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Subject: 4th Qtr and Full 2004 Financial Details Date: 3/3/2005 7:53 PM
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Hypercom Corporation Announces Fourth Quarter and Full Year 2004 Financial Results

3 March 2005, 07:30am ET

Highlights:

* Fourth quarter 2004 revenue of $79.7 million exceeds same quarter of
prior year revenue of $63.4 by $16.3 million (+25.7%). Income before
discontinued operations of $4.5 million, $0.08 per diluted share,
exceeds comparable period prior year figures of $2.8 million, or
$0.05 per diluted share.

* Full year 2004 revenue of $255.2 million exceeds prior year revenue
of $231.5 million by $23.7 million (+10.2%). Full year loss before
discontinued operations of $8.7 million, -$0.17 per diluted share,
is down from the prior year income before discontinued operations
of $4.0 million, or $0.08 per diluted share. Current year results
include a previously disclosed 2nd quarter reserve (net of subsequent
recoveries) of $11.3 million related to the uncertainty of future
payments from the Brazilian Health Ministry.

* Full year 2004 results also reflect the restatement of interim period
financial statements for the accounting reclassification of certain
leases from sales-type to operating leases. As a result, revenue and
income before discontinued operations were reduced by $2.9 million, and
$2.2 million, respectively.

* As previously disclosed, the significant internal control deficiency
that caused the recent accounting reclassification of certain leases
from sales-type to operating leases and gave rise to a restatement of
2004 interim period financial statements, represents a material
weakness in internal controls over financial reporting as defined by
PCAOB's Auditing Standard No. 2.

* Management concludes that significant internal control deficiencies
related to year-end audit and Sarbanes-Oxley compliance testing
indicates an additional material weakness in internal controls over
financial reporting. The Company's independent auditors, Ernst & Young
LLP, are expected to issue an adverse opinion with respect to internal
controls over financial reporting.

PHOENIX, March 3 /PRNewswire-FirstCall/ -- Hypercom Corporation (NYSE:HYC) a leading global supplier of electronic payment solutions, today announced financial results for the three months and fiscal year ended December 31, 2004.

Fourth Quarter 2004

The Company reported fourth quarter revenue of $79.7 million, up 25.7% from $63.4 million in the same quarter last year. The increase in revenue is attributable to strong POS terminal sales within the multi-lane and quick service restaurant market segments.

Gross profit for the quarter was $31.8 million versus $26.9 million last year. The incremental profit generated on higher current year revenue was offset, in part, by a lower gross margin percentage, 39.8% versus 42.4%. The year over year decline in margin is primarily attributable to lower profit margins on high volume terminal sales in both the multi-lane and quick service restaurant segments, as well as incremental shipments under the terms of a significant customer agreement. As cited in previous announcements, the Company is in the process of cost reducing its 32-bit terminal product line to sustain competitive pricing at desired margin levels.

Year over year, fourth quarter operating expenses increased $5.4 million to $26.3 million. The increase primarily reflects incremental costs related to Sarbanes-Oxley compliance efforts and year end audit fees not incurred in the prior year, incremental R&D costs related to new product releases and certifications, and variable selling expense as a function of increased sales volume. Current quarter selling expense benefited from a $1.4 million recovery from the Brazilian Health Ministry.

The Company achieved fourth quarter income before discontinued operations of $4.5 million (inclusive of the aforementioned $1.4 million recovery from the Brazilian Health Ministry), or $0.08 per diluted share, compared to $2.8 million, or $0.05 per diluted share for the prior year.

"For 2004, the results of operations were disappointing, largely due to the reserve resulting from the Brazilian Health Ministry contract. However, the fourth quarter was a stepping-stone to future success. We continued our successful roll out of the new Optimum product family, including the L4100 for the multi-lane customers, the T2100 for low cost markets, and the T4100 for our traditional stand-alone merchants, in fourth quarter. We will expand the Optimum product line in 2005 with significant product extensions to drive future growth. The Company will use this foundation to focus on incremental revenues and cost management to leverage the existing operating structure and produce improved bottom line results in 2005," stated Chairman and CEO Chris Alexander.

Full Year 2004

Full year revenue of $255.2 million compares favorably to revenue of $231.5 million in 2003, up 10.2%.

The current year gross margin percentage of 36.1% is less than the 41.5% reported last year as a consequence of several factors including: the impact of the 2nd quarter $11.3 million reserve for the Brazilian Health Ministry (-440 basis points), the accounting reclassification of certain leases originated in the first three quarters of 2004 from sales-type to operating leases (-$2.0 million gross profit, -40 basis points), and the higher volume, lower margin product mix change noted above.

For full year 2004, operating expenses increased $10.5 million to $93.5 million (36.6% of revenue) versus $83.0 million (35.8% of revenue) in 2003. R&D spending increased $3.0 million to $27.2 million (10.7% of revenue) for new product development, certifications, and releases. Selling, general, and administrative expenses increased $7.5 million to $66.3 million (26.0% of revenue) on higher sales volume and costs related to Sarbanes-Oxley compliance and year-end audit.

The Company realized a current year loss before discontinued operation of $8.7 million (-$0.17 per share) versus prior year income before discontinued operations of $4.0 million ($0.08 per share). Again, the current year result was reduced by the remaining $11.3 million (-$0.21 per share) 2nd quarter reserve related to the Brazilian Health Ministry and the accounting reclassification of certain sales-type leases (-2.2 million or -$0.04 per share).

The Company continues to maintain a strong balance sheet, as cash and short-term investment balances increased to $93.4 million at December 31, 2004, compared to $91.9 million at September 30, 2004, and $82.8 million at December 31, 2003. Concurrently, the Company continues to reduce its long- term debt, primarily comprised of building mortgage financing, from $9.0 million at September 30, 2004 to $8.8 million at December 31, 2004.

The Company closed the quarter with a sales backlog of $35.4 million versus $49.5 million, as of September 30, 2004, and $57.0 million as of December 31, 2003. Backlog includes those orders to be delivered within the following twelve months and fluctuates seasonally, as well as with the timing of new annual contracts with significant customers. The backlog is predominately related to contracts with North American customers and the Company has seen a change in order patterns, such that most sales contracts are now signed and fulfilled within the same quarter. Accordingly, the current backlog is not necessarily a strong indicator of short-term revenue.

Restatement and Internal Controls

On February 4, 2005, the Company announced in a press release that it will restate its financial statements for each of the first three quarters of 2004 following management's determination that certain leases originated during the nine months ended September 30, 2004 by the Company's UK subsidiary, Hypercom EMEA, Inc., were incorrectly accounted for as sales-type leases, rather than operating leases. In connection with the restatement, the Company determined that the internal control deficiency that gave rise to the restatement represents a material weakness as defined by the PCAOB's Auditing Standard No. 2. Consequently management will be unable to conclude that the Company's internal controls over financial reporting were effective as of December 31, 2004, and the Company's independent auditors, Ernst & Young LLP, are expected to issue an adverse opinion with respect to the Company's internal controls over financial reporting. Additionally, as a result of year-end audit procedures and the Company's efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002, our independent auditors identified a number of significant deficiencies with respect to our analysis, evaluation, and review of financial information. Although none of these significant deficiencies in internal control over financial reporting individually are a material weakness in internal controls, in the aggregate, management believes the significant deficiencies constitute a material weakness. The significant deficiencies giving rise to this material weakness consist of:


* an inappropriate level of review of certain significant financial
statement accounts requiring a higher degree of judgment and estimates;

* insufficient analysis, documentation, review, and oversight of the
financial statements of certain foreign subsidiaries during
consolidation;

* insufficient staffing of the accounting and financial reporting
function. The finance and accounting function requires additional
personnel to identify and address the application of recent accounting
literature and internal control activities.

These significant deficiencies did not require any additional restatement of previously issued financial statements. The Company is devoting appropriate resources to address all these deficiencies in its internal controls and provide corrective action on a timely basis. However, we presently do not believe that we will be able to fully remediate by the end of the first quarter of fiscal 2005 and presently anticipate that we will report in our quarterly report on Form 10-Q for the first quarter of 2005 that a material weakness in internal control over financial reporting continues to exist.

"The prior period restatement and the cited existing significant deficiencies in internal controls over financial reporting are both regrettable and unacceptable. As noted above, the Company is fully committed to expediting remedial actions to ensure the quality and integrity of our financial statements," stated Chairman and CEO Alexander.

Operational Highlights

During the quarter, the Company announced several new initiatives and collaborations related to its products including:


* Introduction of a high-performance, contactless version of the L4100
multi-application, signature capture payment terminal for multi-lane
retail chains including retail and grocery

* Selection by Visa to join the "Smart Breakthrough Acceptance Device"
program, aimed at facilitating and accelerating worldwide EMV
migration, on the basis of technology that includes features conforming
to global EMV standards, customer focus, and a worldwide presence

* A $4 million terminal contract with European processor euroConex to
lead the changeover of terminals in Ireland from magstripe/signature
to chip/PIN technology

* Announced the Company's largest order ever in the Middle East market
with its distributor Alhamrani Universal for ICE 5500Plus terminals
to be delivered to some of Saudi Arabia's largest banks

Hypercom's conference call to discuss the financial results for the period ended December 31, 2004, will be held on Thursday, March 3, 2005, at 8:30 a.m. EST (6:30 a.m. Phoenix time). The dial-in number is 1-888-550-9982 for North American callers and +1-484-630-2626 for international callers. For access to this call, participants will be required to identify the call host, Scott Tsujita, and the access code, "Earnings."

A replay of the call will be available approximately one hour after the conclusion of the live call and will remain available until Thursday, March 17, 2005. The replay number for North America is 1-888-566-0435. The replay number for international callers is +1-402-998-0605. No access code is required.

The conference call will be simultaneously webcast at Hypercom's Web site, www.hypercom.com and will also be available after the call has concluded in the investor relations section under "audio.archive".

About Hypercom ( www.hypercom.com )

Observing 26 years of technological excellence, innovation, and leadership, Hypercom is a leading global provider of electronic payment solutions that add value at point-of-sale transactions for consumers, merchants, and acquirers, and yield increased profitability for its customers.

Widely recognized as the payment technology innovator, Hypercom delivers comprehensive card payment terminals, network and server solutions that help merchants and financial institutions generate revenues and increased profits.

Headquartered in Phoenix, Arizona, Hypercom's card payment terminal, network, and server solutions are leading the transformation of electronic payments in more than 100 countries.

Forward-Looking Statements

This press release includes statements that may constitute forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among other things, statements regarding Hypercom's anticipated financial performance, projections regarding future revenue, operating profits, net income, cash flows, losses from discontinued operations and the performance and market acceptance of new products. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results. Readers are referred to documents filed by Hypercom with the Securities and Exchange Commission, specifically the most recent reports on Forms 10-K, 10-Q, and 8-K, each as it may be amended from time to time, which identify important risk factors that could cause actual results to differ from those contained in the forward- looking statements.

Among the important factors or risks that could cause actual results to differ from those contained in the forward-looking statements in this press release are: the state of the competition in the payments processing industry in general; the commercial feasibility of new products, services, and market development initiatives; risks relating to the introduction of new products; projections regarding specific demand for our products and services; projections regarding future revenues, cost of sales, operating expenses, margins, cash flows, earnings, working capital and liquidity; the adequacy of our current facilities and management systems infrastructure to meet our operational needs; the status of our relationship with and condition of third parties upon whom we rely in the conduct of our business; the challenges presented by conducting business on an international basis; the sufficiency of our reserves for assets and obligations exposed to revaluation; our ability to identify and complete acquisitions and strategic investments and successfully integrate them into our business; our ability to effectively hedge our exposure to foreign currency exchange rate fluctuations; risks related to our indebtedness and compliance with restrictions and financial covenants in our loan agreements; risks associated with utilization of contract manufacturers of our products; industry and general economic conditions; and future access to capital on terms that are acceptable, as well as assumptions related to the foregoing.

The financial information contained in this press release should be read in conjunction with the consolidated financial statements and notes thereto included in Hypercom's most recent reports on Form 10-K and 10-Q, each as it may be amended from time to time. Hypercom's results of operations for the three months and fiscal year ended December 31, 2004 are not necessarily indicative of Hypercom's operating results for any future periods. Any projections in this press release are based on limited information currently available to Hypercom, which is subject to change. Although any such projections and the factors influencing them will likely change, Hypercom will not necessarily update the information, since Hypercom will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

The Company does not endorse any projections regarding future performance that may be made by third parties. HYCF

Hypercom is a registered trademark of Hypercom Corporation. Optimum and Design is a trademark of Hypercom Corporation.



For further information please contact: John W. Smolak, EVP CFO & Chief Administrative Officer, +1-602-504-4750, jsmolak@hypercom.com , or Scott M. Tsujita, SVP Finance, Treasury & Investor Relations, +1-602-504-5161, stsujita@hypercom.com , both of Hypercom Corporation.


HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)

Three Months Ended December 31,
----------------------------------------
Actual Non-GAAP Non-GAAP
2004 Adjustment 2004 2003
------- ------- ------- -------
Net revenue $79,703 $-- $79,703 $63,414
Costs of revenue 47,953 -- 47,953 36,528
------- ------- ------- -------
Gross profit 31,750 -- 31,750 26,886
------- ------- ------- -------
Operating expenses:
Research and development 7,282 -- 7,282 6,244
Selling, general and
administrative 19,053 1,385 20,438 14,722
------- ------- ------- -------
Total operating expenses 26,335 1,385 27,720 20,966
------- ------- ------- -------
Income from continuing
operations 5,415 (1,385) 4,030 5,920

Interest income 415 -- 415 171
Interest expense (84) -- (84) (691)
Other expense (6) -- (6) (23)
Foreign currency loss (655) -- (655) (891)
------- ------- ------- -------
Income before income
taxes and discontinued
operations 5,085 (1,385) 3,700 4,486

Provision for income taxes (557) -- (557) (1,734)
------- ------- ------- -------
Income before
discontinued operations 4,528 (1,385) 3,143 2,752

Income from discontinued
operations (including
$6.1 million gain on
disposal in 2003) -- -- -- 5,991
------- ------- ------- -------
Net income $4,528 $(1,385) $3,143 $8,743
======= ======= ======= =======
Basic income per share:
Income before discontinued
operations $0.09 $(0.03) $0.06 $0.06
Income from discontinued
operations -- -- -- 0.12
------- ------- ------- -------
Basic income per share $0.09 $(0.03) $0.06 $0.18
======= ======= ======= =======
Diluted income per share:
Income before discontinued
operations $0.08 $(0.03) $0.06 $0.05
Income from discontinued
operations -- -- -- 0.12
------- ------- ------- -------
Diluted income per share $0.08 $(0.03) $0.06 $0.17
======= ======= ======= =======
Adjusted EBITDA:
Continuing operations $8,873 $(1,385) $7,488 $8,019
Discontinued operations -- -- -- 5,991
------- ------- ------- -------
Adjusted EBITDA $8,873 $(1,385) $7,488 $14,010
======= ======= ======= =======
Adjusted EBITDA per share
- basic:
Continuing operations $0.17 $(0.03) $0.14 $0.16
Discontinued operations -- -- -- 0.12
------- ------- ------- -------
Adjusted EBITDA per
share - basic $0.17 $(0.03) $0.14 $0.28
======= ======= ======= =======
Adjusted EBITDA per share
- diluted:
Continuing operations $0.17 $(0.03) $0.14 $0.15
Discontinued operations -- -- -- 0.12
------- ------- ------- -------
Adjusted EBITDA per
share - diluted $0.17 $(0.03) $0.14 $0.27
======= ======= ======= =======
Weighted average common
shares - basic 51,805 51,805 51,805 49,874
Weighted average common
shares - diluted 53,508 53,508 53,508 51,444



HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)

Twelve Months Ended December 31,
---------------------------------------------
Actual Non-GAAP Non-GAAP
2004 Adjustment 2004 2003
----------- ----------- ----------- --------
(unaudited) (unaudited) (unaudited)

Net revenue $255,155 $-- $255,155 $231,514
Costs of revenue 151,754 -- 151,754 135,484
Provision for deferred
contract costs 11,305 (11,305) -- --
-------- -------- -------- --------
Gross profit 92,096 11,305 103,401 96,030
-------- -------- -------- --------
Operating expenses:
Research and
development 27,188 -- 27,188 24,163
Selling, general and
administrative 66,313 -- 66,313 58,832
-------- -------- -------- --------
Total operating
expenses 93,501 -- 93,501 82,995
-------- -------- -------- --------
Income (loss) from
continuing
operations (1,405) 11,305 9,900 13,035

Interest income 1,198 -- 1,198 382
Interest expense (1,412) -- (1,412) (2,474)
Other income (expense) 13 -- 13 (113)
Foreign currency loss (3,223) -- (3,223) (2,751)
-------- -------- -------- --------
Income (loss) before
income taxes and
discontinued
operations (4,829) 11,305 6,476 8,079

Provision for
income taxes (3,833) -- (3,833) (4,114)
-------- -------- -------- --------
Income (loss) before
discontinued
operations (8,662) 11,305 2,643 3,965

Income from discontinued
operations (including
$3.8 million gain on
disposal in 2003) -- -- -- 7,233
-------- -------- -------- --------
Net income (loss) $(8,662) $11,305 $2,643 $11,198
======== ======== ======== ========
Basic income (loss)
per share:
Income (loss) before
discontinued
operations $(0.17) $0.22 $0.05 $0.08
Income from
discontinued
operations -- -- -- 0.15
-------- -------- -------- --------
Basic income (loss)
per share $(0.17) $0.22 $0.05 $0.23
======== ======== ======== ========
Diluted income (loss)
per share:
Income (loss) before
discontinued
operations $(0.17) $0.21 $0.05 $0.08
Income from
discontinued
operations -- -- -- 0.14
-------- -------- -------- --------
Diluted income
(loss) per share $(0.17) $0.21 $0.05 $0.22
======== ======== ======== ========
Adjusted EBITDA:
Continuing operations $8,550 $11,305 $19,855 $21,805
Discontinued operations -- -- -- 10,698
-------- -------- -------- --------
Adjusted EBITDA $8,550 $11,305 $19,855 $32,503
======== ======== ======== ========
Adjusted EBITDA
per share - basic:
Continuing operations $0.17 $0.22 $0.39 $0.44
Discontinued operations -- -- -- 0.22
-------- -------- -------- --------
Adjusted EBITDA
per share - basic $0.17 $0.22 $0.39 $0.66
======== ======== ======== ========
Adjusted EBITDA
per share - diluted:
Continuing operations $0.16 $0.21 $0.37 $0.44
Discontinued operations -- -- -- 0.21
-------- -------- -------- --------
Adjusted EBITDA
per share - diluted $0.16 $0.21 $0.37 $0.65
======== ======== ======== ========
Weighted average
common shares - basic 51,252 51,252 51,252 49,146
Weighted average
common shares - diluted 53,497 53,497 53,497 50,351



HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)

Quarter Ended
------------------------------------------ Year Ended
March 31, June 30, Sept. 30, Dec. 31, Dec. 31,
2004 2004 2004 2004 2004
--------- --------- --------- --------- ---------
Restated Restated Restated

Net revenue $49,642 $63,059 $62,751 $79,703 $255,155
Costs of revenue 29,144 36,205 38,452 47,953 151,754
Provision for
deferred contract
costs -- 11,305 -- -- 11,305
------- ------- ------- ------- -------
Gross profit 20,498 15,549 24,299 31,750 92,096
------- ------- ------- ------- -------

Operating Expenses:
Research and
development 6,825 6,444 6,637 7,282 27,188
Selling, general
and
administrative 14,885 16,962 15,413 19,053 66,313
------- ------- ------- ------- -------
Total operating
expenses 21,710 23,406 22,050 26,335 93,501
------- ------- ------- ------- -------
Income (loss)
from
continuing
operations (1,212) (7,857) 2,249 5,415 (1,405)

Interest income 273 221 289 415 1,198
Interest expense (491) (445) (392) (84) (1,412)
Other income
(expense) 18 2 (1) (6) 13
Foreign currency
loss (732) (907) (929) (655) (3,223)
------- ------- ------- ------- -------
Income (loss)
before income
taxes (2,144) (8,986) 1,216 5,085 (4,829)

Provision for
income taxes (829) (1,540) (907) (557) (3,833)
------- ------- ------- ------- -------
Net income
(loss) $(2,973) $(10,526) $309 $4,528 $(8,662)
======= ======= ======= ======= =======
Basic income
(loss) per share $(0.06) $(0.20) $0.01 $0.09 $(0.17)
======= ======= ======= ======= =======
Diluted income
(loss) per share $(0.06) $(0.20) $0.01 $0.08 $(0.17)
======= ======= ======= ======= =======
Weighted average
common shares
- basic 50,213 51,412 51,568 51,805 51,252
Weighted average
common shares
- diluted 52,414 53,772 53,947 53,508 53,497



HYPERCOM CORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

Dec. 31, 2004 Dec. 31, 2003
------------- -------------
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $23,445 $65,415
Marketable securities 69,962 17,400
Accounts receivable, net 59,776 55,252
Current portion of net investment
in sales-type leases 9,441 8,783
Inventories 44,455 42,262
Prepaid expenses and other
current assets 12,955 15,071
Long-lived assets held for sale -- 852
-------- --------
Total current assets 220,034 205,035

Property, plant and equipment, net 29,920 28,217
Net investment in sales-type leases 17,668 20,236
Intangible assets, net 4,475 3,731
Other long-term assets 5,163 8,651
-------- --------
Total assets $277,260 $265,870
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $27,817 $21,733
Accrued payroll and related expenses 8,679 8,267
Accrued sales and other taxes 8,792 8,332
Accrued liabilities 8,308 7,534
Deferred revenue 2,768 1,373
Income taxes payable 3,411 1,690
Current portion of long-term debt 470 1,058
-------- --------
Total current liabilities 60,245 49,987

Long-term obligations 11,643 11,586
-------- --------
Total liabilities 71,888 61,573

Stockholders' equity 205,372 204,297
-------- --------
Total liabilities and
stockholders' equity $277,260 $265,870
======== ========



HYPERCOM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)

Three months ended Twelve months ended
December 31, December 31,
------------------------ ---------------------
2004 2003 2004 2003
----------- ----------- ----------- ------
(unaudited) (unaudited) (unaudited)
Cash flows from
continuing operations:
Net income (loss) from
continuing operations $4,528 $2,752 $(8,662) $3,965
Adjustments to reconcile
net income (loss) from
continuing operations
to net cash provided by
operating activities:
Amortization of
deferred
financing costs 3 196 529 869
Depreciation/
amortization 2,766 2,122 9,244 8,883
Provision for bad debts 807 723 1,915 1,972
Provision for losses
on sales-type leases 780 -- 2,795 705
Provision for excess
and obsolete inventory 2,028 1,587 8,320 4,668
Provision for
long-term contract
accounts receivable (1,385) -- -- --
Foreign currency loss 655 891 3,223 2,751
Provision for deferred
contract costs -- -- 11,305 --
Noncash stock
compensation 77 -- 405 --
Noncash write-off of
intangible 698 -- 698 --
Other noncash 165 -- 594 --
Changes in operating
assets and
liabilities (8,655) (1,308) (16,282) (273)
------ ------ ------ ------
Net cash provided
by operating
activities 2,467 6,963 14,084 23,540

Cash flows from investing
activities:
Proceeds from the sale of
discontinued operations,
net of purchase price
adjustments -- 28,473 -- 32,512
Purchase of property,
plant and equipment (2,095) (1,003) (6,549) (4,319)
Acquisition of other
assets (679) (32) (2,173) (38)
Software development
costs capitalized (801) (523) (2,953) (1,552)
Purchase of marketable
securities, net of
proceeds (5,432) (7,373) (52,339) (17,373)
------ ------ ------ ------
Net cash (used in)
provided by
investing
activities (9,007) 19,542 (64,014) 9,230

Cash flows from financing
activities:
Repayment of bank notes
payable and other debt
instruments (192) (1,326) (995) (2,415)
Advances from discontinued
operations -- -- -- 294
Payment of advances to
stockholders -- -- 1,056 --
Proceeds from issuance
of common stock 2,253 158 8,276 5,398
Purchase of treasury stock -- (271) -- (271)
------ ------ ------ ------
Net cash provided by
(used in) financing
activities 2,061 (1,439) 8,337 3,006

Effect of exchange rate
changes on cash 438 262 407 728
------ ------ ------ ------
Net (decrease)
increase in cash
flow from
continuing
operations (4,041) 25,328 (41,186) 36,504

Net (decrease) increase in
cash flow from discontinued
operations (38) (1,002) (784) 5,842
Cash and cash equivalents,
beginning of period 27,524 41,089 65,415 23,069
------ ------ ------ ------
Cash and cash
equivalents,
end of period $23,445 $65,415 $23,445 $65,415
======= ======= ======= =======



Note 1: Reconciliation of Non-GAAP Measures
This earnings release contains non-GAAP financial measures. For purposes
of Regulation G, a non-GAAP financial measure is a numerical measure of a
registrant's historical or future financial performance, financial
position or cash flows that excludes amounts, or is subject to adjustments
that have the effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in accordance with
GAAP in the statement of income, balance sheet, or statement of cash flows
(or equivalent statements) of the issuer; or includes amounts, or is
subject to adjustments that have the effect of including amounts, that are
excluded from the most directly comparable measure so calculated and
presented. In this regard, GAAP refers to generally accepted accounting
principles in the United States. Pursuant to the requirements of
Regulation G, the Corporation has provided a reconciliation of the
non-GAAP financial measures to the most directly comparable GAAP financial
measures.

Non-GAAP operating results are presented in the earnings release because
management believes that it is of interest to its investors to reflect the
current period operating results exclusive of any material non-GAAP
adjustments for comparability purposes. During the second quarter ended
June 30, 2004, the Company recorded a charge to operations for
approximately $12.9 million to fully reserve amounts recorded under its
contract with the Brazilian Health Ministry. The charge consisted of
$11.3 million reserve against deferred contract costs, which was recorded
in cost of revenues, and $1.6 million reserve against accounts
receivables, which was recorded in selling expense. Since the second
quarter 2004, the Company has received $1.6 million from the Brazilian
Health Ministry and, accordingly, has reversed $1.6 million of the
previously established accounts receivable reserve. The Company recorded
these reserves as a result of increasing concerns with the Brazilian
Health Ministry's lack of timely payments and lack of acknowledgment and
acceptance of previously submitted contract claims. In addition, and
further complicating the situation, is the Ministry's own political
environment which, during the second quarter, experienced a very serious
internal scandal, completely unrelated to the Company, but casting
additional doubt and concern over the ability to recover, timely, the
amounts owed under our contract. The non-GAAP 2004 results and related
adjustments are not GAAP and the non-GAAP 2004 results should not be
considered a substitute for the actual 2004 unaudited results in this
earnings release.

Adjusted EBITDA is presented in the earnings release because management
believes that it is a commonly used financial measure that is of interest
to its investors. The Corporation defines adjusted EBITDA as earnings
before interest, income taxes, depreciation, and amortization, adjusted to
exclude foreign currency gains and losses, and certain other material
non-cash unusual or infrequently occurring items. Adjusted EBITDA does
not represent cash flow from operations, as defined by generally accepted
accounting principles in the United States. Adjusted EBITDA should not be
considered as a substitute for net income or loss, or as an indicator of
operating performance or whether cash flows will be sufficient to fund
cash needs.

Below is a reconciliation of income (loss) before taxes and discontinued
operations to adjusted EBITDA from continuing operations (amounts in
thousands and unaudited):



Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2004 2003 2004 2003
------ ------ ------ ------

Income (loss) before income
taxes and discontinued
operations $5,085 $4,486 $(4,829) $8,079
Depreciation and
amortization 2,766 2,122 9,244 8,883
Non-cash write-off of
intangible 698 -- 698 --
Foreign currency loss 655 891 3,223 2,751
Interest, net (331) 520 214 2,092
------ ------ ------ ------
Adjusted EBITDA from
continuing operations $8,873 $8,019 $8,550 $21,805
====== ====== ====== ======



Below is a reconciliation of the income from discontinued operations to
adjusted EBITDA from discontinued operations (amounts in thousands and
unaudited):



Three Months Ended Twelve Months Ended
December 31, December 31,
------------------ -------------------
2004 2003 2004 2003
------ ------ ------ ------

Income from discontinued
operations $-- $5,991 $-- $7,233
Noncash asset write-downs -- -- -- 1,363
Depreciation expense -- -- -- 1,076
Foreign currency loss -- -- -- 70
Interest, net -- -- -- 956
------ ------ ------ ------
Adjusted EBITDA from
discontinued operations $-- $5,991 $-- $10,698
====== ====== ====== ======


SOURCE Hypercom Corporation
-0- 03/03/2005
/CONTACT: John W. Smolak, EVP CFO & Chief Administrative Officer,
+1-602-504-4750,

jsmolak@hypercom.com

, or Scott M. Tsujita, SVP Finance,
Treasury & Investor Relations, +1-602-504-5161,

stsujita@hypercom.com

, both of
Hypercom Corporation/
/Web site:

http://www.hypercom.com

/
(HYC)

CO: Hypercom Corporation
ST: Colorado
IN: CPR HRD FIN
SU: ERN CCA

LP-AI
-- LATH046 --
5911 03/03/2005 07:30 EST

http://www.prnewswire.com


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