FORM 10-K - Harman

Note 5 – Goodwill
Harman International Industries, Incorporated and Subsidiaries
(Dollars in thousands, except per-share data and unless otherwise indicated)
Goodwill was $81.9 million at June 30, 2009 compared with $436.4 million at June 30, 2008. The decrease
is primarily related to non-cash goodwill impairment charges of $330.6 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. In fiscal year 2008, goodwill increased by $32.7 million primarily
due to foreign currency translation and contingent purchase price consideration.
Impairment Testing
We test for impairment at the reporting unit level on an annual basis on April 30 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 recorded.
Beginning in the second quarter of fiscal year 2009 and continuing into the third quarter of fiscal year 2009,
we experienced significant declines in our market capitalization as deteriorating economic conditions and
negative industry trends adversely affected our business. Given this, we concluded during both the second and
third quarters of fiscal year 2009, that a triggering event, as defined in SFAS 142, had occurred thereby
necessitating the performance of interim period goodwill impairment tests as of November 30, 2008 and
February 28, 2009 in accordance with SFAS 142.
During the quarter ended December 31, 2008, the results of the first step of the goodwill impairment test
indicated that the calculated fair value of our Professional reporting unit was in excess of its carrying value, and
thus, we concluded no impairment existed for this reporting unit. However, the results of the first step for the
Consumer, Automotive and QNX reporting units indicated that their calculated fair values were less than their
carrying values, and thus, we proceeded to the second step of the goodwill impairment test for these units.
Based on the results of the second step, we recognized a non-cash goodwill impairment charge during the
second quarter of $325.4 million, $289.9 million, net of taxes, which represented the balance of goodwill for the
Automotive and Consumer units and a portion of the goodwill for the QNX unit. The impairment charge was
recorded in goodwill impairment in our Consolidated Statement of Operations in the second quarter of fiscal year
2009. This non-cash charge did not affect our debt covenant compliance, cash flows or ongoing results of
operations.
The interim test conducted in the third quarter of fiscal year 2009 and the annual test conducted in the fourth
quarter of fiscal year 2009 both determined that calculated fair value exceeded the respective carrying values for
the Professional and QNX reporting units but that the Automotive and Consumer reporting units’ respective
carrying values remained in excess of their calculated fair values. As noted above, all goodwill relating to the
Consumer reporting unit was impaired in the second quarter of fiscal year 2009. As such, no further goodwill
impairments were possible for the Consumer reporting unit. The Automotive reporting unit, however, had
recorded additional goodwill during the third and fourth quarters of fiscal year 2009 related to the contingent
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