Harman Kardon 2010 Annual Report Download - page 49

Download and view the complete annual report

Please find page 49 of the 2010 Harman Kardon annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 137

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137

Other Intangible Assets
Intangible assets primarily consist of patents, trademarks and distribution agreements and are amortized
over periods ranging from 10 months to 17 years. We test for impairment 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.
We will continue to monitor the need for additional interim impairment tests, which could result in
additional non-cash impairment charges.
Impairment of Long-Lived Assets
We review the recoverability of our long-lived assets, including buildings, equipment and other intangible
assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not
be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the
asset from the expected future cash flows (undiscounted and without interest charges) of the related operations. If
these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference
between estimated fair value and carrying value. Our primary measure of fair value is based on undiscounted
cash flows. We will continue to monitor the need for additional interim impairment tests, which could result in
additional non-cash impairment charges. We recognized $2.7 million in impairment charges related to facilities
that were held-for sale in the fiscal year ended June 30, 2010. We did not record any impairment charges for
long-lived assets in 2009 and 2008.
Pre-Production and Development Costs
We incur pre-production and development costs related to infotainment systems that we develop for
automobile manufacturers pursuant to long-term supply arrangements. Portions of these costs are reimbursable
under separate agreements and are recorded as unbilled costs on our balance sheet once an agreement is signed in
other current assets and other assets. We believe that the terms of our supply contracts and our established
relationships with these automobile manufacturers reasonably assure that we will collect the reimbursable
portions of these contracts. Accounting for development costs under the percentage of completion method
requires us to make estimates of costs to complete projects. We review these estimates on a quarterly basis.
Unforeseen cost overruns or difficulties experienced during development could cause losses on these contracts.
Such losses are recorded once a determination is made that a loss will occur.
Accrued Warranties
We warrant our products to be free from defects in materials and workmanship for periods ranging from six
months to six years from the date of purchase, depending on the business segment and product. Our dealers and
warranty service providers normally perform warranty service in field locations and regional service centers,
using parts and replacement finished goods we supply on an exchange basis. Our dealers and warranty service
providers also install updates we provide to correct defects covered by our warranties. Estimated warranty
liabilities are based upon past experience with similar types of products, the technological complexity of certain
products, replacement cost and other factors. If estimates of warranty provisions are no longer adequate based on
our analysis of current activity, incremental provisions are recorded as warranty expense in our Consolidated
Statement of Operations. We take these factors into consideration when assessing the adequacy of our warranty
provision for periods still open to claim. Refer to Note 6 – Accrued Warranties in the Notes to the Consolidated
Financial Statements for more information.
Income Taxes and Tax Valuation Allowances
We record the estimated future tax effects of temporary differences between the tax basis of assets and
liabilities and amounts reported in our Consolidated Balance Sheets, as well as operating loss and tax credit
28