<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: MARCH 31, 1995 Commission File Number: 1-9764
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 11-2534306
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
1101 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20004
(Address of principal executive offices) (Zip code)
(202) 393-1101
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
15,158,897 shares of Common Stock, $.01 par value at April 30, 1995.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31,
1995 and June 30, 1994 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 7-10
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND JUNE 30, 1994
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
03/31/95 6/30/94
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 15,842 $ 9,724
Receivables (less allowance for doubtful
accounts: $13,381 at March 31, 1995,
and $10,241 at June 30, 1994) 241,249 206,801
Inventories
Finished goods and inventory
purchased for resale 154,550 151,426
Work in process 27,510 20,200
Raw materials and supplies 66,833 66,469
----------- ----------
Total inventories 248,893 238,095
Other current assets 57,091 35,202
----------- ----------
Total current assets 563,075 489,822
Investments 3,691 4,139
Investments in unconsolidated subsidiaries 2,701 2,675
Property, plant and equipment, net 185,012 138,555
Other assets 11,766 11,140
Excess of cost over fair value of assets
acquired, net 122,203 34,360
----------- ----------
Total assets $ 888,448 $ 680,691
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable / swing lines $ 25,047 $ 63,140
Current portion of long-term debt 7,926 6,114
Accounts payable 90,862 91,516
Accrued liabilities 172,583 113,174
----------- ----------
Total current liabilities 296,418 273,944
Other non-current liabilities 11,689 8,514
Borrowings under Revolving Credit Facility 127,367 --
Senior long-term debt 56,640 41,577
Subordinated long-term debt 109,500 115,000
Deferred income 1,411 2,372
Minority interest 4,061 7,263
Shareholders' Equity:
Common stock, $0.01 par value 152 151
Additional paid-in capital 159,336 143,144
Equity adjustment from foreign
currency translation 7,887 392
Retained earnings 113,987 88,334
----------- ----------
Net shareholders' equity 281,362 232,021
----------- ----------
Total liabilities and
shareholders' equity $ 888,448 $ 680,691
=========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1995 AND 1994
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 310,493 $ 222,915 $ 827,818 $ 609,302
Cost of Sales 216,598 150,787 567,220 420,025
---------- ---------- ---------- ----------
Gross Profit 93,895 72,128 260,598 189,277
Selling, general and
administrative expenses 70,839 53,784 198,567 143,958
---------- ---------- ---------- ----------
Operating income 23,056 18,344 62,031 45,319
Other expenses:
Interest expense 7,155 5,527 19,064 17,459
Miscellaneous, net 217 (61) 1,628 639
---------- ---------- ---------- ----------
Income before income taxes,
minority interest and
extraordinary items 15,684 12,878 41,339 27,221
Income tax expense 4,300 4,699 13,466 10,431
Minority interest 12 -- 133 --
---------- ---------- ---------- ----------
Income before
extraordinary items 11,372 8,179 27,740 16,790
Extraordinary items,
net of income taxes -- -- (274) (748)
---------- ---------- ---------- ----------
Net income $ 11,372 $ 8,179 $ 27,466 $ 16,042
========== ========== ========== ==========
Earnings per share of
common stock before
extraordinary items $ 0.75 $ 0.55 $ 1.84 $ 1.30
========== ========== ========== ==========
Earnings per common share $ 0.75 $ 0.55 $ 1.82 $ 1.25
========== ========== ========== ==========
Weighted average number
of common shares
outstanding 15,131 14,986 15,103 12,812
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1995 AND 1994
($000s omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 27,466 $ 16,042
---------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 33,610 22,414
Amortization of intangible assets 1,905 1,506
Amortization of deferred income (971) (970)
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) decrease in:
Receivables (14,387) (20,540)
Inventories 11,492 (45,890)
Other current assets (21,181) (823)
Increase (decrease) in:
Accounts payable (46,012) 9,202
Accrued liabilities 9,432 260
---------- ----------
Total adjustments $ (26,112) $ (34,841)
---------- ----------
Net cash provided by (used in) operating activities $ 1,354 $ (18,799)
Cash flow from investing activities:
Payment for purchase of companies, net of
cash acquired (9,556) 8,580
Investments in unconsolidated subsidiaries -- (2,500)
Capital expenditures for property, plant
and equipment (34,632) (27,444)
Other items, net (4,783) 774
---------- ----------
Net cash used in investing activities $ (48,971) $ (20,590)
---------- ----------
Cash flow from financing activities:
Net borrowings under (repayments of) lines of credit (82,762) (13,775)
Net proceeds from (repayments of) long-term debt 129,772 (25,007)
Proceeds from issuance of common stock -- 87,488
Dividends paid to stockholders (1,813) --
Proceeds from exercise of stock options 1,043 1,810
Net change, foreign currency translation 7,495 1,061
---------- ----------
Net cash flow provided by financing activities $ 53,735 $ 51,577
---------- ----------
Net increase in cash and short-term investments 6,118 12,188
Cash and short-term investments at beginning of period 9,724 2,179
---------- ----------
Cash and short-term investments at end of period $ 15,842 $ 14,367
- ---------------------------------- ========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 18,648 $ 19,358
Income taxes paid $ 13,153 $ 7,992
Supplemental schedule of noncash investing activities:
Fair value of assets acquired $ 151,384 $ 134,144
Cash paid for the capital stock 10,715 --
---------- ----------
Liabilities assumed $ 140,669 $ 134,144
---------- ----------
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements for the
three months and nine months ended March 31, 1995 and 1994 have not
been audited by the Company's independent auditors; however, in the
opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments
(consisting of only normal recurring accruals) necessary to present
fairly the consolidated financial position of the Company and
subsidiaries as of March 31, 1995 and the results of their
operations and their cash flows for the periods presented.
The results of operations for the three months and nine months
ended March 31, 1995 are not necessarily indicative of the results
to be expected for the full year.
NOTE B - ACQUISITIONS
On February 27, 1995, Harman International Industries, Incorporated
("Harman") completed its acquisition of 100 percent of the
outstanding shares of Becker GmbH ("Becker") with satisfaction of
all conditions remaining after the execution of the share purchase
agreement dated February 16, 1995 between Harman, Roland Becker and
Becker Holding S.A. Becker is a leading German manufacturer of
automotive OEM and consumer automotive aftermarket electronics.
Under the terms of the agreement, Harman paid 9.0 million
Deutschmarks (approximately $6.0 million) and 400,000 shares of
Harman common stock in consideration for all of the issued and
outstanding stock of Becker. Harman assumed post-acquisition
indebtedness of Becker of 86.0 million Deutschmarks (approximately
$57.7 million). Harman funded its acquisition of Becker utilizing
its revolving credit facility.
The results of operations for the third quarter ended March 31,
1995 include the results of Becker for January 1, 1995 through
March 31, 1995, as the acquisition was made effective January 1,
1995. The Consolidated Balance Sheet as of March 31, 1995 includes
$57.7 million of borrowings under the Harman revolving credit
facility utilized to satisfy Becker post-acquisition indebtedness,
as well as other payment obligations of Becker.
Pro forma combined results of the Company and Becker for the twelve
months ended June 30, 1994, as if the acquisition had occurred July
1, 1993, are net sales of $1,031,003,000, income before
extraordinary items of $26,691,000 and earnings per share before
extraordinary items of $1.94.
Pro forma combined results of the Company and Becker for the six
months ended December 31, 1994, as if the acquisition had occurred
July 1, 1994, are net sales of $614,506,000, income before
extraordinary items of $17,377,000 and earnings per share before
extraordinary items of $1.12.
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
COMPARISON OF THREE MONTH AND NINE MONTH PERIODS ENDED MARCH 31,
1995 AND 1994
Net sales for the quarter ended March 31, 1995 totaled $310.5
million, a 39.3 percent increase over the comparable period in the
prior year. For the first nine months of the year, sales
increased 35.9% to $827.8 million. Excluding Becker, which was
acquired effective January 1, 1995, sales for the quarter ended
March 31, 1995 were $256.5 million, a 15.1 percent increase over
the same period a year ago.
The Professional Group produced good sales and earnings results for
the quarter and the first nine months. Professional sales for the
first nine months included Studer and AKG. Studer was not part of
the Company in the first half a year ago, and AKG contributed in
the second and third quarters only. JBL Professional generated
higher sales compared to last year in both domestic and
international markets. Soundcraft and DOD contributed strong
results.
The Consumer Group contributed higher sales and operating results
compared to the prior year. Infinity and JBL contributed to the
growth as new products led to higher sales and operating results
over the same period a year ago.
The Automotive OEM Group produced excellent sales and earnings.
Shipments of the Infinity Gold audio system designed for the Jeep
Grand Cherokee increased over the prior year, as did shipments of
the Ford/JBL premium system offered in the Ford Explorer. The
success of the new Toyota Avalon, which offers a high-end audio
system supplied by the Automotive OEM Group, also contributed to
higher sales and earnings.
The gross profit margin for the quarter ended March 31, 1995 was
30.2 percent ($93.9 million) compared to 32.4 percent ($72.1
million) in the prior year. The gross profit margin for the first
nine months of fiscal 1995 was 31.5 percent ($260.6 million)
compared to 31.1 percent ($189.3 million) in the previous year.
The gross profit margin percentage for the first nine months
increased due to higher margin contribution from the Professional
Group, primarily reflecting gains at AKG and DOD, and the favorable
effects of operating leverage and product mix at the Automotive OEM
Group. The gross profit margin for the quarter decreased compared
to the prior year, resulting from lower manufacturing throughput
associated with inventory reduction programs which were implemented
in September 1994 and lower margin contribution from Becker.
7
<PAGE>
Selling, general and administrative expenses represented 22.8
percent of net sales for the quarter ended March 31, 1995, compared
to 24.1 percent for the comparable period in the prior year.
Selling, general and administrative expenses for the first nine
months were 24.0 percent of sales compared to 23.6 percent in the
prior year. The increase for the first nine months primarily
resulted from costs associated with new advertising and marketing
programs intended to increase awareness of the Company's brands.
Operating income as a percentage of sales was 7.4 percent ($23.1
million) for the third quarter ended March 31, 1995 compared with
8.2 percent ($18.3 million) for the same period in the prior year.
For the first nine months, operating income as a percentage of
sales increased to 7.5 percent from 7.4 percent reported in the
previous year. The increase for the first nine months reflects
improved gross profit percentages as discussed above.
Interest expense for the three months ended March 31, 1995
increased to $7.2 million from $5.5 million reported in the
comparable period in the prior year. For the nine months ended
March 31, 1995, interest expense was $19.1 million, compared to
$17.5 million for the nine months ended March 31, 1994. Interest
expense as a percentage of sales was 2.3 percent for the third
quarter ended March 31, 1995, down from 2.5 percent for the
comparable period in the previous year. Interest expense as a
percentage of sales for the first nine months of fiscal 1995 was
2.3 percent compared with 2.9 percent in the first nine months of
fiscal 1994.
Despite lower average interest rates, Harman reported higher
interest expense for the third quarter and the first nine months
due to higher average borrowings. The average borrowings
outstanding were $287.3 million for the third quarter and $266.2
million for the first nine months of fiscal 1995, compared to
$202.6 million for the third quarter and $220.5 million for the
first nine months of fiscal 1994. The increase in average
borrowings is primarily due to debt associated with the Becker and
Studer acquisitions and increased working capital requirements
associated with higher sales volume.
The average interest rate on borrowings was 10.0 percent for the
third quarter and 9.6 percent for the first nine months of fiscal
1995. This compares to average interest rates of 10.9 percent for
the third quarter and 10.6 percent for the first nine months of
fiscal 1994. The decrease in average interest rates reflects the
refinancing of unsecured lines of credit with a $200 million
committed revolving credit facility agreement completed September
30, 1994. Additional favorable impacts include lower interest
rates on debt assumed in fiscal 1994 acquisitions and repayments
and retirements of long-term debt, which generally carried higher
interest rates than short-term debt.
8
<PAGE>
Income before income taxes, minority interest and extraordinary
items for the third quarter of fiscal 1995 was $15.7 million, up
from $12.9 million in the previous year. For the nine months ended
March 31, 1995, income before income taxes, minority interest and
extraordinary items increased to $41.3 million, compared to $27.2
million in the prior year.
The effective tax rate for the third quarter of fiscal 1995 was
27.4 percent compared with 36.5 percent in the prior year. The
effective tax rate for the first nine months of fiscal 1995 was
32.6 percent compared with 38.3 percent in the prior year. The
decrease in the effective tax rate for the third quarter and the
first nine months results from the restructuring of certain foreign
subsidiaries to take advantage of losses which they have incurred.
The Company calculates its taxes based upon its best estimate of
annual results.
The Company reported an extraordinary charge, net of a related tax
benefit, of $226,000 in the second quarter of fiscal 1995
associated with the early extinguishment of $4.5 million of the
12.0% Senior Subordinated Notes, due August 1, 2002. The Company
reported an extraordinary charge, net of a related tax benefit, of
$48,000 in the first quarter of fiscal 1995 associated with the
early extinguishment of $1.0 million of the 12.0% Senior
Subordinated Notes, due August 1, 2002. The Company reported an
extraordinary charge, net of a related tax benefit, of $748,000 in
the second quarter of fiscal 1994 associated with the early
extinguishment of $25.0 million of debt through an in-substance
defeasance of the 10.08% $25.0 million Senior Notes, Series A, due
September 30, 1994.
Net income for the three months ended March 31, 1995 was $11.4
million, or $0.75 per share, compared with $8.2 million, or $0.55
per share, in the previous year. Net income for the first nine
months of fiscal 1995 was $27.5 million, or $1.82 per share,
compared with $16.0 million, or $1.25 per share, in the previous
year.
Financial Condition
- -------------------
On September 30, 1994, the Company and certain of its subsidiaries
completed a $200 million five-year multi-currency revolving credit
facility with a syndicate of banks led by Chemical Bank as Agent
and NationsBank as Co-Agent. The credit facility was used by the
Company and its subsidiaries to refinance existing unsecured lines
of credit and will be used for working capital and other general
corporate purposes.
Net working capital at March 31, 1995 was $266.7 million, compared
with $215.9 million at June 30, 1994. The increase in working
capital reflects the refinancing of unsecured lines of credit with
funds drawn on the five-year revolving credit facility.
9
<PAGE>
Other changes in the Company's balance sheet from June 30, 1994,
the end of the preceding fiscal year, to March 31, 1995 are as
follows:
- - Excluding Becker, inventories decreased by $11.3 million (4.8
percent), from $238.1 million to $226.7 million. This decrease
reflects the successful implementation of a company-wide
inventory reduction program.
- - Excess of cost over fair value of assets acquired increased by
$87.8 million, from $34.4 million to $122.2 million, resulting
from acquisitions, including the acquisition of Becker in
February 1995 and the acquisition of the remaining 24 percent of
AKG in July 1994.
10
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries but, in the opinion of
management, liabilities, if any, arising from such claims
will not have a materially adverse effect upon the
consolidated financial condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
Form 8-K, dated February 27, 1995, filed on March 14,
1995, containing the following items:
Item 2. Acquisition of Becker.
Form 8-K/A, dated February 27, 1995, filed on May 8,
1995, containing the following items:
Item 2. Acquisition of Becker.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Registrant)
DATE: May 15, 1995 BY: /s/ Sidney Harman
----------------------
Sidney Harman
Chairman and Chief
Executive Officer
DATE: May 15, 1995 BY: /s/ Bernard A. Girod
----------------------
Bernard A. Girod
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 15400
<SECURITIES> 442
<RECEIVABLES> 254630
<ALLOWANCES> 13381
<INVENTORY> 248893
<CURRENT-ASSETS> 563075
<PP&E> 348949
<DEPRECIATION> 163937
<TOTAL-ASSETS> 888448
<CURRENT-LIABILITIES> 296418
<BONDS> 109500
<COMMON> 152
0
0
<OTHER-SE> 281210
<TOTAL-LIABILITY-AND-EQUITY> 888448
<SALES> 827818
<TOTAL-REVENUES> 827818
<CGS> 469040
<TOTAL-COSTS> 567220
<OTHER-EXPENSES> 198567
<LOSS-PROVISION> 2895
<INTEREST-EXPENSE> 19064
<INCOME-PRETAX> 41339
<INCOME-TAX> 13466
<INCOME-CONTINUING> 27740
<DISCONTINUED> 0
<EXTRAORDINARY> (274)
<CHANGES> 0
<NET-INCOME> 27466
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.82
</TABLE>
