Harman Kardon 2008 Annual Report Download - page 68

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50
fair value of the interest rate swap agreement is calculated. The fair value is recorded as an asset or
liability. The effective gain or loss is recorded as a debit or credit to accumulated other comprehensive
income and any ineffectiveness is recorded immediately to rent expense. For additional information, see
Note 19, Derivatives.
Foreign Currency Management. The fair value of foreign currency related derivatives is included in the
Consolidated Balance Sheet in other current assets and accrued liabilities. The earnings impact of cash
flow hedges relating to forecasted purchases of inventory is generally reported in cost of sales to match
the underlying transaction being hedged. Unrealized gains and losses on these instruments are deferred in
other comprehensive income until the underlying transaction is recognized in earnings. The earnings
impact of cash flow hedges relating to the variability in cash flows associated with foreign currency
denominated assets and liabilities is reported in cost of sales or other expense depending on the nature of
the assets or liabilities being hedged. The amounts deferred in other comprehensive income associated
with these instruments generally relate to spot-to-spot differentials from the date of designation until the
hedged transaction takes place.
Severance and Exit Costs. We recognize liabilities for severance and exit costs based upon the nature of
the liability incurred. For involuntary separation programs that are conducted according to the guidelines
of our written involuntary separation plan, we record the liability when it is probable and reasonably
estimable in accordance with SFAS No. 112, Employers’ Accounting for Postemployment Benefits. For
involuntary separation programs that are conducted according to the provisions of collective bargaining
agreements or statutes, we record the liability when it is probable and reasonably estimable in accordance
with SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits. For one-time termination benefits, such as additional severance pay,
and other exit costs, such as lease and other contract termination costs, the liability is measured and
originally recognized at fair value in the period in which the liability is incurred, with subsequent changes
recognized in the period of change, in accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities.
Share-Based Compensation. Effective July 1, 2005, we adopted SFAS No. 123R, Share-Based Payment
(“SFAS No. 123R”), using the modified prospective method. Under SFAS No. 123R, share-based
compensation expense is recognized based on the estimated fair value of stock options and similar equity
instruments awarded to employees. Share-based compensation is discussed further in Note 12, Stock
Option and Incentive Plan.
Recent Accounting Pronouncements.
In September 2006, FASB issued Statement No. 157, Fair Value Measurements (“SFAS 157”), which
defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. This statement applies when other
accounting pronouncements require or permit assets and liabilities to be measured at fair value, but does
not expand the use of fair value to new accounting transactions. SFAS 157 is effective for financial assets
and liabilities for fiscal years beginning after November 15, 2007 and interim periods within those fiscal
years. In February 2008, the FASB issued FASB Staff Position (FSP) No. FAS 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address