Harman Kardon 2011 Annual Report Download - page 81

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Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are considered participating securities, as defined under GAAP, and are
included in the computation of earnings per share pursuant to the two-class method.
Certain options were outstanding and not included in the computation of diluted net earnings per share
because the assumed exercise of these options would have been antidilutive, as follows:
• Options to purchase 1,661,273 shares of our common stock with exercise prices ranging from $32.80 to
$126.94 per share at June 30, 2011 were outstanding and not included in the computation of diluted
earnings per share because the exercise of these options would have been antidilutive. In addition, 712
restricted shares were not included in the computation of diluted earnings per share as they also would
have been antidilutive.
• Options to purchase 2,350,820 shares of our common stock with exercise prices ranging from $26.64 to
$126.94 per share at June 30, 2010 were outstanding and not included in the computation of diluted
earnings per share because the exercise of these options would have been antidilutive. No restricted
shares were included in the computation of diluted earnings per share as they also would have been
antidilutive.
• Options to purchase 2,700,470 shares of our common stock with exercise prices ranging from $16.43 to
$126.94 per share at June 30, 2009 were outstanding and not included in the computation of diluted
earnings per share because the exercise of these options would have been antidilutive. In addition,
392,117 restricted shares of our common stock were outstanding at June 30, 2009 and were not
included in the computation of diluted earnings per share as they also would have been antidilutive.
The conversion terms of our $400 million of 1.25 percent convertible senior notes (“Convertible Senior
Notes”) will affect the calculation of diluted earnings per share if the price of our common stock exceeds the
conversion price of the Convertible Senior Notes. The initial conversion price of the Convertible Senior Notes
was approximately $104 per share, subject to adjustment in specified circumstances as described in the indenture
governing the Convertible Senior Notes (the “Indenture”). Upon conversion, a holder of the Convertible Senior
Notes will receive an amount per Convertible Senior Note in cash equal to the lesser of $1,000 or the conversion
value of the Convertible Senior Notes, determined in the manner set forth in the Indenture. If the conversion
value exceeds $1,000, we will deliver $1,000 in cash and at our option, cash or common stock or a combination
of cash and common stock for the conversion price in excess of $1,000. The conversion option is indexed to our
common stock and therefore is classified as equity. The conversion option will not result in an adjustment to net
income in calculating diluted earnings per share. The dilutive effect of the conversion option will be calculated
using the treasury stock method. Therefore, conversion settlement shares will be included in diluted shares
outstanding if the price of our common stock exceeds the conversion price of the Convertible Senior Notes. Refer
to Note 9 – Debt for further information.
Note 8 – Goodwill
We test for impairment at the reporting unit level on an annual basis as of April 30th of every year and
between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying value. The impairment test for goodwill is a two-step process. The
first step compares the fair value of each reporting unit to its carrying value, with fair value of each reporting unit
determined using established valuation techniques, specifically the market and income approaches. Should the
results of the first step indicate that the fair value of a reporting unit is less than its carrying value, the second
step of this test is conducted wherein the amount of any impairment is determined by comparing the implied fair
value of goodwill in a reporting unit to the recorded amount of goodwill for that reporting unit. The implied fair
value of goodwill is calculated as the excess of fair value of the reporting unit over the amounts assigned to its
assets and liabilities. Should the fair value of the goodwill so calculated be less than the carrying value, an
impairment is recognized. The annual goodwill impairment test conducted as of April 30, 2011 indicated that the
fair value of each reporting unit was substantially in excess of its carrying value and, as such, no impairment was
deemed to exist.
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