<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: DECEMBER 31, 1994 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.
15,126,767 shares of Common Stock, $.01 par value at January 31, 1994.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31,
1994 and June 30, 1994 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended December 31, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1994 and 1993 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
DECEMBER 31, 1994 AND JUNE 30, 1994
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
12/31/94 6/30/94
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and short-term investments $ 14,763 $ 9,724
Receivables (less allowance for doubtful
accounts: $11,260 at December 31, 1994,
and $10,241 at June 30, 1994) 210,206 206,801
Inventories
Finished goods and inventory
purchased for resale 149,935 151,426
Work in process 19,131 20,200
Raw materials and supplies 55,034 66,469
----------- ----------
Total inventories 224,100 238,095
Other current assets 50,245 35,202
----------- ----------
Total current assets 499,314 489,822
Investments 3,282 4,139
Investments in unconsolidated subsidiaries 2,679 2,675
Property, plant and equipment, net 141,793 138,555
Other assets 11,232 11,140
Excess of cost over fair value of assets
acquired, net 40,270 34,360
----------- ----------
Total assets $ 698,570 $ 680,691
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable / swing lines $ 20,382 $ 63,140
Current portion of long-term debt 4,804 6,114
Accounts payable 69,723 91,516
Accrued liabilities 108,657 113,174
----------- ----------
Total current liabilities 203,566 273,944
Other non-current liabilities 10,623 8,514
Borrowings under Revolving Credit Facility 80,716 --
Senior long-term debt 39,442 41,577
Subordinated long-term debt 109,500 115,000
Deferred income 1,739 2,372
Minority interest 5,660 7,263
Shareholders' Equity:
Common stock, $0.01 par value 151 151
Additional paid-in capital 143,736 143,144
Equity adjustment from foreign
currency translation 216 392
Retained earnings 103,221 88,334
----------- ----------
Net shareholders' equity 247,324 232,021
----------- ----------
Total liabilities and
shareholders' equity $ 698,570 $ 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 SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1994 1993 1994 1993
---------- ---------- --------------------
<S> <C> <C> <C> <C>
Net Sales $ 288,718 $ 222,726 $ 517,325 $ 386,387
Cost of Sales 197,881 152,369 350,622 269,238
---------- ---------- --------------------
Gross Profit 90,837 70,357 166,703 117,149
Selling, general and
administrative expenses 66,021 50,947 127,728 90,174
---------- ---------- --------------------
Operating income 24,816 19,410 38,975 26,975
Other expenses:
Interest expense 6,173 6,347 11,909 11,932
Miscellaneous, net 93 461 1,411 700
---------- ---------- --------------------
Income before income taxes,
minority interest and
extraordinary items 18,550 12,602 25,655 14,343
Income tax expense 6,336 5,035 9,166 5,732
Minority interest 44 -- 121 --
---------- ---------- --------------------
Income before
extraordinary items 12,170 7,567 16,368 8,611
Extraordinary items,
net of income taxes (226) (748) (274) (748)
---------- ---------- --------------------
Net income $ 11,944 $ 6,819 $ 16,094 $ 7,863
========== ========== ====================
Earnings per share of
common stock before
extraordinary items $ 0.80 $ 0.59 $ 1.08 $ 0.72
========== ========== ====================
Earnings per common share$ 0.79 $ 0.54 $ 1.07 $ 0.67
========== ========== ====================
Weighted average number
of common shares
outstanding 15,103 12,617 15,089 11,748
========== ========== ====================
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1994 AND 1993
($000s omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,094 $ 7,863
---------- ----------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 18,647 14,357
Amortization of intangible assets 1,241 998
Amortization of deferred income (647) (646)
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) decrease in:
Receivables (3,405) (8,839)
Inventories 13,995 (25,739)
Other current assets (15,043) (103)
Increase (decrease) in:
Accounts payable (21,830) 641
Accrued liabilities (4,563) 810
---------- ----------
Total adjustments $ (11,605) $ (18,521)
---------- ----------
Net cash provided by (used in) operating activities $ 4,489 $ (10,658)
Cash flow from investing activities:
Payment for purchase of companies, net of
cash acquired (3,990) 2,568
Investments in unconsolidated subsidiaries -- (2,500)
Capital expenditures for property, plant
and equipment (21,539) (17,155)
Other items, net (2,143) 2,124
---------- ----------
Net cash used in investing activities $ (27,672) $ (14,963)
---------- ----------
Cash flow from financing activities:
Net borrowings under (repayments of) lines of credit (42,758) (20,503)
Net proceeds from (repayments of) long-term debt 71,771 (24,288)
Proceeds from issuance of common stock -- 87,488
Dividends paid to stockholders (1,207) --
Proceeds from exercise of stock options 592 681
Net change, foreign currency translation (176) (1,908)
---------- ----------
Net cash flow provided by financing activities $ 28,222 $ 41,470
---------- ----------
Net increase in cash and short-term investments 5,039 15,849
Cash and short-term investments at beginning of period 9,724 2,179
---------- ----------
Cash and short-term investments at end of period $ 14,763 $ 18,028
- - - ---------------------------------- ========== ==========
Supplemental disclosures of cash flow information:
Interest paid $ 11,322 $ 11,696
Income taxes paid $ 12,519 $ 2,025
Supplemental schedule of noncash investing activities:
Fair value of assets acquired $ 2,493 $ 70,149
Cash paid for the capital stock 422 --
---------- ----------
Liabilities assumed $ 2,071 $ 70,149
---------- ----------
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 six months ended December 31, 1994 and 1993 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 December 31, 1994 and the results of their
operations and their cash flows for the periods presented.
The results of operations for the three months and six months ended
December 31, 1994 are not necessarily indicative of the results to
be expected for the full year.
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 SIX MONTH PERIODS ENDED DECEMBER 31,
1994 AND 1993
Net sales for the quarter ended December 31, 1994 totaled $288.7
million, a 29.6 percent increase over the comparable period in the
prior year. For the first half of the year, sales increased 33.9%
to $517.3 million. The quarter and the first half were highlighted
by the performance of the Professional Group. Significant sales
increases were also reported by the Consumer Group and the
Automotive OEM Group.
The Professional Group produced good sales and earnings results for
the quarter and the first half. Professional sales for the first
six 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 quarter only. Soundcraft generated strong growth in sales
and earnings for the quarter and the first half, and DOD
contributed vigorously as it continued an impressive turnaround
from last year's performance.
The Consumer Group contributed higher sales and operating results
compared to the prior year. Infinity and JBL were impressive
contributors as new products led to substantial increases in sales
and operating results over the same period a year ago.
Higher Automotive OEM Group sales resulted from continued strong
sales to the automobile manufacturers. New clients including Saab,
Jaguar and Range Rover now offer Harman Kardon high fidelity
systems. Advanced new Infinity systems are available in the Eagle
Talon and the Mitsubishi Eclipse and Galant. A new Ford/JBL system
is offered in the Ford Windstar minivan and in the newly redesigned
Ford Explorer. A high-end audio system was introduced in the new
Toyota Avalon. Continued brisk sales of the Jeep Grand Cherokee,
which offers the Infinity Gold audio system, also contributed to
the Group's strong results.
The gross profit margin for the quarter ended December 31, 1994 was
31.5 percent ($90.8 million) compared to 31.6 percent ($70.4
million) in the prior year. The gross profit margin for the first
half of fiscal 1995 was 32.2 percent ($166.7 million) compared to
30.3 percent ($117.1 million) in the previous year. The gross
profit margin percentage for the first half 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 approximated the prior
year, reflecting higher margin contribution from the Professional
Group and the Automotive OEM Group offset by the impact of lower
7
<PAGE>
manufacturing throughput associated with inventory reduction
programs which were implemented in September 1994.
Selling, general and administrative expenses represented 22.9
percent of net sales for the quarter ended December 31, 1994, equal
to the comparable period in the prior year. Selling, general and
administrative expenses for the first half of fiscal 1995 were 24.7
percent of sales compared to 23.3 percent in the prior year. The
increase for the first half 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 8.6 percent ($24.8
million) for the second quarter ended December 31, 1994 compared
with 8.7 percent ($19.4 million) for the same period in the prior
year. For the first half, operating income as a percentage of
sales increased to 7.5 percent from 7.0 percent reported in the
previous year. The increase for the first half reflects improved
gross profit percentages as discussed above.
Interest expense for the three months ended December 31, 1994
decreased slightly to $6.2 million from $6.3 million reported in
the comparable period in the prior year. For the six months ended
December 31, 1994, interest expense was $11.9 million, equal to the
amount reported for the six months ended December 31, 1993.
Interest expense as a percentage of sales was 2.1 percent for the
second quarter ended December 31, 1994, down from 2.8 percent for
the comparable period in the previous year. Interest expense as a
percentage of sales for the first half of fiscal 1995 was 2.3
percent compared with 3.1 percent in the first half of fiscal 1994.
As a result of lower average interest rates, interest expense for
the second quarter and the first six months of fiscal 1995
approximated the prior year despite higher average borrowings. The
average borrowings outstanding were $263.4 million for the second
quarter and $252.5 million for the first half of fiscal 1995,
compared to $235.0 million for the second quarter and $227.0
million for the first half of fiscal 1994. The increase in average
borrowings is primarily due to debt assumed in the Studer
acquisition and increased working capital requirements associated
with higher sales volume.
The average interest rate on borrowings was 9.4 percent for both
the second quarter and the first half of fiscal 1995. This
compares to average interest rates of 10.8 percent for the second
quarter and 10.5 percent for the first half 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 second quarter of fiscal 1995 was $18.6 million, up
from $12.6 million in the previous year. For the six months ended
December 31, 1994, income before income taxes, minority interest
and extraordinary items increased to $25.7 million, compared to
$14.3 million in the prior year.
The effective tax rate for the second quarter of fiscal 1995 was
34.2 percent compared with 40.0 percent in the prior year. The
effective tax rate for the first half of fiscal 1995 was 35.7
percent compared with 40.0 percent in the prior year. The decrease
in the effective tax rate for the second quarter and the first half
results from lower income in certain high tax rate countries,
reduced losses of certain foreign subsidiaries and higher domestic
income. 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 December 31, 1994 was $11.9
million, or $0.79 per share, compared with $6.8 million, or $0.54
per share, in the previous year. Net income for the first half of
fiscal 1995 was $16.1 million, or $1.07 per share, compared with
$7.9 million, or $0.67 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 December 31, 1994 was $295.7 million,
compared with $215.9 million at June 30, 1994. The increase in
working capital reflects the refinancing of unsecured lines of
credit with 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 December 31, 1994 are as
follows:
- - - - Inventories decreased by $14.0 million (5.9 percent), from $238.1
million to $224.1 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
$5.9 million, from $34.4 million to $40.3 million, primarily as a
result of acquisitions, including 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
None.
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: February 9, 1995 BY: /s/ Sidney Harman
----------------------
Sidney Harman
Chairman and Chief
Executive Officer
DATE: February 9, 1995 BY: /s/ Bernard A. Girod
----------------------
Bernard A. Girod
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
12
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-2
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 14080
<SECURITIES> 683
<RECEIVABLES> 221466
<ALLOWANCES> 11260
<INVENTORY> 224100
<CURRENT-ASSETS> 499314
<PP&E> 287520
<DEPRECIATION> 145727
<TOTAL-ASSETS> 698570
<CURRENT-LIABILITIES> 203566
<BONDS> 109500
<COMMON> 151
0
0
<OTHER-SE> 247173
<TOTAL-LIABILITY-AND-EQUITY> 698570
<SALES> 288718
<TOTAL-REVENUES> 288718
<CGS> 165967
<TOTAL-COSTS> 197881
<OTHER-EXPENSES> 72287
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6173
<INCOME-PRETAX> 18550
<INCOME-TAX> 6336
<INCOME-CONTINUING> 12170
<DISCONTINUED> 0
<EXTRAORDINARY> 226
<CHANGES> 0
<NET-INCOME> 11944
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
