##### Table of Contents



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
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-13521
 HYPERCOM CORPORATION
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    86-0828608
(I.R.S. Employer
Identification No.)2851 West Kathleen Road, Phoenix, Arizona
(Address of principal executive offices)
    
    85053
(Zip Code)
 (602) 504-5000
 þ o
  o þ o
 o þ
  Class
    
    Outstanding at November 5, 2007Common Stock, $.001 par value per share
    
    53,148,718 shares




---



##### 



INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial Statements
    
    
    3Consolidated
Balance Sheets  September 30, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Operations  Three and nine months ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows  Three and nine months ended September 30, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    32PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    33Item 6. Exhibits
    
    
    33Signatures
    
    
    35Exhibit 31.1Exhibit 31.2Exhibit 32
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Consolidated Financial Statements.
 HYPERCOM CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 September 30,
    
    
    December 31,Amounts in thousands, except share data
    
    2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    77,748
    
    
    $
    34,190Restricted cash
    
    
    268
    
    
    
    201Short-term investments
    
    
    8,388
    
    
    
    47,228Accounts receivable, net of allowance for doubtful accounts of
$2,757 and $1,934, respectively
    
    
    69,083
    
    
    
    52,777Inventories
    
    
    30,174
    
    
    
    52,632Prepaid expenses and other current assets
    
    
    11,786
    
    
    
    8,001Deferred tax assets, net
    
    
    623
    
    
    
    691Total current assets
    
    
    198,070
    
    
    
    195,720Property, plant and equipment, net
    
    
    17,178
    
    
    
    27,261Intangible assets
    
    
    10,920
    
    
    
    5,733Other long-term assets
    
    
    16,502
    
    
    
    8,002Total assets
    
    $
    242,670
    
    
    $
    236,716LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    25,942
    
    
    $
    22,931Accrued payroll and related expenses
    
    
    8,813
    
    
    
    6,201Accrued sales and other taxes
    
    
    8,049
    
    
    
    7,781Product warranty liabilities
    
    
    2,134
    
    
    
    2,636Accrued other liabilities
    
    
    14,944
    
    
    
    9,603Deferred revenue
    
    
    4,196
    
    
    
    2,185Income taxes payable
    
    
    1,808
    
    
    
    2,460Total current liabilities
    
    
    65,886
    
    
    
    53,797Deferred tax liabilities
    
    
    346
    
    
    
    380Other liabilities
    
    
    3,400
    
    
    
    3,608Total liabilities
    
    
    69,632
    
    
    
    57,785Commitments and contingencies (Note 16)Stockholders equity:Common stock, $.001 par value; 100,000,000 shares authorized;
53,061,575 and 53,127,205 shares outstanding, respectively
    
    
    56
    
    
    
    56Additional paid-in capital
    
    
    249,835
    
    
    
    247,989Accumulated deficit
    
    
    (54,104
    )
    
    
    (46,365
    )Treasury stock, 3,162,248 shares (at cost)
    
    
    (22,749
    )
    
    
    (22,749
    )Total stockholders equity
    
    
    173,038
    
    
    
    178,931Total liabilities and stockholders equity
    
    $
    242,670
    
    
    $
    236,716
  3




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##### Table of Contents



HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three
Months Ended September 30,
    
    

Nine
Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(Amounts in thousands, except share and per share data)Net revenue:Products
    
    $
    48,166
    
    
    $
    43,158
    
    
    $
    144,199
    
    
    $
    141,378Services
    
    
    22,652
    
    
    
    13,511
    
    
    
    58,923
    
    
    
    42,404Total net revenue
    
    
    70,818
    
    
    
    56,669
    
    
    
    203,122
    
    
    
    183,782Costs of revenue:Products
    
    
    32,129
    
    
    
    27,395
    
    
    
    103,171
    
    
    
    84,245Services
    
    
    17,458
    
    
    
    10,352
    
    
    
    49,278
    
    
    
    29,701Total costs of revenue
    
    
    49,587
    
    
    
    37,747
    
    
    
    152,449
    
    
    
    113,946Gross profit
    
    
    21,231
    
    
    
    18,922
    
    
    
    50,673
    
    
    
    69,836Operating expenses:Research and development
    
    
    6,104
    
    
    
    7,049
    
    
    
    21,541
    
    
    
    19,547Selling, general and administrative
    
    
    14,588
    
    
    
    14,599
    
    
    
    42,115
    
    
    
    45,696Gain on sale of real property
    
    
    (22
    )
    
    
    (2,958
    )
    
    
    (3,796
    )
    
    
    (2,958
    )Total operating expenses
    
    
    20,670
    
    
    
    18,690
    
    
    
    59,860
    
    
    
    62,285Income (loss) from continuing operations
    
    
    561
    
    
    
    232
    
    
    
    (9,187
    )
    
    
    7,551Interest income
    
    
    1,141
    
    
    
    1,237
    
    
    
    2,867
    
    
    
    3,566Interest expense
    
    
    (5
    )
    
    
    (413
    )
    
    
    (108
    )
    
    
    (1,050
    )Foreign currency loss
    
    
    (327
    )
    
    
    (104
    )
    
    
    (1,356
    )
    
    
    (637
    )Other expense
    
    
    (13
    )
    
    
    (23
    )
    
    
    (7
    )
    
    
    (31
    )Income (loss) before income taxes and
discontinued operations
    
    
    1,357
    
    
    
    929
    
    
    
    (7,791
    )
    
    
    9,399Provision for income taxes
    
    
    (966
    )
    
    
    (456
    )
    
    
    (737
    )
    
    
    (1,928
    )Income (loss) before discontinued operations
    
    
    391
    
    
    
    473
    
    
    
    (8,528
    )
    
    
    7,471Income (loss) from discontinued operations
    
    
    138
    
    
    
    (127
    )
    
    
    789
    
    
    
    2,241Net income (loss)
    
    $
    529
    
    
    $
    346
    
    
    $
    (7,739
    )
    
    $
    9,712Basic and diluted income (loss) per share:Income (loss) before discontinued operations
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.16
    )
    
    $
    0.14Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    0.04Basic and diluted income (loss) per share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.15
    )
    
    $
    0.18Shares used in computing net icome (loss)
per share:Basic
    
    
    52,852,410
    
    
    
    53,524,064
    
    
    
    52,838,846
    
    
    
    53,247,041Diluted
    
    
    53,023,085
    
    
    
    54,161,546
    
    
    
    52,838,846
    
    
    
    54,066,308
  4




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##### Table of Contents



HYPERCOM CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months Ended September 30,2007
    
    
    2006(Amounts in thousands)Cash flows from continuing operations:Net income (loss) from continuing operations
    
    $
    (8,528
    )
    
    $
    7,471Adjustments to reconcile net income (loss)
from continuing operations to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    6,673
    
    
    
    5,682Amortization of deferred financing costs
    
    
    
    
    
    
    4Amortization of discounts on
short-term investments
    
    
    (785
    )
    
    
    (990
    )Provision for doubtful accounts
    
    
    825
    
    
    
    615Provision for excess and obsolete inventory
    
    
    7,062
    
    
    
    1,630Provision (benefit) for warranty and other product charges
    
    
    1,944
    
    
    
    (89
    )Deferred income tax benefit (provision)
    
    
    34
    
    
    
    (41
    )Non-cash share-based compensation expense
    
    
    1,109
    
    
    
    4,689Foreign currency losses
    
    
    (453
    )
    
    
    (660
    )Gain on sale of real property
    
    
    (3,796
    )
    
    
    (2,958
    )Other non-cash write-off of intangibles and other assets
    
    
    478
    
    
    
    264Changes in operating assets and
liabilities, net
    
    
    1,325
    
    
    
    (16,208
    )Net cash provided by (used in) operating activities
    
    
    5,888
    
    
    
    (591
    )Cash flows from investing activities:Purchase of property, plant and equipment
    
    
    (5,319
    )
    
    
    (4,515
    )Proceeds from the sale of real property
    
    
    16,250
    
    
    
    5,190Cash paid for acquisitions, net of cash acquired
    
    
    (12,707
    )
    
    
    Software development costs capitalized
    
    
    (1,160
    )
    
    
    (787
    )Net increase in restricted cash
    
    
    (67
    )
    
    
    (189
    )Purchase of short-term investments
    
    
    (126,057
    )
    
    
    (228,344
    )Proceeds from the sale or maturity of
short-term investments
    
    
    165,690
    
    
    
    234,275Net cash provided by investing activities
    
    
    36,630
    
    
    
    5,630Cash flows from financing activities:Repayments of bank notes payable and other
debt instruments
    
    
    (5
    )
    
    
    (8,354
    )Proceeds from issuance of common stock
    
    
    544
    
    
    
    6,393Purchase of treasury stock
    
    
    
    
    
    
    (10,740
    )Net cash provided by (used in) financing activities
    
    
    539
    
    
    
    (12,701
    )Effect of exchange rate changes on cash
    
    
    507
    
    
    
    337Net increase (decrease) in cash flows from
continuing operations
    
    
    43,564
    
    
    
    (7,325
    )Net cash provided by (used in) operating
activities  discontinued operations
    
    
    (6
    )
    
    
    4,192Net cash provided by investing activities 
discontinued operations
    
    
    
    
    
    
    12,137Cash and cash equivalents, beginning of period
    
    
    34,190
    
    
    
    35,940Cash and cash equivalents, end of period
    
    $
    77,748
    
    
    $
    44,944
  5




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##### Table of Contents



HYPERCOM CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 SEPTEMBER 30, 2007
 (Unaudited)
 1. Basis of Presentation
   Recent Accounting Pronouncements
 The Fair Value Option for Financial Assets and Financial
Liabilities
 Fair Value Measurements
 2. Restructuring and Other Charges
 2007 Restructuring
   6




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##### Table of Contents



CostsIncurredDuring the
    
    
    Costs Incurredthree months
    
    
    During the nine
    
    
    AccruedTotal Costs
    
    
    ended
    
    
    months ended
    
    
    Liability atExpected to be
    
    
    September
    
    
    September 30,
    
    
    September 30,Incurred
    
    
    30, 2007
    
    
    2007
    
    
    2007Costs of revenues:One-time termination benefits and
related employment costs
    
    $
    660
    
    
    $
    187
    
    
    $
    495
    
    
    $
    204Cost associated with transition
to contract manufacturing
    
    
    2,037
    
    
    
    445
    
    
    
    882
    
    
    
    Operating
Expenses:One-time termination benefits and
related employment costs
    
    
    1,537
    
    
    
    324
    
    
    
    953
    
    
    
    1,357Total charges
    
    $
    4,234
    
    
    $
    956
    
    
    $
    2,330
    
    
    $
    1,561
  7




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##### Table of Contents



CostsIncurred
    
    
    Costs(Reversed)
    
    
    IncurredDuring the
    
    
    During thethree months
    
    
    nine monthsTotal Costs
    
    
    ended
    
    
    endedExpected to be
    
    
    September
    
    
    SeptemberIncurred
    
    
    30, 2007
    
    
    30, 2007Americas
    
    $
    596
    
    
    $
    206
    
    
    $
    595EMEA
    
    
    958
    
    
    
    (100
    )
    
    
    313Asia Pacific
    
    
    1,684
    
    
    
    337
    
    
    
    529Shared cost centers
    
    
    996
    
    
    
    513
    
    
    
    893Total charges
    
    $
    4,234
    
    
    $
    956
    
    
    $
    2,330
  2005 Business Review
   8




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##### Table of Contents



Total
    
    
    Costs
    
    
    Costs
    
    
    Costs
    
    
    AccrualsCosts
    
    
    Incurred
    
    
    Incurred
    
    
    Incurred
    
    
    Reversed
    
    
    Balance atExpected to
    
    
    During
    
    
    During
    
    
    During
    
    
    During
    
    
    Septemberbe Incurred
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2007
    
    
    30, 2007Costs of revenues:Warranty charges and product
replacement accruals
    
    $
    7,374
    
    
    $
    3,832
    
    
    $
    2,702
    
    
    $
    332
    
    
    $
    
    
    
    $
    508
    (a)Inventory write-downs, primarily
for product end-of-life
decisions
    
    
    12,111
    
    
    
    12,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    One-time termination benefits and
related employment costs
    
    
    469
    
    
    
    351
    
    
    
    118
    
    
    
    
    
    
    
    
    
    
    
    Total costs of revenue charges
    
    
    19,954
    
    
    
    16,294
    
    
    
    2,820
    
    
    
    332
    
    
    
    
    
    
    
    508Operating expenses:One-time termination benefits and
related employment costs
    
    
    3,370
    
    
    
    2,551
    
    
    
    819
    
    
    
    
    
    
    
    
    
    
    
    Idled facility lease charge
    
    
    1,013
    
    
    
    195
    
    
    
    267
    
    
    
    536
    
    
    
    15
    (b)
    
    
    Total operating expenses
    
    
    4,383
    
    
    
    2,746
    
    
    
    1,086
    
    
    
    536
    
    
    
    15
    
    
    
    Total charges
    
    $
    24,337
    
    
    $
    19,040
    
    
    $
    3,906
    
    
    $
    868
    
    
    $
    15
    
    
    $
    508
 
 (a)
    
    These accrued liability balances are recorded as current product warranty liabilities
as these amounts are expected to be paid during 2007.(b)
    
    The Company negotiated with the landlord an early termination of the lease for one of
the Companys facilities in Phoenix, Arizona. The difference between the amount paid and
the balance in the accrual was $15,000. 3. Reclassification
   9




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##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2006As previously reported:Net revenue:Product
    
    $
    46,927
    
    
    $
    154,952Services
    
    
    9,742
    
    
    
    28,830Total net revenue
    
    
    56,669
    
    
    
    183,782Costs of revenue:Product
    
    
    30,411
    
    
    
    93,043Services
    
    
    7,336
    
    
    
    20,903Total costs of revenue
    
    
    37,747
    
    
    
    113,946Gross Margin
    
    $
    18,922
    
    
    $
    69,836As reclassified:Net revenue:Product
    
    $
    43,158
    
    
    $
    141,378Services
    
    
    13,511
    
    
    
    42,404Total net revenue
    
    
    56,669
    
    
    
    183,782Costs of revenue:Product
    
    
    27,395
    
    
    
    84,245Services
    
    
    10,352
    
    
    
    29,701Total costs of revenue
    
    
    37,747
    
    
    
    113,946Gross Margin
    
    $
    18,922
    
    
    $
    69,836Changes:Net revenue:Product
    
    $
    (3,769
    )
    
    $
    (13,574
    )Services
    
    
    3,769
    
    
    
    13,574Total net revenue
    
    
    
    
    
    
    Costs of revenue:Product
    
    
    (3,016
    )
    
    
    (8,798
    )Services
    
    
    3,016
    
    
    
    8,798Total costs of revenue
    
    
    
    
    
    
    Gross Margin
    
    $
    
    
    
    $
    
 4. Discontinued Operations
   10




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006U.K. Lease Business:Net revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,230Costs (Reversal) of revenue
    
    
    (138
    )
    
    
    
    
    
    
    (789
    )
    
    
    1,195Gross profit (a)
    
    
    138
    
    
    
    
    
    
    
    789
    
    
    
    2,035Selling, general and
administrative
expenses
    
    
    
    
    
    
    (127
    )
    
    
    
    
    
    
    (1,012
    )Foreign currency loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (343
    )Gain on sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,561138
    
    
    
    (127
    )
    
    
    789
    
    
    
    2,241Income (loss) from discontinued
operations
    
    $
    138
    
    
    $
    (127
    )
    
    $
    789
    
    
    $
    2,241
 
 (a)
    
    The company recorded a gain during the three and nine months ended September 30, 2007 from a
rebate of previously paid lease origination commission payments
related to the U.K. lease
portfolio that was sold in 2006. 5. Business Acquisition
   Business Combinations
 Goodwill and Other Intangible Assets
 6. Share-Based Compensation
 Share-Based Payment
 11




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Costs of revenue  products
    
    $
    (12
    )
    
    $
    40
    
    
    $
    70
    
    
    $
    138Costs of revenue  services
    
    
    1
    
    
    
    
    
    
    $
    2
    
    
    $
    Research and development
costs
    
    
    (169
    )
    
    
    305
    
    
    
    (194
    )
    
    
    714Selling, general and administrative
expenses
    
    
    244
    
    
    
    1,465
    
    
    
    1,231
    
    
    
    3,837Total share-based
compensation
    
    $
    64
    
    
    $
    1,810
    
    
    $
    1,109
    
    
    $
    4,689
   Stock
Options
 Accounting
for Stock Appreciation Rights and other Variable Stock Option Award Plans
  WeightedAverageWeighted
    
    Remaining
    
    AggregateAverage
    
    Contractual
    
    IntrinsicNumber of
    
    Exercise
    
    Term (in
    
    Value (inOptions
    
    Price
    
    years)
    
    Thousands)Outstanding at September 30, 2007
    
    
    3,294,674
    
    
    $
    7.35
    
    
    
    6.42
    
    
    $
    393Vested and expected to vest at
September 30, 2007
    
    
    3,491,745
    
    
    $
    7.49
    
    
    
    5.92
    
    
    $
    456Exercisable at September 30, 2007
    
    
    2,357,272
    
    
    $
    7.82
    
    
    
    4.57
    
    
    $
    456
  12




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##### Table of Contents



Three Months Ended September 30,
    
    Nine Months Ended September 30,2007
    
    2006
    
    2007
    
    2006Key assumptions used in determining
the fair value:Weighted average risk free
interest rate
    
    
    4.50
    %
    
    
    4.57
    %
    
    
    4.51
    %
    
    
    4.81
    %Expected life of the option (in
years)
    
    
    5.38
    
    
    
    5.48
    
    
    
    5.41
    
    
    
    5.48Expected stock price volatility
    
    
    55.5
    %
    
    
    64.2
    %
    
    
    56.8
    %
    
    
    66.8
    %Expected dividend rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Restricted
Stock Awards
  Number of
    
    WeightedNonvested
    
    AverageRestricted
    
    GrantStock
    
    Date FairAwards
    
    ValueBalance at December 31, 2006
    
    
    342,432
    
    
    $
    6.92Granted
    
    
    85,000
    
    
    
    5.90Vested
    
    
    (52,432
    )
    
    
    6.43Forfeited
    
    
    (300,000
    )
    
    
    6.89Balance at September 30, 2007
    
    
    75,000
    
    
    
    6.24
 Employee
Stock Purchase Plan
  13




---



##### Table of Contents



7. Restricted Cash
  8. Short-term Investments
    September 30,
    
    
    December 31,2007
    
    
    2006Municipal debt securities
    
    $
    
    
    
    $
    10,400U.S. government and agency debt securities
    
    
    4,990
    
    
    
    5,977Corporate debt securities
    
    
    3,398
    
    
    
    23,001Preferred equity securities
    
    
    
    
    
    
    7,850$
    8,388
    
    
    $
    47,228
 9. Inventories
  September 30,
    
    
    December 31,2007
    
    
    2006Purchased parts
    
    $
    8,615
    
    
    $
    24,367Work in progress
    
    
    6,933
    
    
    
    6,008Finished goods
    
    
    14,626
    
    
    
    22,257$
    30,174
    
    
    $
    52,632
 10. Product Warranty
  14




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##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Balance at beginning of period
    
    $
    3,766
    
    
    $
    3,183
    
    
    $
    2,636
    
    
    $
    5,534Warranty charges (reversals)
from normal operations
    
    
    51
    
    
    
    615
    
    
    
    1,944
    
    
    
    1,319Warranty reversals related to
the 2005 Business Review
    
    
    
    
    
    
    (24
    )
    
    
    (100
    )
    
    
    (1,408
    )Utilization of warranty liability
    
    
    (1,683
    )
    
    
    (307
    )
    
    
    (2,346
    )
    
    
    (1,978
    )Balance at end of period
    
    $
    2,134
    
    
    $
    3,467
    
    
    $
    2,134
    
    
    $
    3,467
    11. Property, Plant and Equipment, net
  September 30, 2007
    
    
    December 31, 2006Land and improvements
    
    $
    
    
    
    $
    4,743Buildings
    
    
    2,524
    
    
    
    12,753Computer equipment and software
    
    
    24,528
    
    
    
    23,956Machinery and equipment
    
    
    17,444
    
    
    
    17,341Equipment leased to customers
    
    
    11,874
    
    
    
    10,806Furniture and fixtures
    
    
    4,950
    
    
    
    4,945Leasehold improvements
    
    
    3,680
    
    
    
    3,118Construction in process
    
    
    3,353
    
    
    
    37568,353
    
    
    
    78,037Less accumulated depreciation
    
    
    (51,175
    )
    
    
    (50,776
    )$
    17,178
    
    
    $
    27,261
  15




---



##### Table of Contents



12. Equity Transactions
   13. Earnings per Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Shares used in basic income (loss) per
share computation (weighted average
common shares outstanding)
    
    
    52,852,410
    
    
    
    53,524,064
    
    
    
    52,838,846
    
    
    
    53,247,041Dilutive effect of stock options and
warrants
    
    
    170,675
    
    
    
    637,482
    
    
    
    
    
    
    
    819,267Shares used in diluted income per
share computation
    
    
    53,023,085
    
    
    
    54,161,546
    
    
    
    52,838,846
    
    
    
    54,066,308Options, stock awards and warrants that
could potentially dilute income per share
in the future that were not included
in the computation of diluted income per share
    
    
    3,199,878
    
    
    
    3,584,985
    
    
    
    3,163,814
    
    
    
    3,559,917
    (a)
 
 (a)
    
    These options, restricted stock awards and warrants were not included in the
computation of diluted income (loss) per share because they were anti-dilutive. 14. Segment and Geographic Information
 Disclosures
about Segments of an Enterprise and Related Information
  16




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net RevenueAmericas
    
    $
    39,218
    
    
    $
    33,345
    
    
    $
    108,022
    
    
    $
    107,553EMEA
    
    
    17,581
    
    
    
    14,375
    
    
    
    56,962
    
    
    
    48,386Asia Pacific
    
    
    14,019
    
    
    
    8,949
    
    
    
    38,138
    
    
    
    27,843Shared cost centers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    70,818
    
    
    $
    56,669
    
    
    $
    203,122
    
    
    $
    183,782
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Operating IncomeAmericas
    
    $
    4,393
    
    
    $
    5,564
    
    
    $
    4,732
    
    
    $
    23,359EMEA
    
    
    4,392
    
    
    
    1,200
    
    
    
    9,281
    
    
    
    7,826Asia Pacific
    
    
    3,006
    
    
    
    1,558
    
    
    
    6,635
    
    
    
    9,070Shared cost centers
    
    
    (11,230
    )
    
    
    (8,090
    )
    
    
    (29,835
    )
    
    
    (32,704
    )Total segment profit (loss)
    
    $
    561
    
    
    $
    232
    
    
    $
    (9,187
    )
    
    $
    7,551Interest income
    
    
    1,141
    
    
    
    1,237
    
    
    
    2,867
    
    
    
    3,566Interest expense
    
    
    (5
    )
    
    
    (413
    )
    
    
    (108
    )
    
    
    (1,050
    )Foreign currency loss
    
    
    (327
    )
    
    
    (104
    )
    
    
    (1,356
    )
    
    
    (637
    )Other expense
    
    
    (13
    )
    
    
    (23
    )
    
    
    (7
    )
    
    
    (31
    )Income (loss) before income taxes
and discontinued operations
    
    $
    1,357
    
    
    $
    929
    
    
    $
    (7,791
    )
    
    $
    9,399
 September 30,
    
    
    December 31,2007
    
    
    2006Total AssetsAmericas
    
    $
    81,005
    
    
    $
    68,578EMEA
    
    
    28,666
    
    
    
    35,710Asia Pacific
    
    
    55,561
    
    
    
    60,031Shared cost centers
    
    
    77,438
    
    
    
    72,397$
    242,670
    
    
    $
    236,716
 15. Income Taxes
  17




---



##### Table of Contents



Accounting for Income Taxes
 Accounting for Uncertainty in
Income Taxes
   16. Commitments and Contingencies
 Litigation
  Brazil Central Bank Proceeding
 18




---



##### Table of Contents



SPA Syspatronic AG v. Hypercom Corporation, et al.
 Verve LLC v. Hypercom Corporation (United States District Court for the District of Arizona, Civil
Action No. 05-CV-0365-PHX-FJM, filed on February 4, 2004)
  Hypercom Corporation vs. Omron Corporation (United States District Court for the District of
Arizona, Civil Action No. 04-CV-0400-PHX-PGR, filed on February 25, 2004)
   International Taxes
  19




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Cautionary Statements Regarding Forward-looking Statements
    
    
    the volatility of our financial results and our stock price;
    
    the loss of a key customer;
    
    defects in our products;
    
    the accumulation of obsolete inventory;
    
    breaches in the security of transactions involving our products;
    
    our inability to adequately protect our proprietary technology;
    
    our technology infringing the proprietary rights of third parties;
    
    a disruption in our manufacturing capabilities or those of our third-party manufacturers
or suppliers;
    
    our ability to timely and successfully introduce new products and product families on
which our future sales will be substantially dependent, and to transition legacy products
through end-of-life;
    
    our expected transition to a contract manufacturing model;
    
    the challenges posed by conducting business in international markets;
    
    fluctuations in currency exchange rates;
    
    the loss of a member of our senior management team or other key employees;
    
    risks associated with acquisitions and other strategic investments;
 20




---



##### Table of Contents




    
    force majeure events;
    
    country-specific changing economic or political environment;
    
    uncertainties related to country-specific legal and regulatory requirements, including
product-related regulations, requirements and certifications, and tax assessments and
interpretations;
    
    our ability to maintain the quality of our internal control over financial reporting;
    
    our ability to assimilate and integrate acquired technologies or businesses;
    
    the highly-competitive nature of the markets in which we compete;
    
    industry and technological developments in the markets in which we sell our products and
services;
    
    the impact of industry standards, certifications and government regulations to which our
products are subject;
    
    the impact of SEC regulations and SEC review of our periodic filings;
    
    the anti-takeover effects of certain provisions in our charter, bylaws and Delaware law;
    
    dilution of our stock price caused by the exercise of outstanding warrants and options;
    
    lack of a plan to pay dividends on our common stock in the foreseeable future; and
    
    incurring debt to meet the future capital requirements of our business.
  Critical Accounting Policies and Estimates
  Business Acquisition
   Business Combinations
 21




---



##### Table of Contents



Goodwill and Other Intangible Assets
 2007 Restructuring
   
 
 
 
 
  22




---



##### Table of Contents



Results of Operations
 Three Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar(Amounts in thousands, except per share data)
    
    2007
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    ChangeNet revenue:Products
    
    $
    48,166
    
    
    
    68.0
    %
    
    $
    43,158
    
    
    
    76.2
    %
    
    $
    5,008Services
    
    
    22,652
    
    
    
    32.0
    %
    
    
    13,511
    
    
    
    23.8
    %
    
    
    9,141Total net revenue
    
    
    70,818
    
    
    
    100.0
    %
    
    
    56,669
    
    
    
    100.0
    %
    
    
    14,149Costs of revenue:Products
    
    
    32,129
    
    
    
    66.7
    %
    
    
    27,395
    
    
    
    63.5
    %
    
    
    4,734Services
    
    
    17,458
    
    
    
    77.1
    %
    
    
    10,352
    
    
    
    76.6
    %
    
    
    7,106Total costs of revenue
    
    
    49,587
    
    
    
    70.0
    %
    
    
    37,747
    
    
    
    66.6
    %
    
    
    11,840Gross profit:Products
    
    
    16,037
    
    
    
    33.3
    %
    
    
    15,763
    
    
    
    36.5
    %
    
    
    274Services
    
    
    5,194
    
    
    
    22.9
    %
    
    
    3,159
    
    
    
    23.4
    %
    
    
    2,035Total gross profit
    
    
    21,231
    
    
    
    30.0
    %
    
    
    18,922
    
    
    
    33.4
    %
    
    
    2,309Operating expenses:Research and development
    
    
    6,104
    
    
    
    8.6
    %
    
    
    7,049
    
    
    
    12.4
    %
    
    
    (945
    )Selling, general and administrative
    
    
    14,588
    
    
    
    20.6
    %
    
    
    14,599
    
    
    
    25.8
    %
    
    
    (11
    )Gain on sale of real property
    
    
    (22
    )
    
    
    0.0
    %
    
    
    (2,958
    )
    
    
    (5.2
    )%
    
    
    2,936Total operating expenses
    
    
    20,670
    
    
    
    29.2
    %
    
    
    18,690
    
    
    
    33.0
    %
    
    
    1,980Income from continuing operations
    
    
    561
    
    
    
    0.8
    %
    
    
    232
    
    
    
    0.4
    %
    
    
    329Non-operating income
    
    
    796
    
    
    
    1.1
    %
    
    
    697
    
    
    
    1.2
    %
    
    
    99Income before income taxes and
discontinued operations
    
    
    1,357
    
    
    
    1.9
    %
    
    
    929
    
    
    
    1.6
    %
    
    
    428(Provision) benefit for income taxes
    
    
    (966
    )
    
    
    (1.4
    )%
    
    
    (456
    )
    
    
    (0.8
    )%
    
    
    (510
    )Income before discontinued operations
    
    
    391
    
    
    
    0.6
    %
    
    
    473
    
    
    
    0.8
    %
    
    
    (82
    )Income (loss) from discontinued operations
    
    
    138
    
    
    
    0.2
    %
    
    
    (127
    )
    
    
    (0.2
    )%
    
    
    265Net income
    
    $
    529
    
    
    
    0.7
    %
    
    
    346
    
    
    
    0.6
    %
    
    $
    183Diluted income per share
    
    $
    0.01
    
    
    
    
    
    
    $
    0.01
    
    
    
    
    
    
    $
    
 23




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##### Table of Contents



Nine Months Ended September 30,% of
    
    
    
    
    
    
    % of
    
    
    Dollar(Amounts in thousands, except per share data)
    
    2007
    
    
    Revenue
    
    
    2006
    
    
    Revenue
    
    
    ChangeNet revenue:Products
    
    $
    144,199
    
    
    
    71.0
    %
    
    $
    141,378
    
    
    
    76.9
    %
    
    $
    2,821Services
    
    
    58,923
    
    
    
    29.0
    %
    
    
    42,404
    
    
    
    23.1
    %
    
    
    16,519Total net revenue
    
    
    203,122
    
    
    
    100.0
    %
    
    
    183,782
    
    
    
    100.0
    %
    
    
    19,340Costs of revenue:Products
    
    
    103,171
    
    
    
    71.5
    %
    
    
    84,245
    
    
    
    59.6
    %
    
    
    18,926Services
    
    
    49,278
    
    
    
    83.6
    %
    
    
    29,701
    
    
    
    70.0
    %
    
    
    19,577Total costs of revenue
    
    
    152,449
    
    
    
    75.1
    %
    
    
    113,946
    
    
    
    62.0
    %
    
    
    38,503Gross profit:Products
    
    
    41,028
    
    
    
    28.5
    %
    
    
    57,133
    
    
    
    40.4
    %
    
    
    (16,105
    )Services
    
    
    9,645
    
    
    
    16.4
    %
    
    
    12,703
    
    
    
    30.0
    %
    
    
    (3,058
    )Total gross profit
    
    
    50,673
    
    
    
    24.9
    %
    
    
    69,836
    
    
    
    38.0
    %
    
    
    (19,163
    )Operating expenses:Research and development
    
    
    21,541
    
    
    
    10.6
    %
    
    
    19,547
    
    
    
    10.6
    %
    
    
    1,994Selling, general and administrative
    
    
    42,115
    
    
    
    20.7
    %
    
    
    45,696
    
    
    
    24.9
    %
    
    
    (3,581
    )Gain on sale of real property
    
    
    (3,796
    )
    
    
    (1.9
    )%
    
    
    (2,958
    )
    
    
    (1.6
    )%
    
    
    (838
    )Total operating expenses
    
    
    59,860
    
    
    
    29.5
    %
    
    
    62,285
    
    
    
    33.9
    %
    
    
    (2,425
    )Income (loss) from continuing operations
    
    
    (9,187
    )
    
    
    (4.5
    )%
    
    
    7,551
    
    
    
    4.1
    %
    
    
    (16,738
    )Non-operating income
    
    
    1,396
    
    
    
    0.7
    %
    
    
    1,848
    
    
    
    1.0
    %
    
    
    (452
    )Income (loss) before income taxes and
discontinued operations
    
    
    (7,791
    )
    
    
    (3.8
    )%
    
    
    9,399
    
    
    
    5.1
    %
    
    
    (17,190
    )Provision for income taxes
    
    
    (737
    )
    
    
    (0.4
    )%
    
    
    (1,928
    )
    
    
    (1.0
    )%
    
    
    1,191Income (loss) before discontinued operations
    
    
    (8,528
    )
    
    
    (4.2
    )%
    
    
    7,471
    
    
    
    4.1
    %
    
    
    (15,999
    )Income (loss) from discontinued operations
    
    
    789
    
    
    
    0.4
    %
    
    
    2,241
    
    
    
    1.2
    %
    
    
    (1,452
    )Net income (loss)
    
    $
    (7,739
    )
    
    
    (3.8
    )%
    
    $
    9,712
    
    
    
    5.3
    %
    
    $
    (17,451
    )Diluted income (loss) per share
    
    $
    (0.15
    )
    
    
    
    
    
    $
    0.18
    
    
    
    
    
    
    $
    (0.33
    )
 Net
Revenue
   24




---



##### Table of Contents



Costs
of Revenue and Gross Profit
  25




---



##### Table of Contents



Operating
Expenses
  26




---



##### Table of Contents



Non-Operating
Income
  Provision
for Income Taxes
   27




---



##### Table of Contents



Income
from Discontinued Operations
  Segment
Information
     28




---



##### Table of Contents



Three Months Ended September 30,Dollar2007
    
    
    % of Revenue
    
    
    2006
    
    
    % of Revenue
    
    
    ChangeNet revenues:Americas
    
    $
    39,218
    
    
    
    55.4
    %
    
    $
    33,345
    
    
    
    58.8
    %
    
    $
    5,873EMEA
    
    
    17,581
    
    
    
    24.8
    %
    
    
    14,375
    
    
    
    25.4
    %
    
    
    3,206Asia-Pacific
    
    
    14,019
    
    
    
    19.8
    %
    
    
    8,949
    
    
    
    15.8
    %
    
    
    5,070Total net revenues
    
    $
    70,818
    
    
    
    100.0
    %
    
    $
    56,669
    
    
    
    100.0
    %
    
    $
    14,149Operating income:Americas
    
    $
    4,393
    
    
    
    6.2
    %
    
    $
    5,564
    
    
    
    9.8
    %
    
    $
    (1,171
    )EMEA
    
    
    4,392
    
    
    
    6.2
    %
    
    
    1,200
    
    
    
    2.1
    %
    
    
    3,192Asia-Pacific
    
    
    3,006
    
    
    
    4.2
    %
    
    
    1,558
    
    
    
    2.7
    %
    
    
    1,448Shared Cost Centers
    
    
    (11,230
    )
    
    
    (15.9
    )%
    
    
    (8,090
    )
    
    
    (14.3
    )%
    
    
    (3,140
    )Total operating income
    
    $
    561
    
    
    
    0.8
    %
    
    $
    232
    
    
    
    0.4
    %
    
    $
    329
 Nine Months Ended September 30,Dollar2007
    
    
    % of Revenue
    
    
    2006
    
    
    % of Revenue
    
    
    ChangeNet revenues:Americas
    
    $
    108,022
    
    
    
    53.2
    %
    
    $
    107,553
    
    
    
    58.5
    %
    
    $
    469EMEA
    
    
    56,962
    
    
    
    28.0
    %
    
    
    48,386
    
    
    
    26.3
    %
    
    
    8,576Asia-Pacific
    
    
    38,138
    
    
    
    18.8
    %
    
    
    27,843
    
    
    
    15.2
    %
    
    
    10,295Total net revenues
    
    $
    203,122
    
    
    
    100.0
    %
    
    $
    183,782
    
    
    
    100.0
    %
    
    $
    19,340Operating income:Americas
    
    $
    4,732
    
    
    
    2.3
    %
    
    $
    23,359
    
    
    
    12.7
    %
    
    $
    (18,627
    )EMEA
    
    
    9,281
    
    
    
    4.6
    %
    
    
    7,826
    
    
    
    4.3
    %
    
    
    1,455Asia-Pacific
    
    
    6,635
    
    
    
    3.3
    %
    
    
    9,070
    
    
    
    4.9
    %
    
    
    (2,435
    )Shared Cost Centers
    
    
    (29,835
    )
    
    
    (14.7
    )%
    
    
    (32,704
    )
    
    
    (17.8
    )%
    
    
    2,869Total
operating income (loss)
    
    $
    (9,187
    )
    
    
    (4.5
    )%
    
    $
    7,551
    
    
    
    4.1
    %
    
    $
    (16,738
    )
   29




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##### Table of Contents



Cash
Flows, Liquidity and Capital Resources
  Cash
Flows
   30




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##### Table of Contents



Liquidity
and Capital Resources
 Contractual
Obligations
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
     31




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation
of Disclosure Controls and Procedures
   Changes
in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  Hypercom Corporation vs. Omron Corporation (United States District Court for the District of
Arizona, Civil Action No. 04-CV-0400-PHX-PGR, filed on
February 25, 2004)
  32




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##### Table of Contents



Brazil
Central Bank Proceeding
  SPA
Syspatronic AG v. Hypercom Corporation, et al.
  
 Item 1A. Risk Factors.
  
 Item 6. Exhibits.
 Exhibit Number
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of
Hypercom Corporation (incorporated by reference to Exhibit
3.1 to Hypercom Corporations Registration Statement on
Form S-1 (Registration No. 333-35641))3.2
    
    Second Amended and Restated Bylaws of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom
Corporations Current Report on Form 8-K filed on November
6, 2006)10.1
    
    Separation Agreement and General Release, dated July 11,
2007, by and between Hypercom Corporation and William
Keiper (incorporated by reference to Exhibit 10.1 to
Hypercom Corporations Current Report on Form 8-K filed on
July 13, 2007)
 33




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##### Table of Contents



Exhibit Number
    
    Description of Exhibit10.2
    
    Consulting Agreement, dated July 11, 2007, by and between
Hypercom Corporation and William Keiper (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on July 13, 2007)10.3
    
    Amendment to Employment Agreement, dated July 11, 2007, by
and between Hypercom Corporation and Philippe Tartavull
(incorporated by reference to Exhibit 10.3 to Hypercom
Corporations Current Report on Form 8-K filed on July 13,
2007)10.4
    
    Amended and Restated Employment Agreement, dated July 11,
2007, by and between Hypercom Corporation and Thomas
Liguori (incorporated by reference to Exhibit 10.4 to
Hypercom Corporations Current Report on Form 8-K filed on
July 13, 2007)10.5
    
    Separation Agreement, dated July 31, 2007, by and between
Hypercom Corporation and Neil P. Hudd (incorporated by
reference to Exhibit 10.1 to Hypercom Corporations Current
Report on Form 8-K filed on August 6, 2007)10.6
    
    Consulting Agreement, dated October 1, 2007, by and between
Hypercom Corporation and Neil P. Hudd (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on August 6, 2007)10.7
    
    Severance Agreement, dated August 8, 2007, by and between
Hypercom Corporation and O.B. Rawls IV (incorporated by
reference to Exhibit 10.1 to Hypercom Corporations Current
Report on Form 8-K filed on August 10, 2007)10.8
    
    Consulting Agreement, dated August 13, 2007, by and between
Hypercom Corporation and O.B. Rawls IV (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on August 10, 2007)31.1
    
    Certification of Chief Operating Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32
    
    Certification of Chief Operating Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 **
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 34




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##### Table of Contents



SIGNATURES
  HYPERCOM CORPORATIONDate: November 9, 2007
    
    By: /s/ Philippe Tartavull

Philippe TartavullPresident and Chief Operating Officer (duly
authorized officer and principal executive
officer)Date: November 9, 2007
    
    By: /s/ Thomas LiguoriThomas LiguoriSenior Vice President and Chief Financial
Officer (principal financial and accounting
officer)
 35




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##### Table of Contents



INDEX
TO EXHIBITS
 Exhibit Number
    
    Description of Exhibit3.1
    
    Amended and Restated Certificate of Incorporation of
Hypercom Corporation (incorporated by reference to Exhibit
3.1 to Hypercom Corporations Registration Statement on
Form S-1 (Registration No. 333-35641))3.2
    
    Second Amended and Restated Bylaws of Hypercom Corporation
(incorporated by reference to Exhibit 3.1 to Hypercom
Corporations Current Report on Form 8-K filed on November
6, 2006)10.1
    
    Separation Agreement and General Release, dated July 11,
2007, by and between Hypercom Corporation and William
Keiper (incorporated by reference to Exhibit 10.1 to
Hypercom Corporations Current Report on Form 8-K filed on
July 13, 2007)10.2
    
    Consulting Agreement, dated July 11, 2007, by and between
Hypercom Corporation and William Keiper (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on July 13, 2007)10.3
    
    Amendment to Employment Agreement, dated July 11, 2007, by
and between Hypercom Corporation and Philippe Tartavull
(incorporated by reference to Exhibit 10.3 to Hypercom
Corporations Current Report on Form 8-K filed on July 13,
2007)10.4
    
    Amended and Restated Employment Agreement, dated July 11,
2007, by and between Hypercom Corporation and Thomas
Liguori (incorporated by reference to Exhibit 10.4 to
Hypercom Corporations Current Report on Form 8-K filed on
July 13, 2007)10.5
    
    Separation Agreement, dated July 31, 2007, by and between
Hypercom Corporation and Neil P. Hudd (incorporated by
reference to Exhibit 10.1 to Hypercom Corporations Current
Report on Form 8-K filed on August 6, 2007)10.6
    
    Consulting Agreement, dated October 1, 2007, by and between
Hypercom Corporation and Neil P. Hudd (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on August 6, 2007)10.7
    
    Severance Agreement, dated August 8, 2007, by and between
Hypercom Corporation and O.B. Rawls IV (incorporated by
reference to Exhibit 10.1 to Hypercom Corporations Current
Report on Form 8-K filed on August 10, 2007)10.8
    
    Consulting Agreement, dated August 13, 2007, by and between
Hypercom Corporation and O.B. Rawls IV (incorporated by
reference to Exhibit 10.2 to Hypercom Corporations Current
Report on Form 8-K filed on August 10, 2007)31.1
    
    Certification of Chief Operating Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *32
    
    Certification of Chief Operating Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 **
 
 *
    
    Filed herewith.**
    
    Furnished herewith. 36