Hypercom Corporation Annual Report - CiteSeer

of our stock grants and only recognize the expense for those shares expected to vest. See Note 14 to our consolidated financial
statements included herein for a further discussion of stock-based compensation.
Product Warranty
We accrue for estimated warranty obligations when revenue is recognized based on an estimate of future warranty costs for
delivered products and specific known product issues. Such estimates are based on historical experience and expectations of future
costs. We periodically evaluate and adjust the accrued warranty costs to the extent actual warranty costs vary from the original
estimates. Our warranty period typically extends from one to five years from the date of shipment. Costs associated with maintenance
contracts, including extended warranty contracts, are expensed when they are incurred. Actual warranty costs may differ from
management’s estimates.
Legal and Other Contingencies
In the ordinary course of business, we are involved in legal proceedings involving contractual and employment relationships,
product liability claims, intellectual property rights, and a variety of other matters. We record contingent liabilities resulting from
asserted and unasserted claims against us, when it is probable that a liability has been incurred and the amount of the loss is estimable.
Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of
third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, we do not believe
any of our pending legal proceedings or claims will have a material impact on our financial position, results of operations or cash
flows. However, if actual or estimated probable future losses exceed our recorded liability for such claims, we would record additional
charges as other expense during the period in which the actual loss or change in estimate occurred.
For components not yet billed to us by our third-party contract manufacturers, contingent liabilities are recorded by component
based on the likelihood of our ultimate usage of the components.
Costs Associated with Exit Activities
We record costs associated with exit activities such as for employee termination benefits that represent a one-time benefit when
management approves and commits to a plan of termination, and communicates the termination arrangement to the employees, or over
the future service period, if any. Other costs associated with exit activities may include contract termination costs, including costs
related to leased facilities to be abandoned or subleased, and facility and employee relocation costs. In addition, a portion of our
restructuring costs are outside the U.S. related to expected employees terminations. We are required to record a liability for this cost
when it is probable that we will incur the costs and can reasonably estimate the amount.
In addition, we account for costs to exit an activity of an acquired company and involuntary employee termination benefits associated
with acquired businesses in the purchase price allocation of the acquired business if a plan to exit an activity of an acquired company
exists, and those costs have no future economic benefit to us and will be incurred as a direct result of the exit plan.
Foreign Currency
Assets and liabilities of subsidiaries operating outside the U.S. with a functional currency other than U.S. Dollars are translated
into U.S. Dollars using year-end exchange rates. Revenue, costs and expenses are translated at the average exchange rates in effect
during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss.
For subsidiaries operating outside the U.S. where the functional currency is U.S. Dollars, monetary assets and liabilities
denominated in local currency are remeasured at year-end exchange rates whereas non-monetary assets, including inventories and
property, plant and equipment, are reflected at historical rates. Revenue, costs and expenses are translated at the average exchange
rates in effect during the year. Any gains or losses from foreign currency remeasurement are included in foreign currency loss on our
consolidated statements of operation.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax laws (including rates) is recognized in
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