Harman Kardon 2008 Annual Report Download - page 70

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52
14-1 requires the issuer of convertible debt instruments with cash settlement features to account
separately for the liability and equity components of the instrument. The debt would be recognized at the
present value of its cash flows discounted using the issuer’s nonconvertible debt borrowing rate at the
time of issuance. The equity component would be recognized as the difference between the proceeds from
the issuance of the note and the fair value of the liability. FSP APB 14-1 will also require an accretion of
the resultant debt discount over the expected life of the debt. The proposed transition guidance requires
retrospective application to all periods presented, and does not grandfather existing instruments. FSP APB
14-1 is effective for fiscal years and interim periods beginning after December 15, 2008. Early adoption
is not permitted. FSP APB 14-1 is effective for us beginning in the first quarter of fiscal 2010. We
expect the effect of adoption of FSP APB 14-1 to be dilutive to earnings per share.
Note 2 - Inventories
Inventories consist of the following:
June 30,
($000s omitted) 2008 2007
Finished goods $ 150,634 235,736
Work in process 60,045 52,682
Raw materials and supplies 179,959 164,738
Total $ 390,638 453,156
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 and product pricing 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. Specific product valuation analysis is applied, if practicable, to those items
of inventory representing a higher portion of the value of inventory on-hand.