Harman Kardon 2010 Annual Report Download - page 57

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lowered our assumptions relating to net sales, operating cash flow margins and net cash flows by reporting unit
over the five year projection period. The weak economic climate caused us to assume that the general economic
conditions would begin a gradual recovery in fiscal year 2010 but that future growth rates would be lower than
had been assumed in previous years. In addition, the instability of the credit markets caused us to increase our
assumed discount rates used in calculating the fair value of our reporting units in fiscal year 2009 compared with
the rates, which had been assumed in previous years. These estimates require significant management judgment.
As a result, we recorded a $317.7 million goodwill impairment charge in fiscal year 2009, of which $295.1
million was in our Automotive segment and $22.6 million was in our Consumer segment.
During the first half of fiscal year 2010, we determined that goodwill related to our Automotive segment
was impaired and we recognized an impairment charge of $12.3 million in our Consolidated Statement of
Operations for the fiscal year ended June 30, 2010. During the second half of fiscal 2010, as a result of the
sustained improvements in the operating results of our Automotive reporting unit due to improvements in
economic conditions and realized savings resulting from our cost cutting initiatives, we performed a preliminary
goodwill impairment test which demonstrated that the calculated fair value of our reporting units exceeded the
respective carrying values and therefore no impairment existed in our Automotive reporting unit and our other
reporting units. As a result, we ceased recognizing goodwill impairment charges associated with incremental
goodwill that is recognized related to contingent purchase price arrangements. During the year ended June 30,
2010, we recorded $6.1 million of goodwill associated with a contingent purchase price arrangement in our
Automotive segment in our Consolidated Balance Sheet. These impairment charges do not have any direct
impact on our liquidity, compliance with any covenants under our debt agreements or potential future results of
operations. Our historical operating results may not be indicative of our future operating results. We will revise
our estimates used in calculating the fair value of our reporting units as needed.
Goodwill from continuing operations was $105.9 million at June 30, 2010 compared with $42.2 million at
June 30, 2009. The increase in goodwill in the fiscal year ended June 30, 2010 versus the prior fiscal year is
primarily related to the acquisition of Selenium in June 2010, which resulted in an increase in goodwill of $59.1
million, and contingent purchase price consideration associated with the acquisition of Innovative Systems
GmbH (“Innovative”) of $6.1 million. Refer to Note 2 – Acquisition in the Notes to the Consolidated Financial
Statements for more information relating to the acquisition of Selenium.
Goodwill was $42.2 million at June 30, 2009 compared with $383.9 million at June 30, 2008. The decrease
is primarily related to non-cash goodwill impairment charges of $317.7 million, unfavorable foreign currency
translation of $35.3 million and contingent purchase price consideration associated with the acquisition of
Innovative Systems GmbH of $11.3 million. Refer to Note 8 – Goodwill in the Notes to the Consolidated
Financial Statements for more information.
The changes in the carrying amount of goodwill for the year ended June 30, 2010 were as follows:
($ in thousands) Automotive Consumer Professional Other Total
Balance at June 30, 2009 .......................... $ — $ — $42,200 $— $ 42,200
Acquisition of Selenium (Note 2) ................... — 30,686 28,389 — 59,075
Contingent purchase price consideration associated with
the acquisition of Innovative Systems GmbH ........ 18,419 — — — 18,419
Impairment charge .............................. (12,292) — — — (12,292)
Other adjustments(1) .............................. — — (1,480) — (1,480)
Balance at June 30, 2010 .......................... $ 6,127 $30,686 $69,109 $— $105,922
(1) The other adjustments to goodwill primarily consist of foreign currency translation adjustments.
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