Harman Kardon 2011 Annual Report Download - page 46

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inventory reserves based on the identification of specific situations and increase our inventory reserves
accordingly. As changes in future economic or industry conditions occur, we revise the estimates that were used
to calculate our inventory reserves.
If actual conditions are less favorable than those we have projected, we may need to increase our reserves
for excess and obsolete inventories. Any increases in our reserves will adversely impact our results of operations.
Such reserves are not reduced until the product is sold.
Although there was deterioration in economic conditions in the beginning of fiscal year 2010 and in fiscal
year 2009, we did not experience significant increases in our inventory write-downs, primarily due to a
significant portion of our inventories being produced as a result of specific customer orders within our
Automotive segment. After discussions with several of our significant customers, we concluded that the majority
of orders would be postponed and not cancelled. We were able to proactively adjust our supply chain demand to
match these new customer requirements, thereby reducing our exposure to inventory write-downs. There was no
significant movement in our inventory reserves in fiscal year 2011 compared with the end of the prior fiscal year.
At June 30, 2011 and 2010 our inventory reserves were $73.3 million and $75.1 million, respectively. Refer to
Note 4 – Inventories, net in the Notes to the Consolidated Financial Statements for more information.
Goodwill
Goodwill is tested for impairment annually each April 30th 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 the heading “Goodwill” below and Note 1 –
Summary of Significant Accounting Policies and Note 8 – Goodwill in the Notes to the Consolidated Financial
Statements for more information.
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 definite-
lived 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 impairment tests, which could
result in additional non-cash impairment charges. We did not record any impairment charges for long-lived assets
in 2011 and 2009. We recognized $1.2 million in impairment charges related to facilities that were held-for-sale
in the fiscal year ended June 30, 2010.
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