Harman Kardon 2008 Annual Report Download - page 65

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Allowance for Doubtful Accounts. We reserve an estimated amount for accounts receivable that may
not be collected. Methodologies for estimating allowance for doubtful accounts are primarily based on
specific identification of uncollectible accounts. Historical collection rates and customer credit worthiness
are considered in determining specific reserves. At June 30, 2008 and 2007, we had $7.1 million and $6.0
million, respectively, reserved for possible uncollectible accounts receivable. As with many estimates,
management must make judgments about potential actions by third parties in establishing and evaluating
our allowance for doubtful accounts.
Warranty Liabilities. We warrant our products to be free from defects in materials and workmanship for
periods ranging from six months to six years from the date of purchase, depending on the business
segment and product. Our dealers and warranty service providers normally perform warranty service in
field locations and regional service centers, using parts and replacement finished goods we supply on an
exchange basis. Our dealers and warranty service providers also install updates we provide to correct
defects covered by our warranties. Estimated warranty liabilities are based upon past experience with
similar types of products, the technological complexity of certain products, replacement cost and other
factors. If estimates of warranty provisions are no longer adequate based on our analysis of current
activity, incremental provisions are recorded. We take these factors into consideration when assessing the
adequacy of our warranty provision for periods still open to claim. See Note 10, Warranty Liabilities, for
additional information regarding our warranties.
Selling, General and Administrative Expenses. Selling, general and administrative expenses include
non-manufacturing salaries and benefits, share-based compensation expense, occupancy costs,
professional fees, research and development costs, amortization of intangibles, advertising and marketing
costs and other operating expenses.
Advertising Costs. We expense advertising costs as incurred. When production costs are incurred for
future advertising, these costs are recorded as an asset and subsequently expensed when the advertisement
is first put into service.
Amortization of Intangibles. Amortization of intangibles primarily includes amortization of intangible
assets such as patents, trademarks and distribution agreements and amortization of costs, other than
interest costs. Intangibles are amortized over 10 months to 17 years. In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (“SFAS 142”), goodwill was not amortized after July 1, 2002.
Research and Development. Research and development costs are expensed as incurred. Our
expenditures for research and development, net of customer reimbursements, were $395.9 million, $356.7
million and $302.0 million for the fiscal years ending June 30, 2008, 2007 and 2006, respectively.
Interest Expense, Net. Interest expense, net, includes interest expense and amortization of original issue
discount on debt securities, net of interest income.
Cash and Cash Equivalents. Cash and cash equivalents includes cash on hand and short-term
investments with original maturities of less than three months.
Inventories. 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