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, 2008

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		(I.R.S. Employer
of incorporation or organization)		Identification No.)
4601 COLLEGE BOULEVARD, SUITE 300
LEAWOOD, KANSAS		66211
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

The number of shares of the issuer’s common stock, $0.02 par value, outstanding as of October 31, 2008 was 50,292,225 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			17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			33
ITEM 4. CONTROLS AND PROCEDURES			34
PART II—OTHER INFORMATION			34
ITEM 1. LEGAL PROCEEDINGS			34
ITEM 1A. RISK FACTORS			34
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			36
ITEM 6. EXHIBITS			37

PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

		As of
		September 30,				December 31,
		2008				2007
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	173,863			$	266,869
Restricted cash			113,807				140,222
Inventory — PINs and other			67,830				50,265
Trade accounts receivable, net of allowances for doubtful accounts of $8,291 at September 30, 2008 and $6,194 at December 31, 2007			265,989				286,245
Deferred income taxes, net			15,194				13,554
Prepaid expenses and other current assets			32,740				39,564
Current assets of discontinued operations			3,626				5,765
Total current assets			673,049				802,484
Property and equipment, net of accumulated depreciation of $131,591 at September 30, 2008 and $119,190 at December 31, 2007			96,007				88,337
Goodwill			733,803				762,723
Acquired intangible assets, net of accumulated amortization of $60,070 at September 30, 2008 and $44,450 at December 31, 2007			134,612				155,137
Deferred income taxes, net			32,867				30,822
Other assets, net of accumulated amortization of $16,542 at September 30, 2008 and $12,649 at December 31, 2007			21,874				41,346
Non-current assets of discontinued operations			4,801				5,307
Total assets		$	1,697,013			$	1,886,156
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	218,431			$	306,155
Accrued expenses and other current liabilities			222,155				167,054
Current portion of capital lease obligations			4,843				4,974
Short-term debt obligations and current portion of long-term debt obligations			1,900				1,910
Income taxes payable			15,025				15,342
Deferred income taxes			7,159				7,587
Deferred revenue			12,273				12,934
Current liabilities of discontinued operations			3,605				7,218
Total current liabilities			485,391				523,174
Debt obligations, net of current portion			412,624				539,303
Capital lease obligations, net of current portion			8,467				11,520
Deferred income taxes			68,022				74,610
Other long-term liabilities			6,140				4,672
Minority interest			10,619				8,975
Total liabilities			991,263				1,162,254
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; 49,400,479 issued at September 30, 2008 and 49,159,968 issued at December 31, 2007			988				983
Additional paid-in-capital			667,452				658,047
Treasury stock, at cost, 224,104 shares at September 30, 2008 and 207,065 shares at December 31, 2007			(819	)			(379	)
Retained earnings (accumulated deficit)			814				(5,905	)
Restricted reserve			990				957
Accumulated other comprehensive income			36,325				70,199
Total stockholders’ equity			705,750				723,902
Total liabilities and stockholders’ equity		$	1,697,013			$	1,886,156

See accompanying notes to the consolidated financial statements.

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2008				2007				2008				2007
Revenues:
EFT Processing Segment		$	54,408			$	43,521			$	155,005			$	124,210
Prepaid Processing Segment			166,784				144,631				463,642				414,442
Money Transfer Segment			59,511				53,573				171,299				103,581
Total revenues			280,703				241,725				789,946				642,233
Operating expenses:
Direct operating costs			191,999				164,972				537,362				445,862
Salaries and benefits			32,979				30,005				96,737				75,159
Selling, general and administrative			22,460				16,182				63,459				43,021
Depreciation and amortization			14,497				13,007				43,091				33,478
Total operating expenses			261,935				224,166				740,649				597,520
Operating income			18,768				17,559				49,297				44,713
Other income (expense):
Interest income			2,631				4,046				8,531				12,463
Interest expense			(6,089	)			(7,461	)			(18,982	)			(18,762	)
Income (loss) from unconsolidated affiliates			353				(9	)			834				867
Impairment loss on investment securities			—				—				(18,760	)			—
Gain (loss) on early retirement of debt			4,370				(411	)			4,124				(411	)
Foreign currency exchange gain (loss), net			(19,346	)			8,597				(6,647	)			10,376
Other income (expense), net			(18,081	)			4,762				(30,900	)			4,533
Income from continuing operations before income taxes and minority interest			687				22,321				18,397				49,246
Income tax (expense) benefit			6,057				(6,372	)			(8,157	)			(15,001	)
Minority interest			(674	)			(599	)			(1,910	)			(1,551	)
Income from continuing operations			6,070				15,350				8,330				32,694
Discontinued operations, net			(302	)			571				(1,611	)			1,184
Net income			5,768				15,921				6,719				33,878
Translation adjustment			(69,513	)			22,395				(34,343	)			34,390
Unrealized gain (loss) on interest rate swaps			399				(553	)			372				(582	)
Gain on investment securities			669				—				97				—
Comprehensive income (loss)		$	(62,677	)		$	37,763			$	(27,155	)		$	67,686
Earnings (loss) per share — basic:
Continuing operations		$	0.13			$	0.32			$	0.17			$	0.74
Discontinued operations			(0.01	)			0.01				(0.03	)			0.03
Total		$	0.12			$	0.33			$	0.14			$	0.77
Basic weighted average shares outstanding			49,002,842				48,523,643				48,909,078				44,222,453
Earnings (loss) per share — diluted:
Continuing operations		$	0.12			$	0.30			$	0.16			$	0.70
Discontinued operations			(0.01	)			0.01				(0.03	)			0.03
Total		$	0.11			$	0.31			$	0.13			$	0.73
Diluted weighted average shares outstanding			54,882,604				54,439,296				50,884,211				49,905,599

See accompanying notes to the consolidated financial statements.

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

		Nine Months Ended September 30,
		2008				2007
Net income		$	6,719			$	33,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			44,048				34,333
Share-based compensation			7,695				6,138
Foreign exchange (gain) loss, net			6,522				(8,825	)
Non-cash impairment of investment securities			18,760				—
Deferred income tax expense (benefit)			(9,878	)			524
Income assigned to minority interest			1,910				1,551
Income from unconsolidated affiliates			(834	)			(867	)
Amortization of debt obligations issuance expenses			2,827				1,769
Gain on repurchase of bonds			(5,087	)			—
Changes in working capital, net of amounts acquired:
Income taxes payable, net			1,991				(777	)
Restricted cash			(13,051	)			17,198
Inventory — PINs and other			(21,270	)			12,177
Trade accounts receivable			1,136				(33,931	)
Prepaid expenses and other current assets			6,510				(5,837	)
Trade accounts payable			(70,427	)			(26,454	)
Deferred revenue			(1,730	)			493
Accrued expenses and other current liabilities			74,929				28,529
Other, net			(1,939	)			(592	)
Net cash provided by operating activities			48,831				59,307
Cash flows from investing activities:
Acquisitions, net of cash acquired			(5,400	)			(352,573	)
Acquisition escrow			26,000				(26,000	)
Purchases of property and equipment			(29,111	)			(21,781	)
Purchases of other long-term assets			(2,656	)			(3,420	)
Other, net			838				723
Net cash used by investing activities			(10,329	)			(403,051	)
Cash flows from financing activities:
Proceeds from issuance of shares			1,246				165,389
Borrowings from revolving credit agreements classified as non-current liabilities			140,820				639,119
Repayments of revolving credit agreements classified as non-current liabilities			(181,744	)			(687,515	)
Proceeds from long-term debt obligations			—				190,000
Repayments of long-term debt obligations			(80,913	)			(25,000	)
Repayments of capital lease obligations			(5,876	)			(7,603	)
Debt issuance costs			(750	)			(3,827	)
Cash dividends paid to minority interest stockholders			—				(1,572	)
Other, net			687				303
Net cash provided (used) by financing activities			(126,530	)			269,294
Effect of exchange differences on cash			(4,626	)			4,827
Decrease in cash and cash equivalents			(92,654	)			(69,623	)
Cash and cash equivalents at beginning of period (includes cash of discontinued operations of $722 in 2008 and $1,446 in 2007)			267,591				321,058
Cash and cash equivalents at end of period (includes cash of discontinued operations of $1,074 in 2008 and $131 in 2007)		$	174,937			$	251,435
Interest paid during the period		$	15,244			$	15,102
Income taxes paid during the period			14,661				13,428

See accompanying notes to the consolidated financial statements.

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

(1) GENERAL

Organization

Euronet Worldwide, Inc. and its subsidiaries (the “Company” or “Euronet”) is an industry leader in processing secure electronic financial transactions. 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 RIA Envia, Inc. (“RIA”) subsidiary and its operating subsidiaries, is the third-largest global money transfer company based upon revenues and volumes and provides services through a sending network of agents and Company-owned stores in North America, the Caribbean, Europe and Asia Pacific, 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, 2008, the results of its operations for the three- and nine-month periods ended September 30, 2008 and 2007 and cash flows for the nine-month periods ended September 30, 2008 and 2007.

The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Euronet for the year ended December 31, 2007, including the notes thereto, set forth in the Company’s 2007 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, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008. Certain amounts in prior years have been reclassified to conform to current period presentation.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Fair value measurements

Effective January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” for financial assets and liabilities. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The Statement applies whenever other accounting pronouncements require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements. Additionally, FASB Staff Position No. 157-2, “Effective Date of FASB Statement No. 157,” delayed the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 for certain nonfinancial assets and liabilities. Beginning January 1, 2009, the Company will adopt the provisions for those nonfinancial assets and liabilities, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment and investments in unconsolidated subsidiaries. The Company does not expect the provisions of SFAS No. 157 related to these items to have a material impact on its consolidated financial statements. See Note 10, Fair Value Measurements, for the required fair value disclosures.

Investment in MoneyGram International, Inc.

The Company’s investment in MoneyGram International, Inc. (“MoneyGram”) was classified as available-for-sale as of December 31, 2007 and was recorded in other assets on the Company’s Consolidated Balance Sheet. During the first quarter 2008, the Company decided not to pursue the acquisition of MoneyGram. Also, during the six months ended June 30, 2008, the value of the Company’s investment in MoneyGram declined and the Company determined the decline to be other than temporary. Accordingly, the Company recognized impairment losses associated with the investment of $18.8 million during the six months ended June 30, 2008 and reversed the $0.6 million gain recorded during 2007 in other comprehensive income. Additionally, the $0.7 million gain during the three months ended September 30, 2008 was recorded in other comprehensive income. Because of the Company’s decision not to submit a proposal to acquire MoneyGram, the investment was recorded in other current assets on the Company’s Unaudited Consolidated Balance Sheet as of

September 30, 2008. During the first quarter 2008, the Company also recorded acquisition related expenses totaling $3.0 million, which are included in selling, general and administrative expenses for the nine months ended September 30, 2008.

Money transfer settlement obligations

Money transfer settlement obligations are recorded in accrued expenses and other current liabilities on the Company’s Consolidated Balance Sheets and consist of amounts owed by Euronet to money transfer recipients. As of September 30, 2008, the Company’s money transfer settlement obligations were $34.3 million.

Accounting for derivative instruments and hedging activities

The Company accounts for derivative instruments and hedging activities in accordance with 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 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 or paid 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 (loss), net in the Unaudited Consolidated Statements of Income and Comprehensive Income (Loss). 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 or payable, on the Company’s Unaudited Consolidated Statements of Income and Comprehensive Income (Loss) is not significant.

Cash flows resulting from derivative instruments are classified as cash flows from operating activities in the Company’s Unaudited Consolidated Statements of Cash Flows. The Company enters into derivative instruments with financial institutions it believes to be highly credit-worthy and does not use derivative instruments for trading or speculative purposes. See Note 7, Derivative Instruments and Hedging Activities, for further discussion of derivative instruments.

Recent accounting pronouncements

In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 requires the proceeds from the issuance of such convertible debt instruments to be allocated between debt and equity components so that debt is discounted to reflect the Company’s nonconvertible debt borrowing rate. The debt discount is amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense. The change in accounting treatment is effective for fiscal years beginning after December 15, 2008 and applies retrospectively to prior periods. FSP APB 14-1 will impact the accounting associated with the Company’s $140 million convertible senior debentures and its $175 million convertible debentures. The new accounting treatment will require Euronet to retrospectively record a significant amount of non-cash interest as the discount on the debt is amortized. The Company estimates it will record additional interest expense of approximately $12 million in each of the years ended December 31, 2008 and 2007.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which requires enhanced disclosures about an entity’s derivative and hedging activities, including: (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is still evaluating the impact of the adoption of SFAS No. 161; however, the impact is not expected to be material.

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and the guidance for determining the useful life of a recognized intangible asset must be applied prospectively to intangible assets acquired after the effective date. The Company is evaluating the impact the adoption of FSP FAS 142-3 will have on its consolidated financial statements; however, the impact is not expected to be material.

(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, restricted stock and options to purchase the Company’s Common 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)		2008				2007				2008				2007
Reconciliation of net income to earnings available to common stockholders:
Net income		$	5,768			$	15,921			$	6,719			$	33,878
Add: interest expense of 1.625% convertible debentures, if dilutive (net of income taxes of $316 for the three months ended September 30, 2008 and $0 for the three and nine months ended September 30, 2007)			470				836				—				2,370
Earnings available to common stockholders		$	6,238			$	16,757			$	6,719			$	36,248
Computation of diluted weighted average shares outstanding:
Basic weighted average shares outstanding			49,002,842				48,523,643				48,909,078				44,222,453
Additional shares from assumed conversion of 1.625% convertible debentures			4,074,594				4,163,488				—				4,163,488
Weighted average shares issuable in connection with acquisition obligations			1,115,243				714,644				1,115,243				467,672
Incremental shares from assumed conversion of stock options and restricted stock			689,925				1,037,521				859,890				1,051,986
Diluted weighted average shares outstanding			54,882,604				54,439,296				50,884,211				49,905,599

The table includes all stock options and restricted stock that are dilutive to Euronet’s weighted average common shares outstanding during the period. The calculation of diluted earnings per share excludes stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding for the three- and nine-month periods ended September 30, 2008 of approximately 1,667,000 and 1,316,000, respectively. For both the three- and nine-month periods ended September 30, 2007, the calculation of diluted earnings per share excludes approximately 567,000 stock options or shares of restricted stock that are anti-dilutive to the Company’s weighted average common shares outstanding.

The Company issued $140 million of 1.625% convertible debentures due 2024 and $175 million of 3.50% convertible debentures due 2025 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 Emerging Issues Task Force 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-month period ended September 30, 2008 and the three- and nine-month periods ended September 30, 2007 and anti-dilutive for the nine-month period ended September 30, 2008. Of the $140 million 1.625% convertible debentures due 2024, Euronet repurchased $55 million on September 25, 2008, which is more fully described in Note 6, Debt Obligations. The shares underlying the $55 million of debentures are included in diluted weighted average shares outstanding through the date of repurchase, if dilutive. Under the if-converted method, the assumed conversion of the 3.50% convertible debentures was anti-dilutive for each of the three- and nine-month periods ended September 30, 2008 and 2007.

(4) DISCONTINUED OPERATIONS

During the second quarter 2008, the Company committed to a plan to sell Euronet Essentis Limited (“Essentis”), a U.K. software entity, in order to narrow the focus of its investments and resources on its transaction processing businesses. The Company is in the process of locating a buyer and expects to complete a sale before June 30, 2009. Accordingly, Essentis’s results of operations are shown as discontinued operations in the Unaudited Consolidated Statements of Income and Comprehensive Income (Loss) for all periods presented. Previously, Essentis’s results were reported in the EFT Processing Segment. The segment results in Note 9, Segment Information, also reflect the reclassification of Essentis to discontinued operations. The following amounts related to Essentis have been segregated from continuing operations and reported as discontinued operations:

		Three Months Ended September 30,								Nine Months Ended September 30,
(in thousands)		2008				2007				2008				2007
Revenues		$	2,254			$	4,592			$	7,388			$	11,634
Income (loss) before income taxes		$	(496	)		$	833			$	(2,282	)		$	1,290
Net income (loss)		$	(302	)		$	571			$	(1,611	)		$	840

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

(in thousands)		September 30, 2008				December 31, 2007
ASSETS
Current assets
Cash and cash equivalents		$	1,074			$	722
Trade accounts receivable, net of allowance for doubtful accounts			1,107				4,133
Prepaid expenses and other current assets			1,445				910
Total current assets			3,626				5,765
Property and equipment, net of accumulated depreciation			510				647
Acquired intangible assets, net of accumulated amortization			1,206				1,614
Other assets, net of accumulated amortization			3,085				3,046
Total assets		$	8,427			$	11,072
LIABILITIES
Current liabilities
Trade accounts payable		$	354			$	953
Accrued expenses and other current liabilities			1,198				2,596
Deferred revenue			2,053				3,669
Total current liabilities			3,605				7,218
Other long-term liabilities			4				32
Total liabilities		$	3,609			$	7,250
Net assets		$	4,818			$	3,822

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 related to the operations in France at September 30, 2008 or December 31, 2007.

(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS, NET

A summary of acquired intangible assets and goodwill activity for the nine-month period ended September 30, 2008 is presented below:

		Acquired								Total
		Intangible								Intangible
(in thousands)		Assets				Goodwill				Assets
Balance as of December 31, 2007		$	155,137			$	762,723			$	917,860
Increases (decreases):
Amortization			(18,580	)			—				(18,580	)
Other, net (primarily changes in foreign currency exchange rates)			(1,945	)			(28,920	)			(30,865	)
Balance as of September 30, 2008		$	134,612			$	733,803			$	868,415

Estimated annual amortization expense on intangible assets with finite lives, before income taxes, as of September 30, 2008, is expected to total $24.4 million for 2008, $23.3 million for 2009, $22.9 million for 2010, $18.9 million for 2011, $16.4 million for 2012 and $11.9 million for 2013.

The Company’s annual goodwill impairment test is performed during the fourth quarter. The Company’s annual impairment test for the year ended December 31, 2007 indicated that there were no impairments. Determining the fair value of reporting units requires significant management judgment in estimating future cash flows and assessing potential market and economic conditions. It is reasonably possible that the Company’s operations will not perform as expected, downturns in the global economy will have a significant impact on cash flow projections, or that other estimates or assumptions could change, which may result in the Company recording material non-cash impairment charges during the year in which these changes take place.

(6) DEBT OBLIGATIONS

A summary of debt obligation activity for the nine-month period ended September 30, 2008 is presented below:

														1.625%				3.50%
		Revolving												Convertible				Convertible
		Credit				Other Debt				Capital				Debentures				Debentures				Term
(in thousands)		Facilities				Obligations				Leases				Due 2024				Due 2025				Loan				Total
Balance at December 31, 2007		$	62,203			$	10			$	16,494			$	140,000			$	175,000			$	164,000			$	557,707
Increases (decreases):
Net repayments			(41,121	)			498				(4,569	)			(55,000	)			—				(31,000	)			(131,192	)
Capital lease interest			—				—				1,160				—				—				—				1,160
Foreign exchange (gain) loss			152				(218	)			225				—				—				—				159
Balance at September 30, 2008			21,234				290				13,310				85,000				175,000				133,000				427,834
Less — current maturities			—				—				(4,843	)			—				—				(1,900	)			(6,743	)
Long-term obligations at September 30, 2008		$	21,234			$	290			$	8,467			$	85,000			$	175,000			$	131,100			$	421,091

On September 25, 2008, the Company repurchased in privately negotiated transactions $55 million in principal amount of the $140 million 1.625% convertible debentures due 2024. This resulted in a $4.7 million pre-tax gain on early retirement of debt, net of the write-off of unamortized debt issuance costs.

During the nine months ended September 30, 2008, the Company repaid $31.0 million of the term loan, of which $1.4 million were scheduled repayments. The remaining $29.6 million represents prepayment of amounts not yet due and resulted in the Company recognizing a $0.5 million pre-tax loss on early retirement of debt.

During April 2008, the Company entered into an amendment to its secured syndicated credit facility to, among other items, (i) change the definition of one of the financial covenants in the original agreement to exclude the effect of certain one-time expenses and (ii) allow for the repurchase of up to $70 million aggregate principal amount of the $140 million in Convertible Senior Debentures Due 2024 that are currently outstanding. Euronet incurred costs of $0.6 million in connection with the amendment, which will be recognized as additional interest expense over the remaining 48 month term of the credit facility.

(7) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

During 2007, the Company entered into interest rate swap agreements for a total notional amount of $50 million to manage interest rate exposure related to a portion of the term loan, which currently bears interest at London Inter-Bank Offered Rate (“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, 2008, the Company has recorded a liability of $0.6 million in the Company’s Unaudited Consolidated Balance Sheet to recognize the fair value of the swap agreements. The impact to accumulated other comprehensive income for the nine months ended September 30, 2008 was a gain of $0.4 million. The fair value of swap agreements is based on the LIBOR swap rate, credit spreads and other relevant market conditions.

As of September 30, 2008, the Company had foreign currency forward contracts outstanding with a notional value of $52.7 million, primarily in euros, which were not designated as hedges and had a weighted average remaining maturity of 2.8 days.

(8) STOCK PLANS

During the first nine months of 2008, the Company granted a total of 507,153 shares of restricted stock and accelerated vesting for 4,800 shares of restricted stock. Of the shares granted, 370,402 were performance-based shares awarded to executives and key personnel having a fair value of $6.5 million on the grant date, which vest during the years 2009 through 2015 upon the attainment of certain financial performance goals, combined with continuing employment on the vesting date; 21,000 shares were annual grants to directors having a fair value of $0.4 million which vested immediately; 97,900 shares were service-based shares awarded to executives and key personnel having a fair value of $1.6 million on the grant date, which vest during the years 2008 through 2013; and 17,851 shares were granted and 4,800 shares accelerated having a total fair value of $0.5 million in connection with severance benefits due to an executive officer of the Company who resigned in early 2008.

(9) 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.” The Company currently operates in the following three reportable operating segments:

	1)		Through the EFT Processing Segment, the Company processes transactions for a network of ATMs and POS terminals across Europe, the Middle East and Asia. 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, Asia Pacific and the Middle East.
	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. Bill payment services are offered primarily in the U.S.

In addition, in its administrative division, “Corporate Services, Eliminations and Other,” the Company accounts for non-operating activity, 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, 2008 and 2007:

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

		For the Three Months Ended September 30, 2007
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	43,521			$	144,631			$	53,573			$	—			$	241,725
Operating expenses:
Direct operating costs			18,537				118,038				28,397				—				164,972
Salaries and benefits			8,184				7,081				10,784				3,956				30,005
Selling, general and administrative			3,274				4,879				6,777				1,252				16,182
Depreciation and amortization			4,170				4,230				4,205				402				13,007
Total operating expenses			34,165				134,228				50,163				5,610				224,166
Operating income (loss)		$	9,356			$	10,403			$	3,410			$	(5,610	)		$	17,559

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

		For the Nine Months Ended September 30, 2007
														Corporate
														Services,
		EFT				Prepaid				Money				Eliminations
(in thousands)		Processing				Processing				Transfer				and Other				Consolidated
Total revenues		$	124,210			$	414,442			$	103,581			$	—			$	642,233
Operating expenses:
Direct operating costs			53,043				337,516				55,303				—				445,862
Salaries and benefits			23,431				20,486				21,207				10,035				75,159
Selling, general and administrative			10,850				14,845				14,047				3,279				43,021
Depreciation and amortization			11,878				11,976				9,101				523				33,478
Total operating expenses			99,202				384,823				99,658				13,837				597,520
Operating income (loss)		$	25,008			$	29,619			$	3,923			$	(13,837	)		$	44,713

During the third quarter 2008, the Company adjusted the allocation of goodwill by reporting unit related to the acquisition of RIA. The adjustment had no impact on total goodwill reported on the Company’s Consolidated Balance Sheets but changed the goodwill and total assets reported by geographic location. The adjustment had no impact on the Company’s results of operations or cash flows. Total assets, as adjusted, as of September 30, 2008 and December 31, 2007, summarized by geographic location, were as follows:

		Total Assets as of
		September 30,				December 31,
(in thousands)		2008				2007
U.S.		$	532,586			$	676,322
U.K.			250,816				329,077
Spain			234,706				247,570
Australia			167,219				120,785
Germany			159,642				164,510
Poland			76,727				71,059
India			21,325				24,136
Other			253,992				252,697
Total		$	1,697,013			$	1,886,156

(10) FAIR VALUE MEASUREMENTS

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

		Fair Value Measurements as of
		September 30, 2008 Using
		Quoted Prices				Significant
		in Active				Other
		Markets for				Observable
Assets (liabilities)(in thousands)		Identical Assets				Inputs
Available-for-sale investment securities		$	1,900			$	—
Interest rate swaps related to floating rate debt			—				(622	)
Foreign currency derivative contracts			—				900

The Company values available-for-sale investment securities using quoted prices from the securities’ primary exchange. Interest rate swaps are valued using present value measurements based on the LIBOR swap rate, credit spreads and other relevant market conditions. Foreign currency derivative contracts are valued using foreign currency quotes for similar assets and liabilities.

(11) NONCASH FINANCING AND INVESTING ACTIVITIES

Capital lease obligations of $1.2 million and $2.6 million were incurred during the nine months ended September 30, 2008 and 2007, respectively. The Company issued Euronet Common Stock valued at $117.6 million and contingent value rights (“CVRs”) and stock appreciation rights (“SARs”) valued at a total of $32.1 million for acquisitions completed during the first nine months of 2007.

(12) CONTINGENCIES

On January 12, 2007, the Company signed a stock purchase agreement to acquire Envios de Valores La Nacional Corp. and certain of its affiliates (“La Nacional”), subject to regulatory approvals and other customary closing conditions. In connection with this agreement, on January 16, 2007, the Company deposited $26 million in an escrow account created for the proposed acquisition. The escrowed funds were not permitted to be released except upon mutual agreement of the Company and La Nacional’s stockholder or through legal remedies available in the agreement.

On April 5, 2007, the Company gave notice to the stockholder of La Nacional of the termination of the stock purchase agreement, alleging certain breaches of the terms thereof by La Nacional and requested the release of the $26 million held in escrow under the terms of the agreement. La Nacional’s stockholder denied such breaches occurred, contested such termination and did not consent to the Company’s request for release of the escrowed funds. While pursuing all legal remedies available, the Company engaged in negotiations with La Nacional and its stockholder to determine whether the dispute could be resolved through revised terms for the acquisition or some other mutually agreeable method.

On January 10, 2008, the Company entered into a settlement agreement with La Nacional and its stockholder evidencing the parties’ mutual agreement not to consummate the acquisition of La Nacional, in exchange for payment by Euronet of a portion of the legal fees incurred by La Nacional. Among other terms and conditions, the settlement agreement contained mutual releases in connection with litigation and provided for the release to the Company in the first quarter 2008 of the $26 million held in escrow, plus interest earned on the escrowed funds.

(13) FEDERAL EXCISE TAX REFUND

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. 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. During the fourth quarter 2007, the IRS completed an initial field examination confirming the amount of the claim and, therefore, the Company recorded $12.2 million for the amount of the refund claimed as a reduction to operating expenses of the Prepaid Processing Segment and as an other current asset. In addition, the Company recorded approximately $1.2 million of interest income in the first quarter 2008 on the amount claimed. The Company received the refund and interest in the second quarter 2008.

(14) GUARANTEES

As of September 30, 2008, the Company had $37.1 million of stand-by letters of credit/bank guarantees issued on its behalf, of which $9.5 million are collateralized by cash deposits held by the respective issuing banks. Euronet regularly grants guarantees in support of obligations of subsidiaries. As of September 30, 2008, the Company granted off balance sheet guarantees for cash in various ATM networks amounting to $19.4 million over the terms of the cash supply agreements and performance guarantees amounting to approximately $27.5 million over the terms of the agreements with the customers. From time to time, Euronet enters into agreements with unaffiliated parties that contain indemnification provisions, the terms of which may vary depending on the negotiated terms of each respective agreement. The amount of such potential obligations is generally not stated in the agreements. Our liability under such indemnification provisions may be mitigated by relevant insurance coverage and may be subject to time and materiality limitations, monetary caps and other conditions and defenses. Such indemnification obligations include the following:

	•		In connection with contracts with financial institutions in the EFT Processing Segment, the Company is responsible for damages to ATMs and theft of ATM network cash that, generally, is not recorded on the Company’s Consolidated Balance Sheet. As of September 30, 2008, the balance of ATM network cash for which the Company was responsible was approximately $310 million. The Company maintains insurance policies to mitigate this exposure;
	•		In connection with the license of proprietary systems to customers, Euronet provides certain warranties and infringement indemnities to the licensee, which generally warrant that such systems do not infringe on intellectual property owned by third parties and that the systems will perform in accordance with their specifications;
	•		Euronet has entered into purchase and service agreements with vendors and consulting agreements with providers of consulting services, pursuant to which the Company has agreed to indemnify certain of such vendors and consultants, respectively, against third-party claims arising from the Company’s use of the vendor’s product or the services of the vendor or consultant;
	•		In connection with acquisitions and dispositions of subsidiaries, operating units and business assets, the Company has entered into agreements containing indemnification provisions, which can be generally described as follows: (i) in connection with acquisitions made by Euronet, the Company has agreed to indemnify the seller against third-party claims made against the seller relating to the subject subsidiary, operating unit or asset and arising after the closing of the transaction, and (ii) in connection with dispositions made by Euronet, Euronet has agreed to indemnify the buyer against damages incurred by the buyer due to the buyer’s reliance on representations and warranties relating to the subject subsidiary, operating unit or business assets in the disposition agreement if such representations or warranties were untrue when made;
	•		Euronet has entered into agreements with certain third parties, including banks that provide fiduciary and other services to Euronet or to the Company’s benefit plans. Under such agreements, the Company has agreed to indemnify such service providers for third-party claims relating to the carrying out of their respective duties under such agreements; and
	•		The Company has obtained surety bonds in compliance with money transfer licensing requirements of the applicable governmental authorities and has agreed to reimburse the surety for any amounts that they are required to pay in connection with such bonds.

The Company is also required to meet minimum capitalization and cash requirements of various regulatory authorities in the jurisdictions in which the Company has money transfer operations. To date, the Company is not aware of any significant claims made by the indemnified parties or third parties to guarantee agreements with the Company and, accordingly, no liabilities were recorded as of September 30, 2008 or December 31, 2007.

(15) INCOME TAXES

The Company’s effective tax rate for continuing operations, after consideration of minority interest, was not meaningful for the three-month period ended September 30, 2008, was 29.3% for the three-month period ended September 30, 2007 and was 49.5% and 31.5% for the nine-month periods ended September 30, 2008 and 2007, respectively.

Net income for the three- and nine-month periods ended September 30, 2008 includes foreign exchange losses of $19.3 million and $6.6 million, respectively. The recording of a significant income tax benefit for the three months ended September 30, 2008 was due primarily to the recognition of substantial foreign currency losses in the U.S. for which a tax benefit was recorded, partly offset by the income tax impact of foreign currency gains in certain of the Company’s foreign operations. Additionally, net income for the nine months ended September 30, 2008 includes unrealized capital losses of $18.8 million recorded in connection with the Company’s investment in MoneyGram. Associated tax benefits were not recorded for the losses because of the uncertainty surrounding the Company’s future

ability to have offsetting capital gains. Excluding the impact of the unrealized capital losses, the Company’s effective tax rate was 23.1% for the nine-month period ended September 30, 2008. The decrease in this adjusted effective tax rate compared to the same period a year ago is mainly due to the tax benefit related to the foreign currency losses described above. Additionally, during the nine-month period ended September 30, 2008, the Company recognized $1.2 million in income tax benefits related to prior years.

The year-over-year fluctuations in the tax rates for the three- and nine-month periods are also affected by differences in accounting for income taxes at the Company’s U.S. operations. During the three- and nine-month periods ended September 30, 2007, the Company had a valuation allowance against its net deferred tax assets and, therefore, the tax effect of operating income or expense, interest income on loans to its foreign subsidiaries and foreign currency gains recognized by the Company’s U.S. group were recorded as an adjustment to the valuation allowance rather than tax expense. Due to the recognition of significant foreign currency gains during 2007 and a $12.2 million federal excise tax refund recorded during the fourth quarter 2007, the Company’s valuation allowance against its U.S. net deferred tax assets was fully utilized. Consequently, for the three- and nine-month periods ended September 30, 2008, the Company fully provided for the tax effect of income and expense generated by its U.S. operations.

As a result of settlement of certain tax positions in Poland, relative to periods prior to 2004, the Company reduced its liability for unrecognized tax benefits by $0.8 million during the nine months ended September 30, 2008. Largely offsetting this reduction, the Company increased its liability for unrecognized tax benefits for other items by $0.7 million during the same period.

(16) SUBSEQUENT EVENTS

As partial consideration for the acquisition of RIA, Euronet granted the sellers of RIA 3,685,098 CVRs and 3,685,098 SARs. The 3,685,098 CVRs matured on October 1, 2008 and the Company elected to settle the CVRs by issuing 1,114,550 additional shares of Euronet Common Stock valued at $20 million. The 3,685,098 SARs entitled the sellers to acquire additional shares of Euronet Common Stock at an exercise price of $27.14 at any time through October 1, 2008 and were not exercised before their expiration.

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

OVERVIEW

COMPANY OVERVIEW, GEOGRAPHIC LOCATIONS AND PRINCIPAL PRODUCTS AND SERVICES

Euronet Worldwide, Inc. (together with our subsidiaries, “we,” “us,” “Euronet” or the “Company”) is a leading electronic payments provider, offering automated teller machine (“ATM”) and point-of-sale (“POS”) and card outsourcing services, card issuing and merchant acquiring services, integrated electronic financial transaction (“EFT”) software, network gateways, electronic distribution of top-up services for prepaid mobile airtime and other prepaid products, electronic consumer money transfer and bill payment services to financial institutions, mobile operators, retailers and individual customers. As of September 30, 2008, we operate in the following three principal business segments:

	•		An EFT Processing Segment, which processes transactions for a network of 10,384 ATMs and approximately 55,000 POS terminals across Europe, the Middle East and Asia. 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 via ATMs. Through this segment, we also offer a suite of integrated EFT software solutions for electronic payment and transaction delivery systems.
	•		A Prepaid Processing Segment, which provides distribution of prepaid mobile airtime and other prepaid products and collection services for various prepaid products, cards and services in the U.S., Europe, Africa, Asia Pacific and the Middle East. Including terminals operated by unconsolidated subsidiaries, we operate a network of approximately 409,000 POS terminals providing electronic processing of prepaid mobile airtime top-up services in the U.S., Europe, 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. Bill payment services are offered primarily in the U.S. The Money Transfer Segment originates and terminates transactions through a network of approximately 73,000 locations, which include sending agents and Company-owned stores, and an extensive payer network across 100 countries.

We have five processing centers in Europe, two in Asia and two in the U.S. We have 23 principal offices in Europe, five in the Asia Pacific region, four in the U.S., two in Latin America and one in the Middle East. Our executive offices are located in Leawood, Kansas, USA.

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 represented approximately 19% of total consolidated revenue for the first nine months of 2008, 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 did not give authorization, and iv) prepaid telecommunication recharges. Revenue in this segment is also derived from license fees, professional services and maintenance fees for software and sales of related hardware. Software license fees are the fees we charge to license our proprietary application software to customers. Professional service fees consist of charges for customization, installation and consulting services to customers. Software maintenance 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.

Prepaid Processing Segment - Revenue in the Prepaid Processing Segment, which represented approximately 59% of total consolidated revenue for the first nine months of 2008, is primarily derived from commissions or processing fees received from telecommunications service providers for the sale and distribution of prepaid mobile airtime. We also generate revenue from commissions earned from the distribution of other prepaid products. Due to certain provisions in our mobile phone operator agreements, the operators have the ability to reduce the overall commission paid on each top-up transaction. However, by virtue of our agreements with retailers (distributors where POS terminals are located) in certain markets, not all of these reductions are absorbed by us because we are able to pass a significant portion of the reductions to retailers. Accordingly, under certain retailer agreements, the effect is to reduce revenues and reduce our direct operating costs resulting in only a small impact on gross margin and operating income. In some markets, reductions in commissions can significantly impact our results as it may not be possible, either contractually or commercially in the concerned market, to pass a reduction in commissions to the retailers. In Australia, certain retailers negotiate directly with the mobile phone operators for their own commission rates, which also limits our ability to pass through reductions in commissions. Agreements with mobile operators are important to the success of our business. These agreements permit us to distribute prepaid mobile airtime to the mobile operators’

customers. Other products offered by this segment include prepaid long distance calling card plans, prepaid internet plans, prepaid debit cards, prepaid gift cards and prepaid mobile content such as ring tones and games.

Money Transfer Segment - Revenue in the Money Transfer Segment, which represents approximately 22% of total consolidated revenue for the first nine months of 2008, 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 ability to renew existing contracts at profitable rates;
	•		the ability to expand and sign additional customers for the cross-border merchant processing and acquiring business;
	•		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.

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 the Money Transfer Segment, including providing money transfer services through our prepaid locations; and
	•		the availability of financing for further expansion.

Money Transfer Segment — The expansion and development of our money transfer business will depend on various factors, including, but not necessarily limited to, the following:

	•		the continued growth in worker migration and employment opportunities;
	•		the mitigation of economic and political factors that have had an adverse impact on money transfer volumes, such as changes in the economic sectors in which immigrants work and the developments in immigration policies in the U.S.;
	•		the continuation of the trend of increased use of electronic money transfer and bill payment services among immigrant workers and the unbanked population in our markets;
	•		the ability to maintain our agent and correspondent networks;
	•		the ability to offer our products and services or develop new products and services at competitive prices to drive increases in transactions;
	•		the expansion of our services in markets where we operate and in new markets;
	•		the ability to strengthen our brands;
	•		our ability to fund working capital requirements;

	•		our ability to maintain compliance with the regulatory requirements of the jurisdictions in which we operate or plan to operate;
	•		the ability to take advantage of cross-selling opportunities with the 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;
	•		the availability of financing for further expansion; and
	•		our ability to continue to successfully integrate RIA with our other 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 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, 2008 and 2007 are summarized in the tables below:

		Revenues for the Three														Revenues for the Nine
		Months Ended September														Months Ended September
		30,								Year-over-Year Change						30,								Year-over-Year Change
										Increase				Increase										Increase				Increase
(dollar amounts in thousands)		2008				2007				Amount				Percent		2008				2007				Amount				Percent
EFT Processing		$	54,408			$	43,521			$	10,887			25%		$	155,005			$	124,210			$	30,795			25%
Prepaid Processing			166,784				144,631				22,153			15%			463,642				414,442				49,200			12%
Money Transfer			59,511				53,573				5,938			11%			171,299				103,581				67,718			65%
Total		$	280,703			$	241,725			$	38,978			16%		$	789,946			$	642,233			$	147,713			23%

		Operating Income (Loss)														Operating Income (Loss)
		for the Three Months														for the Nine Months Ended
		Ended September 30,								Year-over-Year Change						September 30,								Year-over-Year Change
										Increase				Increase										Increase
										(Decrease)				(Decrease)										(Decrease)				Increase
(dollar amounts in thousands)		2008				2007				Amount				Percent		2008				2007				Amount				Percent
EFT Processing		$	8,256			$	9,356			$	(1,100	)		(12%)		$	27,440			$	25,008			$	2,432			10%
Prepaid Processing			12,615				10,403				2,212			21%			34,369				29,619				4,750			16%
Money Transfer			3,152				3,410				(258	)		(8%)			7,661				3,923				3,738			95%
Total			24,023				23,169				854			4%			69,470				58,550				10,920			19%
Corporate services			(5,255	)			(5,610	)			355			(6%)			(20,173	)			(13,837	)			(6,336	)		46%
Total		$	18,768			$	17,559			$	1,209			7%		$	49,297			$	44,713			$	4,584			10%

Impact of changes in foreign currency exchange rates

Approximately 76% of Euronet’s revenues are generated in non-U.S. dollar currencies. Throughout 2007 and into the first half of 2008, the U.S. dollar weakened compared to most of the currencies of the countries in which we operate. Despite strengthening in the third quarter of 2008, the U.S. dollar was weaker on average during the third quarter and first nine months of 2008 compared to the same periods in 2007. Because our revenues and local expenses are recorded in the functional currencies of our operating entities, our profits in 2008 are positively impacted by the weaker U.S. dollar. We estimate that, depending on the mix of countries and currencies, our operating income for the third quarter and first nine months of 2008 benefited by approximately 5% to 10% and 10% to 15%, respectively, when compared to the same periods in 2007.

During the third quarter of 2008 and subsequently, the currencies of most of the countries in which we operate have weakened substantially against the U.S. dollar. If these currencies remain weaker than prior periods, or deteriorate further, we expect that

comparisons with prior periods will be negatively impacted during the fourth quarter 2008. On average, for a 5% weakening of our foreign currency based results, we expect a reduction to operating income of approximately $1 million per quarter.

COMPARISON OF OPERATING RESULTS FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007

EFT PROCESSING SEGMENT

The following table presents the results of operations for the three- and nine-month periods ended September 30, 2008 and 2007 for our EFT Processing Segment:

		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)
(dollar amounts in thousands)		2008				2007				Amount				Percent		2008				2007				Amount				Percent
Total revenues		$	54,408			$	43,521			$	10,887			25%		$	155,005			$	124,210			$	30,795			25%
Operating expenses:
Direct operating costs			26,000				18,537				7,463			40%			72,362				53,043				19,319			36%
Salaries and benefits			8,518				8,184				334			4%			25,539				23,431				2,108			9%
Selling, general and administrative			6,508				3,274				3,234			99%			14,896				10,850				4,046			37%
Depreciation and amortization			5,126				4,170				956			23%			14,768				11,878				2,890			24%
Total operating expenses			46,152				34,165				11,987			35%			127,565				99,202				28,363			29%
Operating income		$	8,256			$	9,356			$	(1,100	)		(12%)		$	27,440			$	25,008			$	2,432			10%
Transactions processed (in millions)			182.3				156.4				25.9			17%			519.3				434.0				85.3			20%
ATMs as of September 30			10,384				10,516				(132	)		(1%)			10,384				10,516				(132	)		(1%)
Average ATMs			10,321				10,296				25			0%			10,685				9,348				1,337			14%