Harman Kardon 2010 Annual Report Download - page 74

Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
Revenue Recognition:
Revenue is generally recognized at the time of product shipment or delivery, depending on when the
passage of title to goods transfers to unaffiliated customers, when all of the following have occurred: a firm sales
agreement is in place, pricing is fixed or determinable and collection is reasonably assured. Sales are reported net
of estimated returns, discounts, rebates and incentives. Substantially all of our revenue transactions involve the
delivery of a physical product. Royalty income, which is not material, is recorded when earned based upon
contract terms with licensees which provide for royalties.
We enter into incentive agreements with certain automotive customers which relate to a specific program
award. These incentives are generally accounted for as a reduction of revenue where an identifiable benefit can
be ascertained. These incentives are generally based on fixed payments paid to us by the automotive
manufacturer, and are generally deferred, if certain criteria are met. The deferability criteria include the existence
of legally enforceable rights, management’s ability and intent to enforce the recoverability clauses and the ability
to generate future earnings from the agreement in excess of the deferred amounts. Capitalized amounts are
amortized over the related program award term based on our estimate of future volumes. Our estimates are
reviewed regularly and the cumulative impact of a revision in estimates is recorded in the period such revisions
become probable and estimable.
Sales Discounts: We offer product discounts and sales incentives including prompt payment discounts,
volume incentive programs, rebates and dealer order incentives. We report revenues net of discounts and other
sales incentives.
Cost of Sales: Cost of sales includes material, labor and overhead for products manufactured by us and cost
of goods produced for us on a contract basis. Expenses incurred for manufacturing depreciation and engineering,
warehousing, shipping and handling, sales commissions, warranty and customer service are also included in cost
of sales.
Allowance for Doubtful Accounts: We reserve an estimated amount for accounts receivable that may not
be collected. Methodologies for estimating the allowance for doubtful accounts are primarily based on specific
identification of uncollectible accounts. Historical collection rates and customer credit worthiness are considered
in determining specific reserves. At June 30, 2010 and June 30, 2009, we had $8.1 million and $11.7 million,
respectively, reserved for possible uncollectible accounts receivable. As with many estimates, management must
make judgments about potential actions by third parties in establishing and evaluating our allowance for doubtful
accounts. Approximately $2.1 million of the decrease in accounts receivable was due to the deconsolidation of
the Harman Navis Inc. joint venture (“Harman Navis”) in December 2009, as well as a $1.7 million decrease due
to the recoveries related to the bankruptcy of Chrysler in fiscal year 2009, partially offset by a $2.3 million
increase due to the acquisition of Eletrônica Selenium S.A. (“Selenium”) in June 2010. Refer to Note 2 –
Acquisition for more information on the acquisition of Selenium and Note 20 – Investment in Joint Venture for
more information on the deconsolidation of Harman Navis.
Automotive Supply Arrangements: We have arrangements with our Automotive customers to provide
products that meet predetermined technical specifications and delivery dates. In the event we do not satisfy the
performance obligations under these arrangements, we may be required to indemnify the customer. We accrue
for any loss that we expect to incur under these arrangements when the loss is probable and can be reasonably
estimated.
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
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