Harman Kardon 2010 Annual Report Download - page 76

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Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
Property, Plant and Equipment, net: Property, plant and equipment is stated at cost or, in the case of
capitalized leases, at the present value of the future minimum lease payments. Depreciation and amortization of
property, plant and equipment is computed primarily using the straight-line method over the asset’s useful life.
Refer to Note 5 – Property, Plant and Equipment, net for more information.
Goodwill: Goodwill is tested for impairment annually or more frequently if an event or circumstance
indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units,
assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We estimate
the fair value of each reporting unit using a discounted cash flow methodology. This requires us to use significant
judgment, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the
long-term rate of growth for our business, the useful life over which cash flows will occur, determination of our
weighted average cost of capital, and relevant market data. Refer to Note 8 – Goodwill for more information.
Other Intangible Assets: Other intangible assets primarily consist of patents, trademarks, distribution
agreements and non-compete 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 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 primarily
related to infotainment systems that we develop for automobile manufacturers pursuant to long-term supply
arrangements. We record certain costs incurred pursuant to these agreements as unbilled costs once an agreement
is signed.
At June 30, 2010 and 2009, unbilled costs were $17.5 million and $43.0 million, respectively, related to
pre-production costs and there were no costs recorded under development contracts. At June 30, 2010 and 2009,
unbilled costs reimbursable in the next 12 months totaled $5.8 million and $14.3 million, respectively, and were
recorded in other current assets in our Consolidated Balance Sheets. Unbilled costs reimbursable in subsequent
years at June 30, 2010 and 2009 totaled $11.7 million and $28.7 million, respectively, and were recorded in other
assets in our Consolidated Balance Sheets. At June 30, 2010 and 2009, we had fixed assets of $11.7 million and
$22.4 million, respectively, for molds, dies and other tools included in our Consolidated Balance Sheets which
our customers will eventually purchase and own pursuant to long-term supply arrangements.
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