This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties. In some cases, forward-looking statements can be identified by words such as "anticipates," "expects," "believes," "intends," "potential," "continues," "plans," "predicts," and similar terms. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, and management's beliefs and assumptions, and do not reflect the potential impact of any mergers, acquisitions, or other business combinations or divestitures, that have not been completed. Forward-looking statements are not guarantees of future performance and our actual results may differ significantly from the results discussed in the forward-looking statements. Our statements regarding future performance also incorporate our estimates, projections and assumptions concerning the performance of recently acquired businesses, including Electronic Transaction Group Nordic Holding AB which operate the Point International business ("Point"), which we acquired on December 30, 2011, as described in Note 2. Business Combinations in the Notes to Condensed Consolidated Financial Statements of this report on Form 10-Q, including assumptions about the prospects for the acquired businesses' products and markets, the ability to retain customer relationships and key employees, successful integration of key technologies and operations, and the potential for unexpected liabilities. In addition, as we integrate these businesses into our operations, our understanding of the financial and operational performance of the acquired businesses may change. Factors that might cause such differences include, but are not limited to, those discussed in Part I, Item 1A Risk Factors in our 2011 Annual Report on Form 10-K and in Part II, Item 1A Risk Factors of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our consolidated financial statements and related notes included in our 2011 Annual Report on Form 10-K and the Condensed Consolidated Financial Statements and Notes thereto included in Part I, Item I of this Quarterly Report on Form 10-Q. Unless required by law, we expressly disclaim any obligation to update publicly any forward-looking statements, whether as result of new information, future events, or otherwise.
When we use the terms "VeriFone," "we," "us," "the Company," and "our" in this item, we mean VeriFone Systems, Inc., a Delaware corporation, and its consolidated subsidiaries.

Our Business

We are a global leader in secure electronic payment solutions and services. We provide expertise, solutions, and services that add value to the point of sale with merchant-operated, consumer-facing, and self-service payment systems for the financial, retail, hospitality, petroleum, government, transportation, and healthcare vertical markets.

Our system solutions consist of point of sale ("POS") electronic payment devices that run our proprietary and third-party operating systems, security and encryption software, and certified payment software as well as other third-party value-added applications, and that are able to process a wide range of payment types designed to meet the demanding requirements of our direct and indirect customers. We are an industry leader in multi-application payment system deployments and we believe we have the largest selection of certified value-added applications. An increasing number of our electronic payment devices are directly connected to VeriFone operated processing gateways where we integrate traditional payment and non-payment functionality such as couponing, advertising and mobile near field communications ("NFC") based services for our customers.

Services are an increasingly important part of our overall revenue mix. Our offerings include new services such as Point's Payment-as-a-Service offering, our SAIL micro-merchant payment acceptance service and our services deploying media-related equipment in taxis and at gas stations, as well as several existing service offerings spanning different aspects of the payments ecosystem, including equipment repair/maintenance, advertising publishing, gateway processing, remote terminal management, software maintenance, customized application development, helpdesk, customer service, and encryption/tokenization. We also offer our customers support for installed systems, consulting and project management services for system deployment, and customization of integrated software solutions.

Our customers include financial institutions, payment processors, petroleum companies, large retailers, taxi fleets, to a limited extent, merchants, government organizations, healthcare companies, independent sales organizations ("ISO") and advertisers. The functionality of our system solutions includes the capture of electronic payment data, certified transaction security, connectivity, compliance with regulatory standards and the flexibility to execute a variety of payment and nonpayment applications on a single system solution.

We believe that we benefit from a number of competitive advantages gained through our over 30-year history of

success in our industry. These advantages include our globally trusted brand name, large installed base, significant involvement in the development of industry standards, security infrastructure, global operating scale, customizable platforms, and investment in research and development. We believe that these advantages position us well to capitalize on the continuing global shift toward electronic payment transactions.

Our Industry Trends

Our industry's growth continues to be driven by the long-term shift toward electronic payment transactions and away from cash and checks, the rapid penetration of electronic payments in emerging markets as those economies modernize, the potential expansion of EMV Smartcard-based payments into the United States, increasing proliferation of IP connectivity and wireless communication, an increasing focus on security to reduce fraud and identity theft, and a growing emphasis on contactless payments and mobile phone initiated payments based on NFC, as well as unattended self-service kiosks and outdoor payment systems and the merging of marketing capabilities such as advertising and couponing with payment devices. We believe that these trends will continue to drive demand for electronic payment systems.

Internationally, growth rates have generally been higher than in the United States ("US") because of the relatively lower penetration rates of electronic payment transactions in many countries, as well as increasing governmental efforts to modernize economies and to encourage electronic payments as a means of improving collection of value-added tax ("VAT") and sales tax.

Security is a driving factor in our business as our customers endeavor to meet escalating governmental requirements directed toward the prevention of identity theft as well as operating safeguards imposed by the credit and debit card associations, members of which include Visa International ("Visa"), MasterCard Worldwide ("MasterCard"), American Express, Discover Financial Services, and JCB Co., Ltd. In September 2006, these card associations established the Payment Card Industry Security Standards Council ("PCI SSC") to oversee and unify industry standards in the areas of payment card data security, referred to as the PCI standards, which consist of PIN Transaction Security ("PTS"), the PCI Data Security Standard ("PCI-DSS") for enterprise data security, and the Payment Application Data Security Standard ("PA-DSS") for payment application data security. These standards continually evolve to become more stringent and increasingly dependent on complex hardware-based measures to protect all payment related data, not just PIN data as in previous versions of these standards.

Our Operating Segments

We operate in two business segments: North America and International. We define North America as the United States and Canada, and International as all other countries from which we derive revenues. Our reportable segments are the same as our operating segments.

Net revenues and operating income (loss) of each business segment reflect net revenues and expenses that directly benefit only that segment. Corporate net revenues and operating income (loss) generally reflect costs incurred on a company-wide basis and it is impractical to allocate them to either the North America or International segments.

During the past year we completed acquisitions for the purpose of expanding our product and service offerings, as well as expanding our geographic reach. We expect that our two largest acquisitions, Hypercom in August 2011 and Point in December 2011, will significantly increase our International segment revenues and operating results. Additionally, our other acquisitions during the first half of fiscal 2012 are expected to contribute to future North America results through new product and service offerings that we intend to also expand internationally. These acquisitions are discussed further below.

We are experiencing revenue growth in both developed and emerging countries. In developed countries, we experience revenue growth driven mainly by customers upgrading and replacing their systems to address best-practice security in more stable economic conditions. We experience revenue growth in emerging geographies, such as Latin America, especially Brazil, the Middle East and Africa, and Russia, due to factors including growing demand as a result of improvements in economic conditions and efforts to modernize. We expect demand to continue to grow in the remainder of fiscal year 2012, with particular strength in emerging economies. We continue to devote research and development ("R&D") resources to address the market needs of both emerging and developed economies.

We recorded $18 million of loss contingency expense for the three months ended April 30, 2012 as a result of an unfavorable jury verdict issued on June 8, 2012, just prior to the filing of this Form 10-Q, related to an ongoing patent

infringement litigation captioned, Cardsoft, Inc. and Cardsoft (Assignment for the Benefit of Creditors), LLC v. VeriFone Holdings, Inc. et al. Following trial, the jury issued a verdict for damages which was based on a royalty rate of $3 per unit for past U.S. sales of our products accused of infringement. The financial statements included in this report on Form 10-Q have been updated to reflect the June 8, 2012 verdict. In addition, as a result of this verdict, Cardsoft may seek and the court may order a royalty on our future sales of the accused products in the U.S. at the $3 per unit applied by the jury or at such other rate as the court may determine. If the court decides to order a royalty for future periods at a rate of $3 per unit of U.S. sales, we would expect our earnings per diluted share may be negatively impacted by one-half cent per quarter. See further discussion in Note 13. Commitments and Contingencies and Note 17. Subsequent Event in the Notes to Condensed Consolidated Financial Statements included in this report on Form 10-Q.

Our Revenue Timing

Timing of our revenue recognition may cause our revenue to vary from quarter to quarter. Specifically, revenues recognized in our fiscal quarters can be back-end weighted when we receive sales orders and deliver a higher proportion of our System Solutions toward the end of such fiscal quarters. This back-end weighting of orders may adversely affect our results of operations in a number of ways and could negatively impact revenues and profits. First, the product mix of orders may not align with manufacturing forecasts, which could result in a shortage of the components needed for production. Second, existing manufacturing capacity may not be sufficient to deliver a high volume of orders in a concentrated time at quarter-end. Third, back-end weighted demand could negatively impact gross margins through higher labor, delivery and other manufacturing and distribution costs. If, on the other hand, we were to seek to manage the fulfillment of back-end weighted orders through holding increased inventory levels, we would risk higher inventory obsolescence charges if our sales fall short of our expectations.

Because our revenue recognition depends on timing of product shipments, decisions we make about product shipments, particularly toward the end of a fiscal quarter, may impact our reported revenues. The timing of product shipments may depend on a number of factors, including price discussions with our customers, operating costs, including costs of air shipments if required, the delivery date requested by customers and our operating capacity to fill orders and ship products, as well as our own long and short-term business planning. These factors may affect timing of shipment and consequently revenues recognized for a particular period.

Our Business Acquisitions

During the first half of fiscal 2012 we completed several acquisitions of businesses and assets. See Note 2. Business Combinations in the Notes to Condensed Consolidated Financial Statements included in this report on Form 10-Q. The results of operations from each of these acquisitions have been included in our Condensed Consolidated Financial Statements from the date of acquisition. These acquisitions and their respective purchase prices are:

•On November 1, 2011, we completed the acquisition of the business assets and assumed certain liabilities of the Show Media taxi advertising business based in New York City ("Show Media"). The total purchase price for Show Media was $28 million.

•On November 1, 2011, we completed the acquisition of the business assets, and assumed certain liabilities, of the Global Bay mobile point of sale software business ("Global Bay") based in South Plainfield, New Jersey. The total purchase price for Global Bay was $28 million.

•On December 30, 2011 we completed our acquisition of Electronic Transaction Group Nordic Holding AB, a Swedish company operating the Point International business (collectively, "Point"). Point was previously one of our distributors and is Northern Europe's largest provider of payment and gateway services and solutions for retailers. We paid cash consideration of approximately EUR 600 million plus payment of outstanding debt (total purchase price of $1,025 million at the close date.)

•On January 3, 2012, we completed our acquisition of the ChargeSmart (now known as VeriFone Commerce Solutions, Inc.) payments solutions business ("ChargeSmart") based in San Francisco, California. The total purchase price for ChargeSmart was $19 million.

•On March 1, 2012, we completed our acquisition of the Lift Retail Marketing Technology, Inc. digital marketing business ("LIFT") based in Atlanta, Georgia. The total purchase price for LIFT was $6 million.

Our Credit Agreements

On December 28, 2011, our main operating subsidiary, VeriFone, Inc., closed a financing arrangement ("2011 Credit Agreement") from a syndicate of banks led by JP Morgan and including Bank of America Merrill Lynch, Wells Fargo Bank, Barclays Capital and RBC Capital Markets, of which a portion along with existing cash balances, financed the cash consideration to the sellers of Point and refinanced certain existing debt at Point and at the Company. On December 28, 2011, in connection with entering into the 2011 Credit Agreement, we repaid in full all loans outstanding as of that date, together with interest and all other amounts due in connection with such repayment under our 2006 Credit Agreement totaling an aggregate of $217 million and funded a $279 million escrow account to pay the interest and principal of the 1.375% Senior Convertible Notes due June 2012. No penalties were due in connection with such repayments. See Note 5. Financings in the Notes to Condensed Consolidated Financial Statements included in this report on Form 10-Q.

Critical Accounting Policies and Estimates

Management's discussion and analysis of financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact our consolidated financial statements. Our critical accounting policies include our more significant estimates and assumptions used in the preparation of our consolidated financial statements. Our critical accounting policies are described in Item 7. Management's Discussion and Analysis of Financial Condition and results of operations of our Annual Report on Form 10-K.

There were no significant changes to our critical accounting policies during the three and six months ended April 30, 2012.

On an ongoing basis, we evaluate our critical accounting policies and estimates, including those related to revenue recognition, inventory valuation, allowance for doubtful accounts, warranty reserves, contingencies and litigation, income taxes, accounting for goodwill and long-lived assets, stock-based compensation, business combinations and restructuring. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations
Net Revenues

We generate net revenues through the sale of our electronic payment systems and solutions that enable electronic payment transactions, which we identify as System Solutions. Additionally, we generate net revenues through our managed service offerings such as our Point "All-In-One" Payment-as-a-Service solution, warranty and support services, field deployment, advertising, and transaction fees in our taxi media solutions business, installation and upgrade services, and customer-specific application development, which we identify as Services.

Net revenues, which include System Solutions and Services, are summarized in the following table (in thousands, except percentages):

                              Three Months Ended April 30,                          Six Months Ended April 30,
                                                   Net          %                                       Net           %
                      2012          2011         Change       Change       2012          2011         Change       Change
System Solutions   $ 340,443     $ 235,334     $ 105,109       44.7 %   $ 653,084     $ 461,041     $ 192,043        41.7 %
Services             131,575        57,112        74,463      130.4 %     238,458       115,170       123,288       107.0 %
Total Net Revenues $ 472,018     $ 292,446     $ 179,572       61.4 %   $ 891,542     $ 576,211     $ 315,331        54.7 %

Total net revenues for the three months ended April 30, 2012 compared to the three months ended April 30, 2011

increased by $180 million, or 61.4%, due to expanded global reach and product and service offerings. For the three months ended April 30, 2012, net revenue contributions from acquired companies were $144 million, net of Corporate revenues related to the acquired companies.

For the three months ended April 30, 2012 and 2011 System Solutions net revenues comprised 72.1% and 80.5% of total net revenues, respectively. The lower proportion of System Solutions net revenues in the second quarter of fiscal year 2012 compared to the same period in fiscal year 2011 reflects growth in our Services revenues primarily as a result of acquiring the Point business, which has a significant proportion of services business, in addition to our putting more emphasis on the sale of Services within our existing businesses.

Total net revenues for the six months ended April 30, 2012 compared to the six months ended April 30, 2011 increased by $315 million, or 54.7%, due to expanded global reach and product and service offerings. For the six months ended April 30, 2012, net revenue contributions from acquired companies were $250 million, net of Corporate revenues related to the acquired companies.

For the six months ended April 30, 2012 and 2011, Systems Solutions net revenues comprised 73.3% and 80.0% of total net revenues, respectively. The lower proportion of System Solutions net revenue in the six months of fiscal year 2012 compared to the same period in fiscal year 2011 reflects growth in our Services revenues primarily as a result of acquiring the Point business which has a significant proportion of services business, in addition to putting more emphasis on the sale of Services within our existing businesses.

We expect to see a continued shift towards a higher proportion of service revenues in fiscal year 2012 following the acquisition of Point and our continued development and sales of our services business offerings. We expect to expand the roll out of Point's Payment-as-a-Service model beyond Point's traditional markets and also expect to deploy media related equipment in taxis and gas pumps to generate advertising and other service fee or rental revenue streams.

System Solutions Revenues
                           Three Months Ended April 30,                          Six Months Ended April 30,
 (in thousands,
except                                          Net           %                                     Net          %
percentages)       2012          2011         Change       Change       2012         2011         Change       Change
International   $ 258,635     $ 149,497     $ 109,138       73.0  %   500,276     $ 284,320     $ 215,956      76.0  %
North America      85,118        85,836          (718 )     -0.8  %   158,148       176,720       (18,572 )   -10.5  %
Corporate          (3,310 )           1        (3,311 )       nm       (5,340 )           1        (5,341 )      nm
Total           $ 340,443     $ 235,334     $ 105,109       44.7  %   653,084     $ 461,041     $ 192,043      41.7  %

nm - not meaningful

System Solutions net revenues increased due to the growth in our International operations and the acquisition and growth of businesses in new geographies. In addition, economic improvements in certain existing territories and new product launches increased demand. For the three months ended April 30, 2012, System Solutions net revenue contributions from acquired companies were $61 million for Hypercom (which we acquired on August 4, 2011), $19 million for Point (which we acquired on December 30, 2011) and $3 million for other fiscal year 2011 and fiscal year 2012 acquisitions.

For the six months ended April 30, 2012, System Solutions net revenue contributions from acquired companies were $116 million for Hypercom, $24 million for Point and $12 million for other fiscal year 2011 and fiscal year 2012 acquisitions

International System Solutions Net Revenues

International System Solutions net revenues increased $109 million, or 73.0%, for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. On a regional basis, excluding historical sales to companies we have acquired, Europe, Middle East and Africa increased $61 million, Latin America increased $34 million, and Asia increased $20 million. International System Solutions net revenues in the three months ended April 30, 2011 included $6 million of sales to Point that will not recur because they became a wholly owned subsidiary following the closing of our acquisition on December 30, 2011.

International System Solutions net revenues increased $216 million, or 76.0%, for the six months ended April 30, 2012 compared to the six months ended April 30, 2011. On a regional basis, excluding historical sales to companies we have acquired, Europe, Middle East and Africa increased $111 million, Latin America increased $80 million, and Asia increased $34 million. International System Solutions net revenues for the six months ended April 30, 2011 included $9 million of sales to Point.

System Solutions net revenues for Europe, Middle East and Africa increased $55 million or 68.4% including acquisitions and historical sales to companies noted above and increased $5 million, or 6%, excluding acquisitions, for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. The $5 million increase in net revenues excluding acquisitions was primarily due to a $15 million increase in the Middle East and Africa, primarily Nigeria, United Arab Emirates, and South Africa, due to our efforts to expand in the region and demand for electronic payment solutions as this region moves towards a less cash-dominant economy, offset by a $10 million decrease elsewhere in the region primarily due to the timing of orders from customers.

Latin America System Solutions net revenues increased $34 million, or 69.0%, including acquisitions, as noted above, and $26 million, or 53.4%, excluding acquisitions, for the three months ended April 30, 2012 compared to the three months ended April 30, 2011, primarily as a result of increased demand throughout the region driven by continued economic growth and the expansion of the electronic payment card industry.

Asia System Solutions net revenues increased $20 million, or 100.7% including the acquisitions, as noted above, and $6 million, or 30.7%, excluding acquisitions, for the three months ended April 30, 2012 compared to the three months ended April 30, 2011. The increase in net revenues was due to $10 million increased demand as a result of our efforts to develop markets within the region and the timing of the Lunar holiday season which generally reduces demand in China and Greater Asia. In fiscal 2012 the Lunar holiday season fell during our first fiscal quarter, but in fiscal 2011 it fell during our second fiscal quarter. Partially offsetting this were $4 million lower sales in Australia and New Zealand compared to fiscal year 2011 as a result of a compliance driven upgrade cycle that benefited fiscal year 2011 revenues.

For the six months ended April 30, 2012 and 2011, International Systems Solutions net revenues for EMEA increased $102 million, or 69.1%, including the acquisitions and historical sales to companies noted above and increased $15 million, or 9.9%, excluding acquisitions. The $15 million increase in net revenue excluding acquisitions was mainly due to a $26 million increase in the Middle East and Africa, primarily Nigeria, United Arab Emirates, and South Africa, due to our efforts to develop markets within the region and growing demand as the region moves towards a less cash-dominant society, offset by an $11 million decrease elsewhere in the region primarily due to the timing of orders from customers.

Latin America System Solutions net revenues increased $80 million, or 86.9%, . . .