Harman Kardon 2007 Annual Report Download - page 63

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50
No. 109, “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48
are effective for fiscal years beginning after December 15, 2006. Only tax positions that meet the more-
likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized
upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 should be reported
as an adjustment to the opening balance of retained earnings (or other appropriate components of equity
or net assets in the statement of financial position) for that fiscal year. We will adopt FIN 48 effective
July 1, 2007. The adoption of FIN 48 is not anticipated to have a significant impact on our consolidated
financial statements.
On May 2, 2007, the FASB issued FASB Staff Position No. 48-1, Definition of Settlement in FASB
Interpretation No. 48 (FIN 48-1) which amends FIN 48, to provide guidance about how an enterprise
should determine whether a tax position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. Under FIN 48-1, a tax position is considered to be effectively settled if the
taxing authority completed its examination, the enterprise does not plan to appeal, and it is remote that the
taxing authority would reexamine the tax position in the future. We will adopt FIN 48-1 effective July 1,
2007. The adoption of FIN 48-1 is not anticipated to have a significant impact on our consolidated
financial statements.
Note 2 - Inventories
Inventories consist of the following:
June 30,
($000s omitted) 2007
2006
Finished goods $
235,736 147,663
Work in process 52,682 45,954
Raw materials and supplies 164,738 151,340
Total $
453,156 344,957
Inventories are stated at the lower of cost or market. Cost is determined principally by the first-in, first-
out method. The valuation of inventory requires us to make judgments and estimates regarding obsolete,
damaged or excess inventory as well as current and future demand for our products. The estimates of
future demand along with analysis of usage data that we use in the valuation of inventory are the basis for
our inventory reserves and have an effect on our results of operations. We calculate inventory reserves
using a combination of lower of cost or market analysis, analysis of historical usage data, forecast
demand data and historical disposal rates. Lower of cost or market analysis is typically applied to those
items of inventory that represent a substantial portion of the total value of inventory on-hand. The high-
value units typically represent a small percentage of the total inventory items, so identification of
obsolescence or valuation reserve requirements for the balance of the inventory on-hand is accomplished
using either historical or forecast usage to identify slow-moving or obsolete items.