Harman Kardon 2010 Annual Report Download - page 105

Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
expire. The foreign tax credit will begin to expire in 2013. A $134.3 million valuation allowance has been
recorded for U. S. Federal foreign tax credits. Additionally, we have a German net operating loss carryforward
valued at $24.8 million that will not expire and other foreign tax loss carryforwards and credits before valuation
allowance of $5.1 million that do not expire. A valuation allowance of $0.8 million has been established for
certain of the foreign net operating loss carryforwards. Management believes the results of future operations will
generate sufficient taxable income to realize the net deferred tax asset. The tax expense within discontinued
operations for fiscal year 2010 includes an expense of $35 million relating to tax on previously permanently
reinvested earnings. We intend to repatriate a portion of these earnings, as a result of the sale of the QNX Entities
and therefore have recorded a deferred income tax liability associated with the eventual repatriation to the USA
in a subsequent period. We also have earnings of foreign subsidiaries where we have not provided U.S. Federal
or foreign withholding taxes on foreign subsidiary undistributed earnings as of June 30, 2010, because these
foreign earnings are intended to be permanently reinvested. Such earnings would be subject to U.S. taxation if
repatriated to the U.S. Determination of the amount of unrecognized deferred tax liability associated with the
permanently reinvested cumulative undistributed earnings is not practicable.
Effective July 1, 2007, we adopted accounting guidance relating to “Accounting for Uncertainty in Income
Taxes.” The guidance clarifies the accounting for uncertainty in income taxes by prescribing rules for
recognition, measurement and classification in our consolidated financial statements of tax positions taken or
expected to be taken in a tax return. For tax benefits to be recognized, a tax position must be more-likely-
than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the
largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The cumulative
effect of applying the recognition and measurement provisions upon adoption of the guidance resulted in a
decrease of $7.2 million of unrealized tax benefits to our balance of $31.2 million. This reduction was included
as an increase to the July 1, 2007 balance of retained earnings.
Changes in the total amount of gross unrecognized tax benefits are as follows:
2010 2009
Balance at July 1 ......................................... $14,001 $ 9,529
Increases based on tax positions related to the current year ........ 455 5,599
Increases identified during the current year related to prior years .... 6,576 —
Decreases due to tax positions of prior fiscal years ............... (175) (832)
Change due to foreign currency translation ..................... (297) (295)
Balance at June 30 ........................................ $20,560 $14,001
The unrecognized tax benefits at June 30, 2010 are permanent in nature and, if recognized, would reduce
our effective tax rate. However, our federal, certain state and certain non-U.S. income tax returns are currently
under various stages of audit or potential audit by applicable taxing authorities and the amounts ultimately paid,
if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts
accrued for each year. Our material tax jurisdictions are Germany and the United States.
The tax years subject to examination in Germany are fiscal years 2005 through the current year. The tax
years subject to examination in the United States are fiscal years 2006 through the current year. While we expect
the amount of unrecognized tax benefits to change, we are unable to quantify the change at this time.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. As of
June 30, 2010, the amount accrued for interest and penalties was $2.0 million.
Cash paid for Federal, state and foreign income taxes were $2.3 million, $3.5 million, and $128.8 million,
during fiscal years ended June 30, 2010, 2009 and 2008, respectively.
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