Hypercom Corporation Annual Report - CiteSeer

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Our products revenues relate primarily to the sale of terminals, peripheral devices, and transaction networking devices. Our services revenues are comprised of asset management services, trusted transaction services and payment solutions, as described in Part I to this <strong>Annual</strong> <strong>Report</strong> on Form 10-K. No other type of revenue exceeded 10% of our consolidated net revenues in 2009, 2008 or 2007. 2009 % of Revenue 2008 % of Revenue 2007 % of Revenue Net revenue: Americas $ 123,746 30.4 % $ 160,038 39.3 % $ 158,539 36.5 % NEMEA 102,492 25.2 % 90,104 22.1 % 16,400 3.8 % SEMEA 131,505 32.3 % 133,210 32.7 % 64,984 15.0 % Asia-Pacific 49,160 12.1 % 50,890 12.5 % 49,604 11.4 % Total net revenue $ 406,903 100.0 % $ 434,242 100.0 % $ 289,527 100.0 % Operating income: Americas $ 21,130 5.2 % $ 16,278 3.7 % $ 20,312 7.0 % NEMEA 19,267 4.7 % (6,060 ) (1.4 )% 5,959 2.1 % SEMEA 24,676 6.1 % (8,490 ) (2.0 )% 14,899 5.1 % Asia-Pacific 9,049 2.2 % 4,368 1.0 % 11,386 3.9 % Shared Cost Centers (71,002 ) (17.4 )% (82,808 ) (19.1 )% (63,300 ) (21.9 )% Total operating income (loss) $ 3,120 0.8 % $ (76,712 ) (17.7 )% $ (10,744 ) (3.7 )% Comparison of Years Ended December 31, 2009 and 2008 Net revenues for the Americas were $123.8 million in 2009 compared to $160.0 million in 2008. The $36.3 million reduction in net revenues is principally due to decreases of $18.1 in countertop and $3.4 million in PIN pad products in North America as a result of the retail slowdown in the U.S. and weak global economic environment. The decrease in the Americas net revenues was also attributable to a decrease in services revenues of $17.9 million in Brazil, primarily due to our exit of a marginally profitable service contract with a large customer. These decreases were partially offset an increase of $5.7 million of new products revenues related to our decision in 2009 to resume the sale of products in Brazil. Net revenues for NEMEA were $102.5 million in 2009 compared to $90.1 million in 2008. The $12.4 million increase in net revenues is principally due to incremental revenue not included in the first quarter of 2008 related to our TeT acquisition. This increase was partially offset by lower exchange rates on our revenue denominated in foreign currencies. Net revenues for SEMEA were $131.5 million in 2009 compared to $133.2 million in 2008. The $1.7 million decrease in net revenues is principally due to reductions of $3.0 million in countertop products in Central Eastern Europe, $2.1 million in countertop products in Hungary and $2.5 million in countertop products in Russia. Also, revenue was negatively impacted by lower exchange rates on our revenue denominated in foreign currencies. These reductions were offset by an increase of $5.1 million for mobile products in the U.K and by incremental revenue not included in the first quarter of 2008 related to our TeT acquisition. Net revenues for Asia-Pacific were $49.2 million in 2009 compared to $50.9 million in 2008. The $1.7 million reduction in net revenues is principally due to reductions of $3.1 million of countertop products in Hong Kong and $1.0 million in networking products in China. These were partially offset by increases of $1.6 million and $1.0 million of mobile products in Australia and Hong Kong, respectively. Operating Income Operating income for the Americas was $21.1 million in 2009 compared to $16.3 million in 2008. The $4.9 million increase is primarily due to a $6.4 million write-down of goodwill and intangible assets in 2008, whereas no write-down was required in 2009. This increase was partially offset by a $1.1 million extended warranty sale to a third party that was recognized in 2009. Operating income for NEMEA was $19.3 million in 2009 compared to a loss of $6.1 million in 2008. The $25.3 million increase is primarily due to a $24.4 million write-down of goodwill and intangible assets in 2008, whereas no write-down was required in 2009. Also, 2009 benefited from an $8.7 million increase in revenue in 2009 as well as incremental operating income not included in the first quarter of 2008 related to our TeT acquisition, partially offset by lower foreign exchange rates. Operating income for SEMEA was $24.7 million in 2009 compared to a loss of $8.5 million in 2008. The $33.2 million improvement is primarily due to a $32.4 million write-down of goodwill and intangible assets in 2008, whereas no write-down was required in 2009. Also, 2009 benefited from incremental operating income not included in the first quarter of 2008 related to our TeT acquisition, partially offset by lower foreign exchange rates. - 39 -
Operating income for Asia-Pacific was $9.1 million in 2009 compared to $4.4 million in 2008. The $4.7 million increase is primarily due to a $4.5 million write-down of goodwill and intangible assets in 2008, whereas no write-down was required in 2009. Shared cost center expenses were $71.0 million in 2009 compared to $82.8 million in 2008. The $11.8 million decrease is primarily due to lower integration costs from the TeT acquisition, including reductions of $2.0 million in professional fees and $1.5 million of legal expenses. In addition, as part of our continued effort to reduce costs there were reductions of $0.7 million in global marketing expenses and $2.2 million of lower global research and development professional expenses. Stock-based compensation expense decreased by $1.5 million, primarily due to lower fair value associated with stock options granted in 2009. Comparison of Years Ended December 31, 2008 and 2007 Net Revenues The Americas net revenues increased in 2008 compared to 2007, principally as a result of increases in countertop and multilane products in North America and increases in services revenues in Brazil. Offsetting these increases were declines in countertop revenue in Brazil, as we discontinued local manufacturing and sales activities in the third quarter of 2007, as well as a collection of $4.6 million from a past service contract that had been previously written off during 2007. This did not re-occur in 2008. NEMEA and SEMEA net revenues increased due to the acquisition of TeT during the year. Operating Income The Americas operating income increased in 2008 compared to 2007, principally as a result of increased product sales activity in North America and services revenues in Brazil. In addition, 2007 was negatively impacted by increased inventory reserves related to excess non-compliant PCI inventory. NEMEA and SEMEA operating profit increased in 2008 compared to 2007, principally as a result the acquisition of TeT during the year, which was more than offset by the write-down of goodwill and intangible assets within these regions. Asia-Pacific operating income decreased in 2008 compared to 2007, principally as a result of the sales mix and declines in our Australian service margins. In addition, the operating income decreased due to the write-down of goodwill within this region. Shared cost center expenses increased in 2008 compared to 2007, principally as a result of an increase in costs incurred for due diligence and acquisition related expenses of $8.3 million and global research and development of $4.7 million related to our acquisition of TeT, and stock-based compensation of $1.6 million offset by decreases in operations management of $4.6 million as a result of our transition to third-party contract manufacturing during 2008. Liquidity and Capital Resources We have historically financed our operations primarily through cash generated from operations and occasionally from borrowings under a line of credit or other debt facilities. During 2009, our primary source of cash was cash generated by our operating activities. Our ability to service our long-term debt, to remain in compliance with the various restrictions and covenants contained in our debt agreements, and to fund working capital, capital expenditures and business development efforts, will depend on our ability to generate cash from operating activities, which in turn is subject to, among other things, future operating performance, as well as general economic, financial, competitive, legislative, regulatory and other conditions, some of which may be beyond our control. We have available to us, upon compliance with certain conditions, a revolving credit facility, less any letters of credit outstanding under the sub-line of the revolving credit facility. Availability under our revolving credit facility for cash and outstanding letters of credit was $14.9 million as of December 31, 2009, after deducting outstanding letters of credit of $3.1 million under this revolving line of credit at December 31, 2009. Cash flows from operating activities Cash provided by operating activities is comprised of net income (loss) from continuing operations adjusted for non-cash items and changes in operating assets and liabilities. Cash provided by continuing operating activities totaled $30.6 million for 2009, compared to cash provided by operating activities of $22.2 million for 2008, a year-over-year increase of $8.3 million. The increase in cash provided by operations is principally related to changes in operating assets and liabilities and a reduction in our net loss before discontinued operations from $84.9 million in 2009 to $5.9 million in 2008. - 40 -
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Hypercom Corporation Annual Report
Page 4 and 5:
i. to our StoCkhoLderS, CuStomerS,
Page 6 and 7: iii. 2009 highLightS January - Febr
Page 8 and 9: v. iphone SeCure paymentS SoLutionS
Page 10 and 11: vii. SmartpaymentS wynid Server-baS
Page 12 and 13: iX. hyperCom Corporation End-to-End
Page 14 and 15: (This Page Left Blank Intentionally
Page 16 and 17: Yes � No � Indicate by check ma
Page 18 and 19: CAUTIONARY STATEMENT REGARDING FORW
Page 20 and 21: On April 1, 2008, we acquired all o
Page 22 and 23: solution against payment card fraud
Page 24 and 25: aggressively transitioning into the
Page 26 and 27: Trusted Transaction Services — Ou
Page 28 and 29: and biometric authentication and en
Page 30 and 31: Proprietary Rights We rely upon pat
Page 32 and 33: • the type, timing and size of or
Page 34 and 35: affecting our business. However, if
Page 36 and 37: Furthermore, we utilize contract ma
Page 38 and 39: economic climate, the credit market
Page 40 and 41: Our failure to properly comply with
Page 42 and 43: espect of the related indebtedness.
Page 44 and 45: Lisa Shipley v. Hypercom Corporatio
Page 46 and 47: (e) In September 2006, we completed
Page 48 and 49: of our stock grants and only recogn
Page 50 and 51: In 2009, we incurred employee sever
Page 52 and 53: Costs of Revenue and Gross Profit C
Page 54 and 55: Net Revenues Net revenues increased
Page 58 and 59: Changes in operating assets and lia
Page 60 and 61: significantly impacted by a 100 bas
Page 62 and 63: Report of Independent Registered Pu
Page 64 and 65: Item 13. Certain Relationships and
Page 66 and 67: REPORT OF INDEPENDENT REGISTERED PU
Page 68 and 69: HYPERCOM CORPORATION CONSOLIDATED S
Page 70 and 71: HYPERCOM CORPORATION CONSOLIDATED S
Page 72 and 73: Allowance for Doubtful Accounts Pay
Page 74 and 75: Revenue Recognition Revenue is reco
Page 76 and 77: The Company does not provide for fe
Page 78 and 79: The purchase price consisted of the
Page 80 and 81: and assuming no subsequent impairme
Page 82 and 83: Of the $2.9 million of costs incurr
Page 84 and 85: 7. Leases Sales-Type Leases The Com
Page 86 and 87: 12. Product Warranty Liability The
Page 88 and 89: Long-term debt, which approximates
Page 90 and 91: the issuance of non-qualified stock
Page 92 and 93: 17. Income Taxes Loss before income
Page 94 and 95: enefit obligations as of December 3
Page 96 and 97: In determining the asset allocation
Page 98 and 99: The Company’s cash and cash equiv
Page 100 and 101: The Company’s depreciation and am
Page 102 and 103: First Second Third Fourth Fiscal Qu
Page 104 and 105: EXHIBIT INDEX Exhibit Number Descri
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Exhibit Number Description of Exhib
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I, Thomas B. Sabol, certify that: C
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(This Page Left Blank Intentionally
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NOTES HYPERCOM CORPORATION
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Xi. StoCk perFormanCe Chart The fol
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World Headquarters: hypercom Corpor
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