Harman Kardon 2009 Annual Report Download - page 93

Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
The following table provides the fair value hierarchy for financial assets and liabilities measured on a
recurring basis:
Assets/(Liabilities)
June 30, 2009
Level 1 Level 2 Level 3
Money market funds ................................................. $17,937 $ — $—
Available-for-sale securities ........................................... 1,358 — —
Foreign currency forward contracts ...................................... — (12,871) —
Interest rate swap contract ............................................. — (1,767) —
Total .............................................................. $19,295 $(14,638) $—
Money market funds and available-for-sale-securities are classified as Level 1 as the fair value was
determined from market quotes obtained from financial institutions in active markets.
We use foreign currency forward contracts and an interest rate swap contract to hedge market risks relating
to possible adverse changes in foreign currency exchange rates and interest rates. Our foreign currency forward
contracts were measured at fair value using Level 2 inputs. Such inputs include foreign currency spot and
forward rates for similar transactions in actively quoted markets.
We have elected to use the income approach to value our interest rate swap contract, which uses observable
Level 2 inputs at the measurement date and standard valuation techniques to convert future amounts to a single
present amount (discounted). Level 2 inputs for the swap contract valuation are limited to quoted prices for
similar assets or liabilities in active markets (specifically futures contracts on) and inputs other than quoted prices
that are observable for the asset or liability (specifically Euro Interbank Offered Rate (“EURIBOR”) cash and
swap rates EURIBOR and six by three month basis swap rates) at commonly quoted intervals, and credit
risk. These key inputs, including the EURIBOR cash rates for very short-term, futures rates for up to two years,
and EURIBOR swap rates beyond the derivative maturity are used to construct the swap yield curve and discount
the future cash flows to present value at the measurement date. As the interest rate swap contract is a derivative
liability, we have used our spread over LIBOR of five percent, applied to all cash flows to calculate the credit
adjusted fair market value. If the interest rate swap contract was determined to be a derivative asset, we would
use the credit default swap basis for our counterparty collected from Bloomberg to further discount the asset. See
Note 8 – Derivatives, for further discussion regarding our derivative financial instruments.
In accordance with the requirements of SFAS No. 107, “Disclosures about Fair Value of Financial
Instruments”, we annually disclose the fair value of our debt, which is recorded in the Consolidated Balance
Sheets at adjusted cost. The carrying value and fair value of long-term debt was $629.5 million and $548.5
million, respectively, at June 30, 2009. Refer to Note 6 – Debt for further information.
In February 2007, the FASB issued SFAS 159, which allows an entity the irrevocable option to elect fair
value for the initial and subsequent measurement of certain financial assets and liabilities on an
instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. We did not elect fair value measurement for financial assets and
liabilities. Therefore, SFAS 159 did not impact our results of operations.
In February 2008, the FASB issued FSP 157-2 which delays the effective date of SFAS 157 by one year for
nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The provisions of SFAS 157 for nonfinancial assets and liabilities will be adopted by us in
the first quarter of fiscal year 2010.
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