Hypercom Corporation Annual Report - CiteSeer

esults of operations or cash flows. However, if actual or estimated probable future losses exceed the Company’s recorded liability for
such claims, it 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 the Company by its third-party contract manufacturers, contingent liabilities are recorded by
component based on the likelihood of the Company’s ultimate usage of the components. The Company recorded a reserve for such
potential billings of $4.6 million and $4.8 million as of December 31, 2009 and 2008, respectively and is included in accrued other
liabilities in the Company’s consolidated balance sheets at December 31, 2009 and 2008.
Costs Associated with Exit Activities
The Company records 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 the Company’s restructuring costs are outside the U.S. related to expected employees terminations. The Company is
required to record a liability for this cost when it is probable that it will incur the costs and can reasonably estimate the amount.
In addition, for acquisitions prior to January 1, 2009, the Company accounts 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 the Company
and will be incurred as a direct result of the exit plan.
Advertising Costs
Advertising costs are expensed as incurred and totaled $0.1 million, $0.3 million and $0.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively.
Stock-Based Compensation
The Company recognizes compensation expense over the requisite service period for the fair-value of stock options and related
awards. For stock options with graded vesting terms, the Company recognizes compensation cost over the requisite service period
using the accelerated method. The fair value of stock-based awards are estimated at the date of grant using key assumptions such as
future stock price volatility, expected terms, risk-free interest rates and the expected dividend yield. In addition, the Company
estimates the expected forfeiture rate of the Company’s stock grants and only recognizes the expense for those shares expected to vest.
Foreign Currency
Assets and liabilities of subsidiaries operating outside the U.S. with a functional currency other than the U.S. Dollar 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 the U.S. Dollar, 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 monthly average
exchange rates in effect during the year. Any gains or losses from foreign currency remeasurement are included in foreign currency
loss in the consolidated statements of operations.
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 bases. 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 of a change in tax laws (including rates) is
recognized in income in the period that includes the enactment date. See Note 17 regarding the valuation reserve against the
Company’s deferred tax assets.
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