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 business and 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 operates 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 Quarterly 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 "All in One" payment solution (sometimes referred to as "Payment-as-a-service"), our SAIL micro-merchant payment acceptance service, our GlobalBay mobile retailing service, and our services deploying media-related equipment and content such as our V-NET service in taxis and PAYmedia and LiftRetail services deployed at gas station/convenience stores. Additionally, existing service offerings span 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, among others, financial institutions, payment processors, petroleum companies, large retailers, taxi fleets, 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 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 Internet 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, 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.

Mobile phone initiated payments through "mobile wallets" have garnered significant industry attention and with a number of announced pilots recently initiated by many third parties. Mobile wallets allow the consumer to pay for goods and services, while at the same time providing access to value-added services such as instantly redeemable coupons, electronic receipt data, alternative payment schemes, and other applications. A number of different technological implementations are currently being tested, such as NFC, where sensitive cardholder information is stored in a "Secure Element" of the mobile device, 2D barcodes, high-frequency sound, or payment using the payee's name or phone number. As these changes are implemented, the POS infrastructure will need to adapt to new payment systems and processes and provide merchants and consumers with a seamless experience.

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 fiscal year 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, certain countries in 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.

Cardsoft patent litigation

On June 8, 2012, we received an unfavorable jury verdict in a patent infringement litigation captioned Cardsoft, Inc. and Cardsoft (Assignment for the Benefit of Creditors), LLC v. VeriFone Holdings, Inc. et al., in which the jury awarded infringement damages of approximately $15 million based on the jury's determination to apply a $3 per unit royalty on those of our terminals that were subject to the infringement claim. In addition, although the district court has not yet issued judgment in this matter, Cardsoft has filed a motion seeking a future royalty higher than the rate awarded by the jury. See further discussion in Note 13. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. Based on our assessment of probable loss associated with this litigation, including our determination that it is probable the court will award a future royalty of at least $3 per unit for shipments of accused terminals based on the jury's verdict, we have recorded an aggregate contingent loss of approximately $19 million representing estimated probable loss through July 31, 2012. 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 were 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.

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 the desired 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, among other things, 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 shipments and consequently revenues recognized for a particular period.

Fire Loss

In July 2012 a fire occurred in one of our repair and staging facilities in Brazil. As of July 31, 2012 we have recorded an $8.3 million insurance receivable in Prepaid and other current assets in our Condensed Consolidated Balance Sheets, which represents the expected probable recoverable amounts for quantified losses. Although final determination of the losses incurred and the actual insurance coverage under our policies are not yet complete, we expect our losses associated with this event to be substantially covered, and therefore we have recorded no net loss related to the fire during the three months ended July 31, 2012. We do not expect this event to have a material impact on our results of operations or ongoing business operations.

Our Business Acquisitions

During the first half of fiscal year 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 Quarterly 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 were:

•         On November 1, 2011, we completed the acquisition of 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 Global Bay, a
          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.
          The purchase price was approximately €600 million plus payment of
          Point's then 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.

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 ("GAAP").

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 nine months ended July 31, 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 solution, warranty and support services, field deployment, advertising, transaction fees, 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 July 31,                           Nine Months Ended July 31,
                                             Net          %                                        Net           %
                2012          2011         Change      Change        2012           2011         Change       Change
System
solutions    $ 350,230     $ 253,659     $  96,571      38.1 %   $ 1,003,314     $ 714,700     $ 288,614        40.4 %
Services       138,820        63,292        75,528     119.3 %       377,278       178,462       198,816       111.4 %
Total net
revenues     $ 489,050     $ 316,951     $ 172,099      54.3 %   $ 1,380,592     $ 893,162     $ 487,430        54.6 %

Total net revenues for the three months ended July 31, 2012 compared with the three months ended July 31, 2011 increased by $172 million, or 54.3%, and for the nine months ended July 31, 2012 compared with the nine months ended July 31, 2011 increased by $487 million, or 54.6%, due primarily to our expanded global reach and product and service offerings, which were driven partly by net revenue contributions from "acquired businesses" and also by fluctuations in currency rates in certain geographies where we conduct business. "Acquired businesses" and "excluding acquisitions" refers to net revenues from businesses acquired during the past 12 months, as further defined in Definitions of non-GAAP net revenue measures at the end of this Net Revenues section of Management's Discussion and Analysis.

Growth in net revenues by geography with and without the impact of acquired businesses and foreign currency fluctuations for the three and nine months ended July 31, 2012 compared to the three and nine months ended July 31, 2011, respectively, is as follows:

                          For the three months ended July 31, 2012                           For the nine months ended July 31, 2012
                                  compared to July 31, 2011                                         compared to July 31, 2011
                                                                       Organic                                                         Organic
                                                                         net                                                             net
                                                                      revenues                                                         revenues
                             Impact due                     Impact       at                      Impact due    Organic      Impact        at
                                 to        Organic net      due to    constant                       to          net        due to     constant
              Net revenues    acquired       revenues      foreign    currency    Net revenues    acquired     revenues    foreign     currency
                 growth      businesses       growth       currency    growth        growth      businesses     growth     currency     growth
United States
and Canada       13.4 %         4.7 pts       8.7 %         0.2 pts       8.9 %       4.3 %         5.5 pts      (1.2 )%    0.0 pts      (1.2 )%
Europe,
Middle East
and Africa      106.1 %        89.7 pts      16.4 %         7.7 pts      24.1 %     105.9 %        90.6 pts      15.3  %    4.9 pts      20.2  %
Latin America    45.3 %        15.3 pts      30.0 %         9.9 pts      39.9 %      69.8 %        24.4 pts      45.4  %    6.2 pts      51.6  %
Asia             70.5 %        57.3 pts      13.2 %         2.7 pts      15.9 %      81.9 %        67.0 pts      14.9  %    2.3 pts      17.2  %
Total
international    79.8 %        59.3 pts      20.5 %         7.6 pts      28.1 %      90.3 %        64.9 pts      25.4  %    4.9 pts      30.3  %
Total            54.3 %        38.4 pts      15.9 %         4.6 pts      20.5 %      54.6 %        40.4 pts      14.2  %    2.8 pts      17.0  %

During the three and nine months ended July 31, 2012 net revenues included $134 million and $396 million, respectively, of net revenues from businesses acquired during the past 12 months.

Excluding net revenues from businesses acquired in the past 12 months, our year-over-year growth rate was 15.9% for the three month periods and 14.2% for the nine month periods, compared to 54.3% and 54.6%, respectively, including the impact of acquired businesses.

Our year over year growth rate for organic net revenues at constant currency was 20.5% for the three month periods and 17.0% for the nine month periods. Foreign currency had the most significant impact on our Europe and Latin America net revenues due to greater fluctuations in the values of the Euro, British Pound and Brazilian Reais during the fiscal 2012 periods presented.

We expect that growth rates for the remainder of fiscal year 2012 and for fiscal year 2013 will continue to be impacted by our recent acquisitions and foreign currency fluctuations, as well as the mix of our product sales.

The measures of organic net revenues and organic net revenues at constant currency discussed in this Form 10-Q are non-GAAP measures. We define organic net revenues as GAAP net revenues less net revenues from businesses acquired in the past 12 months and less corporate net revenues. We calculate organic net revenues at constant currency by applying a constant currency exchange rate to organic net revenues from one period to another, thereby eliminating the impact of foreign exchange rate fluctuations between the two periods. See Definitions of non-GAAP net revenue measures at the end of this Net Revenues section of Management's Discussion and Analysis for additional information about these non-GAAP measures.

Net revenues product mix

For the three and nine months ended July 31, 2012 System solutions net revenues comprised 71.6% and 72.6% of total net revenues, respectively, compared to 80% for both the three and nine months ended July 31, 2011. The lower proportion of System solutions net revenues 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 increased efforts selling our other service-based solutions.

We expect to see a continued shift towards a higher proportion of Services revenues in the remainder of fiscal year 2012 and fiscal year 2013 due to the acquisition of Point and our continued development and sales of our Services business offerings. We plan to expand the roll out of Point's "All-In-One" payment solution beyond Point's traditional markets and also expect to expand programs, such as continue to deploy media related equipment in taxis and gas pumps, designed to generate advertising and other service fee or rental revenue streams.

System Solutions Net Revenues

System solutions net revenues are summarized in the following table (in
thousands, except percentages):
                        Three Months Ended July 31,                         Nine Months Ended July 31,
                                             Net          %                                     Net          %
. . .