Harman Kardon 2010 Annual Report Download - page 101

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 assets and liabilities measured on a recurring basis:
Fair Value at June 30, 2010 Fair Value at June 30, 2009
Description Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
Assets
Money market funds ..................... $17,340 $ — $ — $17,937 $ — $ —
Available-for-sale securities ............... 1,555 — — 1,358 — —
Foreign exchange contracts ................ — 27,438 — — (12,871) —
Interest rate swap ........................ — (1,838) — — (1,767) —
Total .............................. $18,895 $25,600 $ — $19,295 $(14,638) $ —
The following describes the valuation methodologies we use to measure assets and liabilities accounted for
at fair value on a recurring basis:
Money Market Funds and Available-for-Sale Securities: 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.
Foreign Exchange Contracts: We use foreign exchange contracts to hedge market risks relating to possible
adverse changes in foreign currency exchange rates. Our foreign exchange contracts were measured at fair value
using Level 2 inputs. Such inputs include foreign currency exchange spot and forward rates for similar
transactions in actively quoted markets.
Interest Rate Swap: We use an interest rate swap to hedge market risk relating to possible adverse changes
in interest rates. 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 LIBOR, for the first two
years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash
and swap rates) at commonly quoted intervals, and credit risk. These key inputs, including the LIBOR cash rates
for very short-term, futures rates for up to two years, and LIBOR 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 asset, a credit default swap basis available at commonly
quoted intervals has been collected from Bloomberg and applied to all cash flows. If the interest rate swap
contract was determined to be a derivative liability, we would be required to reflect potential credit risk to
lenders using a borrowing rate specific to our Company. See Note 10 – Derivatives, for further discussion
regarding our derivative financial instruments.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis
Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair
value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets
can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired
loans that have been reduced based on the fair value of the underlying collateral, cost and equity method
investments and long-lived assets that are written down to fair value when they are impaired and the
remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results
in deconsolidation of a subsidiary if we sell a controlling interest and retain a noncontrolling stake in the entity.
Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted
to fair value unless further impairment occurs.
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