Harman Kardon 2008 Annual Report Download - page 93

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75
We intend vigorously to continue defending this lawsuit.
While the outcome of any of the legal proceedings described above cannot at this time be predicted with
certainty, we do not expect these matters will materially affect our financial condition or results of
operations.
Other Legal Actions
At June 30, 2008, we were involved in several other legal actions. The outcome of these legal actions
cannot be predicted with certainty; however, management, based upon advice from legal counsel, believes
such actions are either without merit or will not have a material adverse effect on our financial position or
results of operations.
Automotive Supply Arrangements
We have arrangements with our automotive customers to provide products that meet predetermined
technical specifications and delivery dates. In the event that we do not satisfy the performance
obligations under these arrangements, we may be required to indemnify the customer. We accrue for any
loss that we expect to incur under these arrangements when that loss is probable and can be reasonably
estimated. In 2008, we incurred a cost of $0.6 million due to delayed delivery of product to an
automotive customer. Inability to meet performance obligations on new automotive platforms could
adversely affect our results of operations and financial condition in future periods.
Note 19 - Derivatives
We use foreign currency forward contracts to hedge a portion of our foreign denominated forecasted
purchase transactions. These forward contracts are designated as foreign currency cash flow hedges and
recorded at fair value in the accompanying consolidated balance sheet with a corresponding entry to
accumulated other comprehensive income (loss) until the underlying forecasted foreign currency
transaction occurs.
When the transaction occurs, the gain or loss from the derivative designated as a hedge of the transaction
is reclassified from accumulated other comprehensive income (loss) to either cost of goods sold or selling,
general and administrative expenses depending upon the nature of the underlying transaction. When it
becomes apparent that an underlying forecasted transaction will not occur, the amount recorded in
accumulated other comprehensive income (loss) related to the hedge is reclassified to the miscellaneous,
net line of the income statement in the then-current period.
Changes in the fair value of the derivatives are highly effective in offsetting changes in the cash flows of
the hedged items because the amounts and the maturities of the derivatives approximate those of the
forecasted exposures. Any ineffective portion of the derivative is recognized in current earnings to the
same income statement line item in which the foreign currency gain or loss on the underlying hedged
transaction is recorded. When it has been determined that a hedge has become ineffective, the ineffective
portion of the hedge is recorded in current earnings as other non-operating income. For the years ending
June 30, 2008, 2007 and 2006 we recognized no ineffectiveness.