Harman Kardon 2007 Annual Report Download - page 36

Download and view the complete annual report

Please find page 36 of the 2007 Harman Kardon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 95

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95

23
Dinesh Paliwal joined our company on July 1, 2007 as President, Chief Executive Officer and Vice
Chairman and was elected as a director on August 13, 2007.
Critical Accounting Policies
The methods, estimates and judgments we use in applying our accounting policies, in conformity with
generally accepted accounting principles in the United States (“GAAP”), have a significant impact on the
results we report in our financial statements. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the circumstances. The estimates affect
the carrying values of assets and liabilities. Actual results may differ from these estimates under different
assumptions or conditions. Our accounting policies are more fully described in Note 1, Summary of
Significant Accounting Policies, of our consolidated financial statements located in Item 8 of Part II.
However, we believe the following policies merit discussion due to their higher degree of judgment,
estimation, or complexity.
Allowance for Doubtful Accounts
Our products are sold to customers in many different markets and geographic locations. Methodologies
for estimating bad debt reserves range from specific reserves to various percentages applied to aged
receivables based on historical experience. We must make judgments and estimates regarding account
receivables that may become uncollectible. These estimates affect our bad debt reserve and results of
operations. We base these estimates on many factors including historical collection rates, the financial
stability and size of our customers as well as the markets they serve and our analysis of accounts
receivable aging. Our judgments and estimates regarding collectibility of accounts receivable have an
impact on our financial statements.
Inventory Valuation
The valuation of inventory requires us to make judgments and estimates regarding excess, obsolete or
damaged inventories including raw materials, finished goods and spare parts. Our determination of
adequate reserves requires us to analyze the aging of inventories and the demand for spare parts and to
work closely with our sales and marketing staff to determine future demand for our products. We make
these evaluations on a regular basis and adjustments are made to the reserves as needed. These estimates
and the methodologies that we use have an impact on our financial statements.
Goodwill
We perform a goodwill impairment test on an annual basis. At June 30, 2007, our goodwill balance of
$403.7 million was not impaired. We made this determination based upon a valuation of our reporting
units, as defined by Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other
Intangible Assets. The valuation took into consideration various factors such as our historical
performance, future discounted cash flows, performance of our competitors and overall market
conditions. We cannot, however, predict the occurrence of events that might adversely affect the reported
value of goodwill. These events may include, but are not limited to, strategic decisions made in response
to economic and competitive conditions, the impact of the economic environment on our customer base,
or a material negative change in our relationships with significant customers. Please refer to Note 4,