Harman Kardon 2009 Annual Report Download - page 47

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assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Our accounting policies are more fully described in Note 1 – Summary of Significant Accounting Policies, in the
Notes to the Consolidated Financial Statements located in Item 8 of Part II. However, we believe the following
policies merit discussion due to their higher degree of judgment, estimation, or complexity.
Allowance for Doubtful Accounts
Our products are sold to customers in many different markets and geographic locations. Methodologies for
estimating bad debt reserves include specific reserves for known collectability issues and percentages applied to
aged receivables based on historical experience. We must make judgments and estimates regarding account
receivables that may become uncollectible. These estimates affect our bad debt reserve and results of operations.
We base these estimates on many factors including historical collection rates, the financial stability and size of
our customers as well as the markets they serve and our analysis of aged accounts receivable. Our judgments and
estimates regarding collectability of accounts receivable have an impact on our financial statements.
Inventory Valuation
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. Estimation of inventory valuation
reserves requires us to analyze the aging and future demand for inventories and to forecast future product pricing
trends which has 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. Refer to Note 2 – Inventories, net in the Notes to the
Consolidated Financial Statements for more information.
Goodwill and Other Intangible Assets
Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an
impairment loss may have been incurred. Application of the goodwill impairment test requires judgment,
including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment
of goodwill to reporting units, and determination of the fair value of each reporting unit. We estimate the fair
value of each reporting unit using a discounted cash flow methodology. This requires us to use significant
judgment including estimation of future cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, the useful life over which cash flows will occur, determination of our
weighted average cost of capital, and relevant market data.
During the fiscal year ended June 30, 2009, we determined that goodwill related to our Automotive,
Consumer and QNX reporting units was impaired and we recognized an impairment charge of $330.6 million.
Goodwill was $81.9 million at June 30, 2009 compared with $436.4 million at June 30, 2008. Refer to Note 5 –
Goodwill in the Notes to the Consolidated Financial Statements for more information.
Intangible assets primarily consist of patents, trademarks and distribution agreements and are amortized
over periods ranging from 10 months to 17 years. We apply an impairment evaluation whenever events or
changes in business circumstances indicate that the carrying value of our intangible assets may not be
recoverable. Other intangible assets are amortized on a straight-line basis over their estimated economic lives.
We believe that the straight-line method of amortization reflects an appropriate allocation of the cost of the
intangible assets to earnings in proportion to the amount of economic benefits obtained annually by our
Company.
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