Harman Kardon 2009 Annual Report Download - page 77

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Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
For each derivative instrument that is designated and qualifies as a fair value hedge, the gain or loss on the
derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are
recognized in current earnings during the period of the change in fair values. For each derivative instrument that
is designated and qualifies as a cash flow hedge, the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and reclassified into earnings in the period
during which the hedged transaction affects earnings. For derivative instruments not designated as hedging
instruments, the gain or loss is recognized in current earnings within cost of sales during the period of change.
Refer to Note 7 – Derivatives for additional information.
Interest Rate Management: We have an interest rate swap agreement to effectively convert the interest on
an operating lease from a variable to a fixed rate. At the end of each reporting period, the discounted 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. Upon maturity, any gain or loss within AOCI is reclassified into
earnings in the then-current period. Refer to Note 7 – Derivatives for additional information.
Foreign Currency Management: The fair value of foreign currency related derivatives is included in the
Consolidated Balance Sheets in other current assets and accrued liabilities. The earnings impact of cash flow
hedges relating to forecasted purchases of inventory is 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 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 Statement of Financial Accounting Standard (“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.” Refer to Note 12 – Restructuring for more information.
Share-Based Compensation: Effective July 1, 2005, we adopted SFAS No. 123R, Share-Based Payment
(“SFAS 123R”), using the modified prospective method. Under SFAS 123R, share-based compensation expense
is recognized based on the estimated fair value of stock options and similar equity instruments awarded to
employees. Refer to Note 11 – Shareholders’ Equity and Share-Based Compensation for additional information.
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