Hypercom Corporation Annual Report - CiteSeer

administrative expenses would have increased by $1.4 million, primarily due to an increase in professional fees of $1.8 million
principally from legal expenses, increase in salary of $1.2 million principally from human resources and information technology
headcount, increase in depreciation of $0.7 million and commissions of $0.8 million. These were offset by decreases in bad debt
expense of $2.2 million and bonus of $1.1 million. As a percent of revenue, selling, general and administrative expenses was 18.7%
for 2008 and 20.7% for 2007. This decrease was primarily due to operating expense synergies related to the acquisition of TeT.
Impairment of goodwill and intangible assets — During the fourth quarter of 2008, we concluded that the current economic
environment and the significant declines in our share price compared to our net book value represented significant adverse events, and
therefore, we evaluated our goodwill and long-lived assets for impairment as of December 31, 2008. Our evaluation of goodwill and
long-lived assets resulted in the recognition of asset impairment charges totaling $67.8 million for 2008, primarily related to our
acquisition of TeT on April, 1, 2008.
Amortization of purchased intangibles — Amortization of purchased intangibles expense increased approximately $5.2 million
or 1031% in 2008 compared to 2007, primarily related to the acquisition of TeT and the amortization of our purchased intangible
assets.
Gain on sale of real property — During the second quarter of 2007, we completed the sale of our former headquarters facilities
located in Phoenix, Arizona, for a sale price of $16.3 million. We recorded a gain of $3.8 million on the sale in the second quarter of
2007. There were no such sales during 2008.
Interest income, interest expense, and foreign currency
We recognized $1.5 million in interest income in 2008 compared to $4.0 million in 2007. This decrease is principally attributable
to lower average cash, cash equivalent, and short-term investment balances in 2008 compared to 2007 due to the acquisition of TeT.
We incurred interest expense of $6.8 million in 2008 compared to $0.1 million in 2007. The increase in interest expense is primarily
due to the acquisition financing of TeT. Approximately $4.6 million of interest expense was converted to principal in accordance with
the agreement. Foreign currency losses totaled $1.8 million in 2008 compared with $1.7 million in 2007. The increase in foreign
currency expense is principally attributable to net unfavorable movements of currencies not hedged and a general increase in hedged
exposure increasing the direct cost of hedging.
Income tax expense
Income tax expense for federal, state and foreign taxes was $1.2 million and $0.5 million for the years ended 2008 and 2007,
respectively. The increase in income tax expense was due to taxable income in NEMEA and SEMEA, and taxable income in Brazil,
which by law could not be offset against prior net operating loss carryforwards.
During 2008, we continued to provide a valuation allowance on substantially all of our deferred tax assets. That valuation
allowance is subject to reversal in future years at such time that the benefits are actually utilized or the operating profits in the
U.S. become sustainable. Due to our net operating loss position and our valuation allowance against our deferred tax assets, the
consolidated effective tax rates for 2008 and 2007 are not meaningful.
Segment and Geographic Information
During the fourth quarter of 2008, we initiated organizational changes, made enhancements to our internal management reporting,
and began to report information pertaining to four business segments as follows: (i) the Americas, (ii) NEMEA, (iii) SEMEA and
(iv) Asia-Pacific. The Americas consist of the U.S., Canada, Mexico, the Caribbean, Central America, and South America. NEMEA
consists of Germany, Austria, Scandinavia, and the Benelux countries. SEMEA consists of France, Spain, the United Kingdom,
Ireland, Eastern Europe, Russia, the Middle East, and Africa. Asia-Pacific consists of China, India, Japan, Korea, Southeast Asia,
Australia, and New Zealand. Prior year segment data has been restated for comparative purposes.
Our Chief Operating Decision Maker (“CODM”) is our CEO. The CODM has access to discrete financial information for each of
the above-mentioned business segments regarding revenues, gross margins (using fully burdened manufacturing costs), direct local
service costs, direct operating expenses consisting of expenses directly associated with the business segment, and indirect operating
expenses consisting of global shared cost centers, such as global R&D, marketing, corporate general and administrative expenses, and
stock-based compensation. Our operations are managed by Managing Directors (“MDs”) for each business segment. These MDs
have responsibility for all business activities and combined operating results of their business segment and these individuals are
compensated and evaluated based on the performance (Direct Trading Profit) of their overall business segment.
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