Annual Report 2009 (1 MB, pdf) - Vasco

VASCO DATA SECURITY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(amounts in thousands, except per share data)
estimated using the Black-Scholes option pricing model, with the expected life adjusted to reflect the effect of
post-vesting restrictions. The assumptions used for the Black-Scholes model are listed in Note 9. This
compensation expense is recorded on a straight-line basis over the vesting period of the options.
Warranty
Warranties are provided on the sale of certain of our products and an accrual for estimated future claims is
recorded at the time revenue is recognized. Warranty reserves are based on past claims experience, sales history
and other considerations. Our standard practice is to provide a warranty on our hardware products for either a one
or two year period after the date of purchase. Customers may purchase extended warranties covering periods
from one to four years after the standard warranty period. We defer the revenue associated with the extended
warranty and recognize it into income on a straight-line basis over the extended warranty period. We have
historically experienced minimal actual claims over the warranty period.
Reclassifications
Certain prior year amounts in the Consolidated Statement of Cash Flows have been reclassified to conform
to the 2009 presentation, to present the details of the changes in assets and liabilities on a consistent basis.
Note 2 – Inventories
Inventory is comprised of the following:
December 31,
2009 2008
Component parts ........................................... $5,810 $ 9,925
Work-in-process and finished goods ............................ 3,205 3,451
Total ................................................ $9,015 $13,376
The decrease in component parts in 2009 compared to 2008 reflects a return to historical levels. Component
parts inventory at December 31, 2008 was higher than normal due to purchases of processors that our supplier
indicated were being discontinued and an increase resulting from lower than expected demand in the fourth
quarter of 2008.
Note 3 – Goodwill and Other Intangibles
Intangible asset activity for the three years ended December 31, 2009 and the composition of the
December 31, 2009 balance is as follows. The majority of our goodwill and intangibles are denominated in local
currencies and are subject to currency fluctuations. With the 2006 acquisition of VDS Austria (formerly Logico),
we obtained net operating loss (NOL) carryforwards in Austria. We provided a valuation reserve for the portion
of the NOL which was not expected to be utilized. As subsequent earnings have exceeded our original
expectations, a portion ($129 in 2008 and $85 in 2007) of the valuation reserve has been applied as a reduction of
goodwill. With the adoption of ASC 805-740 in 2009, additional valuation reserve adjustments will affect
income tax expense rather than goodwill. In 2007, the $85 reduction in VDS Austria goodwill was offset by $200
increase resulting from a contingency payment made under the terms of the acquisition. In 2009 and 2008 we
invested $241 and $386, respectively, in trademark protection and patent applications.
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