instruments and hedging activities

The Company accounts for derivative instruments and hedging activities in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended (“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 SFAS No. 133. To qualify for hedge accounting under SFAS No. 133, 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 stockholders’ equity 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 the provisions of SFAS No. 133, 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, net in the unaudited consolidated statement of income and comprehensive income. 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 statement of income and comprehensive income is not significant.

Cash flows resulting from derivative instruments are classified as cash flows from operating activities in the Company’s unaudited consolidated statement of cash flows. The Company enters into derivative instruments with highly credit-worthy financial institutions and does not use derivative instruments for trading or speculative purposes. See Note 9, Derivative Instruments and Hedging Activities, for further discussion of derivative instruments.

Presentation of taxes collected and remitted to governmental authorities

During 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-3, “How Taxes Collected and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation).” The Company presents taxes collected and remitted to governmental authorities on a net basis in the accompanying consolidated statements of income.

Accounting for uncertainty in income taxes

Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of SFAS No. 109, “Accounting for Income Taxes.” FIN 48 seeks to reduce the diversity in practice associated with certain aspects of the measurement and recognition related to accounting for income taxes.

The Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of income. See Note 14, Income Taxes, for further discussion regarding the adoption of FIN 48.

Recent accounting pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred, such as deferred financing costs. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings. Subsequent to the adoption of SFAS No. 159, changes in fair value are recognized in earnings. SFAS No. 159 is effective for Euronet beginning in the first quarter 2008. Euronet is currently determining whether fair value accounting is appropriate for any of its eligible items and cannot estimate the impact, if any, which SFAS No. 159 will have on its consolidated results of operations and financial condition.

(3) EARNINGS PER SHARE

Basic earnings per share has been computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the respective period. Diluted earnings per share has been computed by dividing earnings available to common stockholders by the weighted-average shares outstanding during the respective period, after adjusting for the potential dilution of the assumed conversion of the Company’s convertible debentures, shares issuable in connection with acquisition obligations, options to purchase the Company’s common stock and restricted stock. The following table provides a reconciliation of net income to earnings available to common stockholders and the computation of diluted weighted average number of common shares outstanding:

		Three Months Ended September 30,								Nine Months Ended September 30,
(dollar amounts in thousands)		2007				2006				2007				2006
Reconciliation of net income to earnings available to earnings available to common stockholders:
Net income		$	15,921			$	10,331			$	33,878			$	30,684
Add: interest expense of 1.625% convertible debentures			836				797				2,370				2,391
Earnings available to common stockholders		$	16,757			$	11,128			$	36,248			$	33,075
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding			48,523,643				37,230,518				44,222,453				36,938,652
Additional shares from assumed conversion of 1.625% convertible debentures			4,163,488				4,163,488				4,163,488				4,163,488
Weighted average shares issuable in connection with acquisition obligations (See Note 4 - Acquisitions)			714,644				—				467,672				48,685
Incremental shares from assumed conversion of stock options and restricted stock			1,037,521				1,131,505				1,051,986				1,312,576
Diluted weighted average shares outstanding			54,439,296				42,525,511				49,905,599				42,463,401

The table includes all stock options and restricted stock that are dilutive to Euronet’s weighted average common shares outstanding during the period. For both the three- and nine-month periods ended September 30, 2007, the table does not include 567,093 stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding. For the three-month period ended September 30, 2006, the table does not include 592,400 stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding. For the nine-month period ended September 30, 2006, the table does not include 55,000 stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding.

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 only 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 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 conversion of the 1.625% convertible debentures was dilutive for the three- and nine-month periods ended September 30, 2007 and 2006. Under the if-converted method, the assumed conversion of the 3.50% convertible debentures was anti-dilutive for the three- and nine-month periods ended September 30, 2007 and 2006.

(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. Any 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 acquisitions, management engages an appraiser to assist in the valuation process.

2007 Acquisitions:

Acquisition of RIA

In April 2007, the Company completed the acquisition of the common stock of RIA, which expanded the Company’s money transfer operations in the U.S. and internationally. The purchase price of $504.3 million was comprised of $358.3 million in cash, 4,053,606 shares of Euronet Common Stock valued at $108.9 million, 3,685,098 contingent value rights (“CVRs”) and stock appreciation rights (“SARs”) valued at a total of $32.1 million and transaction costs of approximately $5.0 million. The Company financed the cash portion of the purchase price through a combination of cash on hand and $190 million in additional debt obligations. The following table summarizes the allocation of the purchase price to the fair values of the acquired tangible and intangible assets at the acquisition date, which remains preliminary while management completes its valuation of the fair value of the net assets acquired.

		Estimated
(dollar amounts in thousands)		Life
Current assets				$	78,220
Property and equipment		various			10,854
Customer relationships		3 - 8 years			73,280
Trademarks and trade names		20 years			36,760
Software		5 years			1,610
Non-compete agreements		3 years			270
Other non-current assets					1,396
Goodwill		Indefinite			403,523
Assets acquired					605,913
Current liabilities					(85,190	)
Non-current liabilities					(1,574	)
Deferred income tax liability					(14,852	)
Net assets acquired				$	504,297

Pursuant to the terms of the Stock Purchase Agreement in the RIA acquisition (as amended, the “Stock Purchase Agreement”), $35.0 million in cash and 276,382 shares of Euronet Common Stock valued at $7.4 million are being held in escrow to secure certain obligations of the sellers under the Stock Purchase Agreement. These amounts have been reflected in the purchase price because the Company has determined beyond a reasonable doubt that the obligations will be met. The 3,685,098 CVRs mature on October 1, 2008 and will result in the issuance of up to $20 million of additional shares of Euronet Common Stock or payment of additional cash, at the Company’s option, if the price of Euronet Common Stock is less than $32.56 on the maturity date. The 3,685,098 SARs entitle the sellers to acquire additional shares of Euronet Common Stock at an exercise price of $27.14 at any time through October 1, 2008. Combined, the CVRs and SARs entitle the sellers to additional consideration of at least $20 million in Euronet Common Stock or cash. Management has initially estimated the total fair value of the CVRs and SARs at approximately $32.1 million using a Black Scholes pricing model. These and other terms and conditions applicable to the CVRs and SARs are set forth in the agreements governing these instruments.

Additionally, in April 2007, the Company combined its previous money transfer business with RIA and incurred total exit costs of approximately $0.9 million during the second quarter 2007. These costs were recorded as operating expenses and represent the accelerated depreciation and amortization of property and equipment, software and leasehold improvements that were disposed of during the second quarter 2007; the write off of marketing materials and trademarks that have been discontinued or will not be used; the write off of accounts receivable from agents that did not meet RIA’s credit requirements; and severance and retention payments made to certain employees. Additional costs incurred in association with exiting the Company’s previous money transfer business, if any, are not expected to be significant.

Other acquisitions:

During the nine-months ended September 30, 2007, the Company completed three other acquisitions described below for an aggregate purchase price of $26.5 million, comprised of $18.1 million in cash, 275,429 shares of Euronet Common Stock valued at $7.6 million and notes payable of $0.8 million. In connection with one of these acquisitions, the Company agreed to certain contingent consideration arrangements based on the value of Euronet Common Stock and the achievement of certain performance criteria. Upon the achievement of certain performance criteria, during 2009 and 2010, the Company may have to pay a total of $2.5 million in cash or 75,489 shares of Euronet Common Stock, at the option of the seller.

	•		During January 2007, EFT Services Holding BV and Euronet Adminisztracios Kft, both wholly-owned subsidiaries of Euronet, completed the acquisition of a total of 100% of the share capital of Brodos SRL in Romania (“Brodos Romania”). Brodos Romania is a leading electronic prepaid mobile airtime processor that expanded the Company’s Prepaid Processing Segment business to Romania.
	•		During February 2007, e-pay Holdings Limited, a wholly-owned subsidiary of Euronet, completed the acquisition of all of the share capital of Omega Logic, Ltd. (“Omega Logic”). Omega Logic is a prepaid top-up company based, and primarily operating, in the U.K. This acquisition enhanced our Prepaid Processing Segment business in the U.K.
	•		During April 2007, PaySpot, Inc. (a wholly-owned subsidiary of Euronet) acquired customer relationships from Synergy Telecom, Inc. (“Synergy”) and Synergy agreed not to compete with PaySpot in the prepaid mobile phone top-up business in the U.S. for a period of five years. This acquisition enhances the Company’s Prepaid Processing Segment business in the U.S.

As of September 30, 2007, 75,743 shares of Euronet Common Stock issued in connection with these acquisitions remains in escrow subject to the achievement of certain performance criteria. These shares have been reflected in the purchase price because the Company has determined beyond a reasonable doubt that the performance criteria will be met.

Agreement to acquire La Nacional

During January 2007, the Company signed a stock purchase agreement to acquire Envios de Valores La Nacional Corp. and its U.S. based affiliates (“La Nacional”), a money transfer company originating transactions through a network of sending agents and company-owned stores. See Note 12, Commitments, Litigation and Contingencies, for further disclosure regarding the agreement to acquire La Nacional.

2006 Acquisition:

In January 2006, the Company completed the acquisition of the assets of Essentis Limited (“Essentis”) for approximately $2.9 million, which was comprised of $0.9 million in cash and approximately $2.0 million in assumed liabilities. Essentis is a U.K. company that owns and develops software packages that enhance Euronet’s outsourcing and software offerings to banks. Essentis is reported with our software business in the Company’s EFT Processing Segment. There are no potential additional purchase price or escrow arrangements associated with the acquisition of Essentis.

Pro Forma and Condensed Statements of Net Income:

The following unaudited pro forma financial information presents the condensed combined results of operations of Euronet for the three-months ended September 30, 2006 and nine-months ended September 30, 2007 and 2006, as if the acquisition of RIA described above had occurred January 1, 2006. Adjustments were made to reflect the impact of events that are a direct result of the acquisition and are expected to have a continuing impact on the Company’s combined results of operations, including amortization of purchased intangible assets that would have been recorded if the acquisition had occurred at the beginning of the periods presented. The 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 pro forma financial information should not be considered as representative of the future consolidated results of operations or financial condition of Euronet.

		Pro Forma
		Three Months Ended				Nine Months Ended September 30,
(in thousands, except per share data)		September 30, 2006				2007				2006
Revenues		$	207,961			$	700,056			$	595,033
Operating income		$	15,771			$	47,156			$	42,766
Net income		$	6,578			$	26,703			$	17,004
Per share data:
Net income per share-basic		$	0.16			$	0.59			$	0.41
Net income per share-diluted		$	0.15			$	0.56			$	0.39

(5) PROPERTY AND EQUIPMENT, NET

The components of property and equipment, net of accumulated depreciation and amortization, as of September 30, 2007 and December 31, 2006 are as follows:

		September 30,				December 31,
(in thousands)		2007				2006
ATMs		$	87,797			$	75,568
POS terminals			29,688				25,473
Vehicles and office equipment			23,664				8,990
Computers and software			52,074				37,026
			193,223				147,057
Less accumulated depreciation and amortization			(116,359	)			(91,883	)
Total		$	76,864			$	55,174

(6) GOODWILL AND INTANGIBLE ASSETS

A summary of intangible assets and goodwill activity for the nine-month period ended September 30, 2007 is presented below:

		Amortizable								Total
		Intangible								Intangible
(in thousands):		Assets				Goodwill				Assets
Balance as of December 31, 2006 (Adjusted — See Note 1)		$	50,649			$	297,134			$	347,783
Increases (decreases):
Acquisition of RIA			111,920				403,523				515,443
Other 2007 acquisitions			8,366				21,553				29,919
Adjustment to 2006 acquisition			(116	)			—				(116	)
Amortization			(14,394	)			—				(14,394	)
Other (primarily changes in foreign currency exchange rates)			5,618				33,963				39,581
Balance as of September 30, 2007		$	162,043			$	756,173			$	918,216

Estimated annual amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2007, is expected to total $20.7 million for 2007, $24.9 million for 2008, $24.8 million for 2009, $24.5 million for 2010, $19.2 million for 2011 and $16.5 million for 2012.

The Company’s annual goodwill impairment test is performed during the fourth quarter. For the year ended December 31, 2006, the results of the Company’s goodwill impairment test indicated that there were no impairments. Determining the fair value of reporting units for the purpose of the goodwill impairment test requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that the Company’s operations will not perform as expected, or that estimates or assumptions could change, which may result in the Company recording material non-cash impairment charges during the year in which these changes take place.

During the third quarter 2007, the Company recognized $0.3 million of equity losses related to e-pay Malaysia’s unsuccessful expansion efforts into Indonesia. The Company has a 40% minority investment in e-pay Malaysia.

During October 2007, e-pay Malaysia reported that it was ceasing operations in Indonesia. It is uncertain whether this business development will adversely impact the Company’s share of equity earnings in this minority investment. As of September 30, 2007, the Company’s investment in e-pay Malaysia was $2.6 million. Based on the performance of e-pay Malaysia’s core business, management of the Company does not believe that the amount recorded as investment in e-pay Malaysia is impaired.

(8) DEBT OBLIGATIONS

A summary of debt obligation activity for the nine-month period ended September 30, 2007 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 January 1, 2007		$	34,073			$	4,378			$	20,001			$	140,000			$	175,000			$	—			$	373,452
Increases (decreases):
Net borrowings (repayments)			(10,762	)			(1,045	)			(5,051	)			—				—				165,000				148,142
Capital lease interest			—				—				1,301				—				—				—				1,301
Foreign exchange gain (loss)			222				265				1,523				—				—				—				2,010
Balance at September 30, 2007			23,533				3,598				17,774				140,000				175,000				165,000				524,905
Less — current maturities			—				(3,598	)			(5,514	)			—				—				(1,900	)			(11,012	)
Long-term obligations at September 30, 2007		$	23,533			$	—			$	12,260			$	140,000			$	175,000			$	163,100			$	513,893

In connection with the completion of the acquisition of RIA during April 2007, the Company entered into a $290 million secured syndicated credit facility consisting of a $190 million seven-year term loan, which was fully-drawn at closing, and a $100 million five-year revolving credit facility (the “Credit Facility”) that replaced an existing $50 million revolving credit facility. The $190 million seven-year term loan bears interest at LIBOR plus 200 basis points or prime plus 100 basis points and contains a 1% per annum principal amortization requirement, payable quarterly, with the remaining balance outstanding due at the end of year seven. The $100 million five-year revolving line of credit bears interest at LIBOR or prime plus a margin that adjusts each quarter based upon the Company’s consolidated total leverage ratio. The weighted average interest rate of the Company’s borrowings under the revolving credit facility was 8.2% as of September 30, 2007.

The term loan may be expanded by up to an additional $150 million and the revolving credit facility may be expanded by up to an additional $25 million, subject to satisfaction of certain conditions including pro-forma debt covenant compliance. The agreements for the credit facility contain certain mandatory prepayments, customary events of default and financial covenants, including leverage ratios. The leverage ratios step down on various dates through September 2008. Financing costs of $4.8 million have been deferred and are being amortized over the terms of the respective loans.

During the nine-months ended September 30, 2007, the Company repaid $25.0 million of the term loan, of which $1.0 million was scheduled repayments. The remaining $24.0 million represents prepayment of amounts not yet due and resulted in the Company recognizing a $0.4 million loss on early retirement of debt.

(9) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

During the second quarter 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, which currently bears interest at LIBOR plus 200 basis points. The interest rate swap agreements are determined to be cash flow hedges and effectively convert $50 million of the term loan to a fixed interest rate of 7.3% through the May 2009 maturity date of the swap agreements. As of September 30, 2007, the Company has recorded a liability of $0.6 million in the other long-term liabilities caption on the Company’s consolidated balance sheets to recognize the fair value of the swap agreements. The offset is recorded in accumulated other comprehensive income. The fair value of swap agreements is based on market quotes received from the agreement counterparties and represents the net amount the Company would have been required to pay to terminate the positions.

As of September 30, 2007, the Company had foreign currency forward contracts outstanding with a notional value of $41.0 million, primarily in euros, which were not designated as hedges and had a weighted average maturity of six days.

(10) EQUITY PRIVATE PLACEMENT

During March 2007, the Company entered into a securities purchase agreement with certain accredited investors to issue and sell 6,374,528 shares of Common Stock in a private placement. The offering price for the shares was $25.00 per share and the gross proceeds of the offering were approximately $159.4 million. The net proceeds from the sale, after deducting commissions and expenses, were approximately $154.3 million.

(11) SEGMENT INFORMATION

Euronet’s reportable operating segments have been determined in accordance with SFAS No. 131, “Disclosures About Segments of an Enterprise and Related Information.” Effective January 1, 2007, the Company began reporting and managing the operations of the EFT Processing Segment and the former Software Solutions Segment on a combined basis. Additionally, as a result of the acquisition of RIA in April 2007, the Company began reporting the Money Transfer Segment. The Company’s former money transfer business was

previously reported within the Prepaid Processing Segment. Previously reported amounts have been adjusted to reflect these changes, which did not impact the Company’s consolidated financial statements. As a result of these changes, 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, Asia and Africa. 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 the U.S., Europe, Africa and Asia Pacific.
	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, the Caribbean, Europe and Asia Pacific, disbursing money transfers through a worldwide payer network.

In addition, in its administrative division, “Corporate Services, Eliminations and Other,” the Company accounts for non-operating activity, 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, 2007 and 2006:

		For the Three Months Ended September 30, 2007
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	48,113			$	144,631			$	53,573			$	—			$	246,317
Operating expenses:
Direct operating costs			18,644				118,038				28,397				—				165,079
Salaries and benefits			10,616				7,081				10,784				3,956				32,437
Selling, general and administrative			3,981				4,879				6,777				1,252				16,889
Depreciation and amortization			4,641				4,230				4,205				402				13,478
Total operating expenses			37,882				134,228				50,163				5,610				227,883
Operating income (loss)		$	10,231			$	10,403			$	3,410			$	(5,610	)		$	18,434

		For the Three Months Ended September 30, 2006
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	40,539			$	120,240			$	874			$	—			$	161,653
Operating expenses:
Direct operating costs			14,674				97,294				520				—				112,488
Salaries and benefits			8,964				5,488				631				3,593				18,676
Selling, general and administrative			3,970				4,338				455				1,208				9,971
Depreciation and amortization			3,791				3,559				106				56				7,512
Total operating expenses			31,399				110,679				1,712				4,857				148,647
Operating income (loss)		$	9,140			$	9,561			$	(838	)		$	(4,857	)		$	13,006

		For the Nine Months Ended September 30, 2007
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	135,844			$	414,442			$	103,581			$	—			$	653,867
Operating expenses:
Direct operating costs			53,335				337,516				55,303				—				446,154
Salaries and benefits			30,427				20,486				21,207				10,035				82,155
Selling, general and administrative			12,933				14,845				14,047				3,279				45,104
Depreciation and amortization			12,733				11,976				9,101				523				34,333
Total operating expenses			109,428				384,823				99,658				13,837				607,746
Operating income (loss)		$	26,416			$	29,619			$	3,923			$	(13,837	)		$	46,121
Total assets as of September 30, 2007		$	182,735			$	712,695			$	682,197			$	227,276			$	1,804,903

		For the Nine Months Ended September 30, 2006
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	116,166			$	343,957			$	2,303			$	—			$	462,426
Operating expenses:
Direct operating costs			41,531				276,708				1,363				—				319,602
Salaries and benefits			26,643				17,038				1,570				10,913				56,164
Selling, general and administrative			11,513				12,048				1,128				2,995				27,684
Depreciation and amortization			10,649				10,523				259				144				21,575
Total operating expenses			90,336				316,317				4,320				14,052				425,025
Operating income (loss)		$	25,830			$	27,640			$	(2,017	)		$	(14,052	)		$	37,401
Total assets as of December 31, 2006		$	172,191			$	694,437			$	18,387			$	244,625			$	1,129,640

(12) COMMITMENTS, LITIGATION AND CONTINGENCIES

Future minimum lease payments under noncancelable operating leases (with remaining lease terms in excess of one year) as of September 30, 2007 are:

(in thousands)
Year ending December 31,
2007 (three months)		$	4,666
2008			15,689
2009			15,210
2010			12,754
2011			7,420
thereafter			3,325
Total minimum lease payments		$	59,064

Litigation

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 had not been returned. This claim was made after the Company 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. In April 2007, an arbitration tribunal awarded the Contractor $1.0 million, plus $0.2 million in interest, under the claim, which was recorded as selling, general and administrative expenses of the Company’s EFT Processing Segment during the first quarter 2007 and paid in the second quarter 2007.

Contingencies

In connection with the agreement to acquire La Nacional, in January 2007, the Company deposited $26 million in an escrow account created for the proposed acquisition, which can only be released by mutual agreement of the Company and La Nacional or through legal remedies available under the agreement. On February 6, 2007, two employees of La Nacional working in different La Nacional stores were arrested for allegedly violating federal money laundering laws and certain state statutes. On April 5, 2007, the Company gave notice to the stockholder of La Nacional of the termination of the stock purchase agreement and requested the release of the escrowed funds under the terms of the stock purchase agreement. La Nacional is contesting the Company’s request for release of the escrowed funds. While pursuing all legal remedies available, the Company is also engaged in negotiations to determine whether the dispute can be resolved through revised terms for the acquisition.

In addition, from time to time, the Company is a party to litigation arising in the ordinary course of its business. Currently, there are no legal proceedings that management believes, either individually or in the aggregate, would have a material adverse effect upon the consolidated results of operations or financial condition of the Company. The Company expenses legal costs in connection with loss contingencies when incurred.

During 2006, the Internal Revenue Service (“IRS”) announced that Internal Revenue Code Section 4251 (relating to communications excise tax) will no longer apply to, among other services, prepaid mobile airtime services such as those offered by the Company’s Prepaid Processing Segment’s U.S. operations. Additionally, companies that paid this excise tax during the period beginning on March 1, 2003 and ending on July 31, 2006, are entitled to a credit or refund of amounts paid in conjunction with the filing of 2006 federal income tax returns. The Company has claimed a refund for amounts paid during this period and has been informed by the IRS that the refund is currently being examined. Therefore, no benefit for any potential recovery has been recorded in the Consolidated Financial Statements, and no such amounts will be recorded until such time as the refund is considered “realizable” as stipulated under SFAS No. 5, “Accounting for Contingencies.”

(13) GUARANTEES

As of September 30, 2007, the Company had $36.7 million of bank guarantees issued on its behalf, of which $1.7 million are collateralized by cash deposits held by the respective issuing banks and $35.5 million are supported by stand-by letters of credit issued against the Company’s revolving credit facility.

Euronet regularly grants guarantees of the obligations of its wholly-owned subsidiaries. As of September 30, 2007, the Company had granted guarantees in the following amounts:  

	•		Cash in various ATM networks — $24.6 million over the terms of the cash supply agreements.
	•		Performance guarantees — $26.7 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 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 that supply cash to ATMs in the EFT Processing Segment, the Company is responsible for the loss of network cash that, generally, is not recorded on the Company’s consolidated balance sheet, because the cash remains the property of the financial institutions while in the ATMs. As of September 30, 2007, the balance of ATM network cash for which the Company was responsible was approximately $300 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 our 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 issued surety bonds in compliance with money transfer licensing requirements of certain states.

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, 2007 or December 31, 2006.

(14) INCOME TAXES

The Company’s effective tax rate, after consideration of minority interest, was 29.4% and 25.8% for the three-month periods ended September 30, 2007 and 2006, respectively, and was 31.5% and 25.9% for the nine-month periods ended September 30, 2007 and 2006, respectively. This increase in the 2007 effective tax rate relates to several factors. During the nine-months ended September 30, 2007, the Company recognized $3.7 million of non-cash deferred income tax expense related to the deduction of goodwill amortization expense for U.S. income tax purposes, a substantial portion of which relates to the Company’s acquisition of RIA. Additionally, during the second quarter 2007, the Company reversed $2.7 million in valuation allowances recorded against deferred tax assets related to U.S. Federal and state net operating losses; the Company concluded that it is more likely than not that the net deferred tax asset of $2.7 million will be realized because the Company would employ tax-planning strategies to utilize its net operating losses prior to expiration in the event they were to expire.

Since the Company is in a net operating loss position for its U.S. operations, valuation allowances have been recorded in instances where the Company determines that it is more likely than not that a tax benefit will not be realized. Accordingly, tax benefit or expense associated with foreign currency gains or losses incurred by the Company’s U.S. entities have historically been offset through an adjustment to the valuation allowance. During the quarter ended September 30, 2007, the Company’s U.S. operations recognized significant realized and unrealized foreign currency gains. The impact of these gains, as well as the above-mentioned reversal of $2.7 million of valuation allowances for tax-planning strategies, reduced the Company’s remaining valuation allowances related to its U.S. operations to $0.1 million. Consequently, should the Company’s U.S. operations generate pre-tax book income, including income from the recognition of additional foreign currency gains, the Company would be required to recognize tax expense on such income. For income tax purposes, however, the Company has approximately $114 million in net operating losses as of September 30, 2007 that will offset future taxable income and result in little or no cash taxes paid in the U.S. until the net operating losses have been fully utilized.

Other factors contributing to the increase in the effective tax rate include profits generated by RIA in jurisdictions having tax rates that are higher than the Company’s historical effective tax rate, and the recognition of significant deferred tax benefits from net operating losses in India and Poland during 2006.

As of January 1, 2007, the Company adopted the provisions of FIN 48 and has analyzed its filing positions in all federal, state and foreign jurisdictions. As a result of this analysis, the Company recognized less than $0.1 million in additional unrecognized tax benefits. The amount of unrecognized tax benefits as of January 1, 2007 included approximately $5.9 million of uncertain tax benefits and other items. Approximately $2.8 million of the unrecognized tax benefits would impact the Company’s provision for income taxes and effective tax rate, if recognized. Total estimated accrued interest and penalties related to the underpayment of income taxes was $0.5 million as of January 1, 2007 and September 30, 2007. The following tax years remain open in the Company’s major jurisdictions as of January 1, 2007:

Poland		1999 through 2006
U.S. (Federal)		2000 through 2006
Spain		2002 through 2006
Australia		2003 through 2006
U.K.		2004 through 2006
Germany		2004 through 2006

As of September 30, 2007, the Company’s open tax years in Spain are 2003 through 2006. The application of FIN 48 requires significant judgment in assessing the outcome of future tax examinations and their potential impact on the Company’s estimated effective tax rate and

the value of deferred tax assets, such as those related to the Company’s net operating loss carryforwards. It is reasonably possible that amounts reserved for potential exposure could significantly change as a result of the conclusion of tax examinations and, accordingly, materially affect our operating results. During the nine-months ended September 30, 2007, the Company’s unrecognized tax benefits increased by $0.7 million and the amount that would impact the Company’s provision for income taxes, if recognized, increased by $0.5 million.

(15) GAIN FROM DISCONTINUED OPERATIONS

In July 2002, the Company sold substantially all of the non-current assets and related capital lease obligations of its ATM processing business in France to Atos S.A. During the first quarter 2007, the Company received a binding French Supreme Court decision relating to a lawsuit in France that resulted in a cash recovery and gain to the Company of $0.3 million, net of legal costs. There were no assets or liabilities held for sale at September 30, 2007 or December 31, 2006.

(16) RELATED PARTY TRANSACTIONS

The Company leases an airplane from a company owned by Mr. Michael J. Brown, Euronet’s Chief Executive Officer and Chairman of the Board of Directors, and Mr. Daniel R. Henry, a member of Euronet’s Board of Directors. The airplane is leased for business use on a per flight hour basis with no minimum usage requirement. During the nine-months ended September 30, 2007, Euronet incurred less than $0.1 million in expenses for the use of this airplane. Euronet did not incur any expense for the use of this plane during the nine-months ended September 30, 2006.

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 transaction processor, offering automated teller machine (“ATM”) and Point of Sale (“POS”) outsourcing services, integrated electronic financial transaction (“EFT”) software, network gateways and electronic prepaid top-up services to financial institutions, mobile operators and retailers and electronic consumer money transfer and bill payment services. The EFT Processing Segment provides end to end solutions relating to operations of ATMs and POS networks, and debit and credit card processing in Europe, the Middle East, and Asia. We are one of the largest providers of prepaid mobile airtime processing. Based on revenues and volumes, the current year acquisition of RIA Envia, Inc. (“RIA”) also makes us the third-largest global money transfer company.

Effective January 1, 2007, we began reporting and managing the operations of the EFT Processing Segment and the former Software Solutions Segment on a combined basis. Additionally, as a result of the acquisition of RIA in April 2007, we commenced reporting of the Money Transfer Segment. Previously reported amounts have been adjusted to reflect these changes, which did not impact our consolidated financial statements. As a result of these changes, we operate in the following three principal business segments.

	•		An EFT Processing Segment, which processes transactions for a network of 10,516 ATMs and more than 48,000 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 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, merchant acquiring, card issuing 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. Including terminals operated by unconsolidated subsidiaries, we operate a network of approximately 370,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services in the U.S., Europe, Africa and Asia Pacific.
	•		A Money Transfer Segment, which provides global money transfer and bill payment services through a sending network of agents and Company-owned stores primarily in North America, the Caribbean, Europe and Asia-Pacific, disbursing money transfers through a worldwide payer network.

We have six processing centers in Europe, two in Asia and two in the U.S., and we have 24 principal offices in Europe, five in the Asia-Pacific region, four in the U.S. and one each in the Middle East and Latin America. Our executive offices are located in Leawood, Kansas, USA.

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 represented approximately 21% of total consolidated revenue for the nine-months ended September 30, 2007, 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. 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 does not give authorization, and iv) prepaid telecommunication recharges. Revenue in this segment is also derived from licensing, professional services and maintenance fees for software and sales of related hardware, primarily to financial institutions around the world.

Prepaid Processing Segment – Revenue in the Prepaid Processing Segment, which represented approximately 63% of total consolidated revenue for the nine-months ended September 30, 2007, is primarily derived from commissions and 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. 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 and prepaid mobile content such as ring tones and games.

Money Transfer Segment – Revenue in the Money Transfer Segment, which represents approximately 16% of total consolidated revenue for the nine-months ended September 30, 2007, is primarily derived through the charging of a transaction fee, as well as the difference between purchasing foreign currency at wholesale exchange rates and selling the foreign currency to consumers at retail exchange rates. We have an origination network in place comprised of agents and Company-owned stores primarily in North America, the Caribbean,

Europe and Asia-Pacific and a worldwide network of distribution agents, consisting primarily of financial institutions in the transfer destination countries. Origination and distribution 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 successful entry into the cross-border merchant processing and acquiring business;
	•		the successful entry into the card issuing and outsourcing business; and
	•		the continued development and implementation of our software products and their ability to interact with other leading products.

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 contributions sometimes permit us to enter new markets without significant capital investment.

We have entered the cross-border merchant processing and acquiring business through the execution of an agreement with a large petrol retailer in Central Europe. Since the beginning of 2007, we have devoted significant resources to the development of the necessary processing systems and capabilities to enter this business, which involves the purchase and design of hardware and software. Merchant acquiring involves processing credit and debit card transactions that are made on POS terminals, including authorization, settlement, and processing of settlement files. It may involve the assumption of credit risk, as the principal amount of transactions may be settled to merchants before settlements are received from card associations.

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;
	•		the availability of financing for further expansion; and
	•		our ability to successfully integrate newly acquired operations with our existing operations.

During the first quarter 2007, we completed the acquisitions of the stock of Omega Logic, Ltd. (“Omega Logic”) and Brodos SRL in Romania (“Brodos Romania”). Omega Logic is a prepaid top-up company based, and primarily operating, in the U.K. that enhanced our Prepaid Processing Segment business in the U.K. Brodos Romania is a leading electronic prepaid mobile airtime processor in Romania.

Money Transfer Segment – We completed the acquisition of RIA in April 2007, which expanded our money transfer and bill payment services business and makes Euronet the third-largest global money transfer company based upon revenues and volumes. RIA processes approximately $4.5 billion in money transfers annually, originates transactions through a network of approximately 11,000 sending agents, including Company-owned stores, located throughout 13 countries in North America, the Caribbean, Europe and Asia-Pacific.

RIA disburses money transfers through a payer network of over 56,000 locations in over 100 countries. The Money Transfer Segment provides us with additional expansion opportunities.

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 the immigration developments occurring in the U.S. during 2006 and 2007;
	•		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 develop products or 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 and Asia, including high growth corridors to Central and Eastern European countries; and
	•		our ability to successfully integrate RIA with our existing operations.

Like other participants in the money transfer industry, as a result of immigration developments, downturns in certain labor markets and/or other economic factors, growth rates in money transfers from the U.S. to Mexico have slowed. This slowing of growth began during the middle of 2006 and continues to impact money transfer revenues for transactions from the U.S. to Mexico. Despite recent improvement in this trend, we believe that it is too early to conclude on the impact, if any, to our results of operations.

Corporate Services, Eliminations and Other - In addition to operating in our principal business segments described above, our “Corporate Services, Elimination and Other” division 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 most stock option and restricted stock grants. These services are not directly identifiable with our business segments. The impact of share-based compensation is recorded as an expense of the Corporate Services division.

SEGMENT SUMMARY RESULTS OF OPERATIONS

Revenue and operating income by segment for the three- and nine-month periods ended September 30, 2007 and 2006 are summarized in the tables below:

		Revenues for the Three
		Months Ended																Revenues for the Nine Months
		September 30,								Year-over-Year Change								Ended September 30,								Year-over-Year Change
										Increase				Increase												Increase				Increase
(in thousands)		2007				2006				Amount				Percent				2007				2006				Amount				Percent
EFT Processing		$	48,113			$	40,539			$	7,574				19	%		$	135,844			$	116,166			$	19,678				17	%
Prepaid Processing			144,631				120,240				24,391				20	%			414,442				343,957				70,485				20	%
Money Transfer			53,573				874				52,699				6030	%			103,581				2,303				101,278				4398	%
Total		$	246,317			$	161,653			$	84,664				52	%		$	653,867			$	462,426			$	191,441				41	%

		Operating Income for the																Operating Income for the
		Three Months Ended																Nine Months Ended
		September 30,								Year-over-Year Change								September 30,								Year-over-Year Change
										Increase				Increase												Increase				Increase
										(Decrease)				(Decrease)												(Decrease)				(Decrease)
(in thousands)		2007				2006				Amount				Percent				2007				2006				Amount				Percent
EFT Processing		$	10,231			$	9,140			$	1,091				12	%		$	26,416			$	25,830			$	586				2	%
Prepaid Processing			10,403				9,561				842				9	%			29,619				27,640				1,979				7	%
Money Transfer			3,410				(838	)			4,248				n/m				3,923				(2,017	)			5,940				n/m
Total			24,044				17,863				6,181				35	%			59,958				51,453				8,505				17	%
Corporate services			(5,610	)			(4,857	)			(753	)			16	%			(13,837	)			(14,052	)			215				(2	%)
Total		$	18,434			$	13,006			$	5,428				42	%		$	46,121			$	37,401			$	8,720				23	%

Amounts shown above for the three- and nine-month periods ended September 30, 2006 have been adjusted for the impact of the correction for an immaterial error related to foreign currency translation adjustments for goodwill and acquired intangible assets. See Note 1 — General to the unaudited consolidated financial statements for further discussion.

COMPARISON OF OPERATING RESULTS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006

EFT PROCESSING SEGMENT

The following table presents the results of operations for the three- and nine-month periods ended September 30, 2007 and 2006 for our EFT Processing Segment:

		Results for the Three																Results for the Nine
		Months Ended September 30,								Year-over-Year Change								Months Ended September 30,								Year-over-Year Change
																										Increase				Increase
										Increase				Increase												(Decrease)				(Decrease)
(dollar amounts in thousands)		2007				2006				Amount				Percent				2007				2006				Amount				Percent
Total revenues		$	48,113			$	40,539			$	7,574				19	%		$	135,844			$	116,166			$	19,678				17	%
Operating expenses:
Direct operating costs			18,644				14,674				3,970				27	%			53,335				41,531				11,804				28	%
Salaries and benefits			10,616				8,964				1,652				18	%			30,427				26,643				3,784				14	%
Selling, general and administrative			3,981				3,970				11				0	%			12,933				11,513				1,420				12	%
Depreciation and amortization			4,641				3,791				850				22	%			12,733				10,649				2,084				20	%
Total operating expenses			37,882				31,399				6,483				21	%			109,428				90,336				19,092				21	%
Operating income		$	10,231			$	9,140			$	1,091				12	%		$	26,416			$	25,830			$	586				2	%
Transactions processed (in millions)			156.4				119.1				37.3				31	%			434.0				335.9				98.1				29	%
ATMs as of September 30			10,516				8,491				2,025				24	%			10,516				8,491				2,025				24	%
Average ATMs			10,296				8,351				1,945				23	%			9,664				7,837				1,827				23	%