Harman Kardon 2007 Annual Report Download - page 57

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44
Notes to Consolidated Financial Statements
Harman International Industries, Incorporated and Subsidiaries
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the accounts of Harman
International Industries, Incorporated and our subsidiaries (collectively, the “company”) after the
elimination of significant intercompany transactions and accounts. Unless the context indicates
otherwise, the terms “we”, “us”, or “our” refer herein to Harman International Industries, Incorporated
and subsidiaries.
Reclassifications. Where necessary, prior years’ information has been reclassified to conform to the
fiscal 2007 financial statement presentation.
Use of Estimates. The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial statements and accompanying
notes. Actual results may differ from those estimates, and the differences may be material to the
consolidated financial statements.
Among the most significant estimates used in the preparation of our financial statements are estimates
associated with the valuation of inventory, depreciable lives of fixed assets, accounting for business
combinations, the evaluation of the recoverability of goodwill, evaluation of the recoverability of pre-
production and development contract costs, warranty liability, litigation and taxation. In addition,
estimates form the basis for our reserves for sales discounts, sales allowances, accounts receivable,
inventory, and postretirement and other employee benefits. Various assumptions go into the
determination of these estimates. The process of determining significant estimates requires consideration
of factors such as historical experience, current and expected economic conditions, and actuarial methods.
We reevaluate these significant factors and makes changes and adjustments where facts and
circumstances indicate that changes are necessary.
Revenue Recognition. Revenue is generally recognized at the time of product shipment or delivery,
depending on when the passage of title to goods transfers to unaffiliated customers, when all of the
following have occurred: a firm sales agreement is in place, pricing is fixed or determinable and
collection is reasonably assured. Sales are reported net of estimated returns, discounts, rebates and
incentives. Substantially all of our revenue transactions involve the delivery of a physical product.
Sales Discounts. We offer product discounts and sales incentives including prompt payment discounts,
volume incentive programs, rebates and dealer order incentives. We report revenues net of discounts and
other sales incentives in accordance with Emerging Issues Task Force (“EITF”) Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products).
Cost of Sales. Cost of sales includes material, labor and overhead for products manufactured by us and
cost of goods produced for us on a contract basis. Expenses incurred for manufacturing depreciation and
engineering, warehousing, shipping and handling, sales commissions, warranty and customer service are
also included in cost of sales.