<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, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(202) 393-1101
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(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.
16,307,192 shares of Common Stock, $.01 par value, at January 31, 1996.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31,
1995 and June 30, 1995 3
Condensed Consolidated Statements of Operations -
Six months ended December 31, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 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 7-9
PART II. OTHER INFORMATION 10
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND JUNE 30, 1995
(000s omitted except per share amounts)
<TABLE>
(Unaudited) (Audited)
12/31/95 06/30/95
ASSETS --------------- ---------------
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 12,356 $ 11,252
Receivables (less allowance for doubtful
accounts: $12,402 at December 31, 1995,
and $12,313 at June 30, 1995) 277,122 264,898
Inventories
Finished goods and inventory
purchased for resale 173,977 146,132
Work in process 28,752 28,412
Raw materials and supplies 78,348 61,988
--------------- ---------------
Total inventories 281,077 236,532
Other current assets 47,431 39,973
--------------- ---------------
Total current assets 617,986 552,655
Property, plant and equipment, net 196,230 189,823
Other assets 19,130 21,890
Excess of cost over fair value of assets acquired, net 125,456 122,504
--------------- ---------------
Total assets $ 958,802 $ 886,872
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 18,355 $ 27,208
Current portion of long-term debt 18,271 13,006
Accounts payable 89,609 90,755
Accrued liabilities 150,306 164,122
--------------- ---------------
Total current liabilities 276,541 295,091
Other non-current liabilities 30,306 31,199
Borrowings under Revolving Credit Facility 183,078 106,244
Senior long-term debt 45,214 50,277
Subordinated long-term debt 109,800 109,500
Deferred income 432 1,082
Minority interest 3,966 3,989
Shareholders' Equity:
Common stock, $0.01 par value 160 152
Additional paid-in capital 185,506 156,257
Equity adjustment from foreign
currency translation 5,658 6,157
Retained earnings 118,141 126,924
--------------- ---------------
Net shareholders' equity 309,465 289,490
Total liabilities and
shareholders' equity $ 958,802 $ 886,872
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
1995 1994 1995 1994
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 348,669 $ 288,718 $ 649,143 $ 517,325
Cost of sales 240,754 197,881 451,742 350,622
--------------- --------------- --------------- ---------------
Gross profit 107,915 90,837 197,401 166,703
Selling, general and
administrative expenses 77,489 66,021 150,702 127,728
--------------- --------------- --------------- ---------------
Operating income 30,426 24,816 46,699 38,975
Other expenses:
Interest expense 7,538 6,173 14,475 11,909
Miscellaneous, net 590 93 865 1,411
--------------- --------------- --------------- ---------------
Income before income
taxes, minority interest
and extraordinary items 22,298 18,550 31,359 25,655
Income tax expense 6,825 6,336 9,948 9,166
Minority interest 11 44 45 121
--------------- --------------- --------------- ---------------
Income before
extraordinary items 15,462 12,170 21,366 16,368
Extraordinary items,
net of income taxes -- (226) -- (274)
--------------- --------------- --------------- ---------------
Net income $ 15,462 $ 11,944 $ 21,366 $ 16,094
========= ========= ========= =========
Earnings per share of
common stock before
extraordinary items $ 0.95 $ 0.76 $ 1.31 $ 1.03
========= ========= ========= =========
Earnings per common share$ 0.95 $ 0.75 $ 1.31 $ 1.02
========= ========= ========= =========
Weighted average number
of common shares
outstanding 16,258 15,858 16,248 15,843
========= ========= ========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
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HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994
($000s omitted) (UNAUDITED)
<TABLE> 1995 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,366 $ 16,094
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 24,953 18,647
Amortization of intangible assets 2,771 1,241
Amortization of deferred income (646) (647)
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) decrease in:
Receivables (10,056) (3,405)
Inventories (40,672) 13,995
Other current assets (2,700) (15,043)
Increase (decrease) in:
Accounts payable (1,996) (21,830)
Accrued liabilities (14,530) (4,563)
--------------- ---------------
Total adjustments (42,876) (11,605)
--------------- ---------------
Net cash provided by (used in) operating activities $ (21,510) $ 4,489
--------------- ---------------
Cash flow from investing activities:
Payment for purchase of companies, net of
cash acquired $ (11,064) $ (3,990)
Proceeds from asset dispositions 171 --
Capital expenditures for property, plant and equipment (33,656) (21,539)
Other items, net 185 (2,143)
--------------- ---------------
Net cash used in investing activities $ (44,364) $ (27,672)
--------------- ---------------
Cash flow from financing activities:
Net borrowings under lines of credit $ (8,948) $ (42,758)
Net proceeds from (repayments of) long-term debt 77,317 71,771
Dividends paid to stockholders (1,594) (1,207)
Proceeds from exercise of stock options 702 592
Net change, foreign currency translation (499) (176)
--------------- ---------------
Net cash provided by financing activities $ 66,978 $ 28,222
--------------- ---------------
Net increase (decrease) in cash and short-term
investments 1,104 5,039
Cash and short-term investments at beginning of period 11,252 9,724
--------------- ---------------
Cash and short-term investments at end of period $ 12,356 $ 14,763
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 12,629 $ 11,322
Income taxes paid $ 7,890 $ 12,519
Supplemental schedule of non-cash investing activities:
Fair value of assets acquired $ 14,650 $ 2,493
Cash paid for the capital stock 11,757 422
--------------- ---------------
Liabilities assumed $ 2,893 $ 2,071
--------------- ---------------
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, 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
December 31, 1995 and the results of their operations and their cash
flows for the periods presented.
The results of operations for the six months ended December 31, 1995
are not necessarily indicative of the results to be expected for the full
year.
NOTE B - ACQUISITIONS
On August 30, 1995, Harman International Industries, Incorporated,
exercised its option to purchase the remaining 80% of the issued and
outstanding shares of Madrigal Audio Laboratories, Inc. ("Madrigal"),
increasing its ownership to 100%. Harman paid approximately $9.8
million for the remaining shares and related acquisition costs. Harman
funded its acquisition of Madrigal utilizing its revolving credit facility.
The results of operations for the six months ended December 31, 1995,
include the results of Madrigal for July 1, 1995 through December 31,
1995, as the acquisition was made effective July 1, 1995.
NOTE C - STOCK DIVIDEND
In August 1995, the Company declared a special 5 percent stock
dividend to stockholders of record on August 11, 1995, payable on
August 25, 1995. Outstanding shares and earnings per share have been
retroactively restated to give effect to the stock dividend. In accordance
with ARB 43, the stock dividend was accounted for by transferring from
retained earnings to the common stock and additional paid-in capital
accounts an amount equal to the fair value of the additional shares
issued.
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 THE THREE MONTH AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1995 AND 1994
Net sales for the quarter ended December 31, 1995, totaled $348.7
million, a 21 percent increase over the comparable period in the prior
year. For the first half of the year, sales increased 25 percent to $649.1
million. Excluding recent acquisitions which were not represented in
the first six months of last year, sales increased 5 percent for the quarter
and 8 percent for the first half.
The Professional Group contributed higher sales for the second quarter
and the first half. JBL Professional reported higher sales for the first
half, driven in large part by the success of the EON product line. AKG
produced excellent sales growth for the second quarter and the first half
on the strength of new models of wireless microphones and headphones.
The Consumer Group reported modestly higher sales for the second
quarter and the first half despite weakness in the United States retail
environment which adversely affected JBL and Infinity loudspeaker
sales. Harman Kardon generated increased sales for the second quarter
and the first half due to strong demand for the Citation line of home
theater components and its expanded line of audio/video receivers.
Sales of consumer electronics and loudspeakers in Europe were robust
in the second quarter and the first half.
The OEM Group (formerly the Automotive OEM Group) produced
higher sales for the second quarter and the first half. Sales growth was
partially attributable to Becker, which was not represented in the first
half last year. Shipments of high fidelity systems for the Chrysler
Minivan, Ford Explorer and the Jeep Grand Cherokee were vigorous.
The success of the new Toyota Avalon, which features a high-end audio
system supplied by the OEM Group, also contributed to the results. The
name of the group has been changed to reflect its expanded mission to
provide OEM audio products for additional markets, such as audio for
computers.
The gross profit margin for the quarter ended December 31, 1995, was
31.0 percent ($107.9 million) compared to 31.5 percent ($90.8 million)
in the prior year. The gross profit margin for the first half of fiscal 1996
7
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was 30.4 percent ($197.4 million) compared to 32.2 percent ($166.7
million) in the previous year. The decrease in the gross margin
percentage in the quarter and the first half primarily reflects the
inclusion of Becker.
Operating income as a percentage of sales was 8.7 percent ($30.4
million) for the second quarter ended December 31, 1995, compared
with 8.6 percent ($24.8 million) for the same period in the prior year.
The increase for the second quarter results from reduced selling, general
and administrative expenses as a percentage of sales. For the first half,
operating income as a percentage of sales was 7.2 percent compared
with 7.5 percent for the first half of fiscal 1995. The decrease reflects
the inclusion of Becker, at essentially a break-even.
Interest expense for the three months ended December 31, 1995,
increased to $7.5 million from $6.2 million reported in the comparable
period in the prior year due to higher average borrowings. For the six
months ended December 31, 1995, interest expense was $14.5 million,
up from $11.9 million for the six months ended December 31, 1994.
Average borrowings outstanding were $366.8 million for the second
quarter of fiscal 1996 and $343.1 million for the first half, up from
$263.4 million and $252.5 million, respectively, for the same periods in
the prior year. Higher average borrowings in fiscal 1996 result from the
Becker and Madrigal acquisitions and the financing of increased
working capital requirements.
The impact of the increase in average borrowings on interest expense
was partially offset by a substantial reduction in the average interest rate
on borrowings. The average interest rate on borrowings was 8.2 percent
for the second quarter and 8.4 percent for the six months ended
December 31, 1995, down from 9.4 percent for both the second quarter
and the six months ended December 31, 1994. The decrease in average
interest rates results from generally lower market interest rates
worldwide and the refinancing of unsecured lines of credit with a
committed revolving credit facility agreement which was completed
September 30, 1994. Interest expense as a percentage of sales was 2.2
percent for the first half of fiscal 1996, down from 2.3 percent for the
comparable period in the previous year.
Income before income taxes, minority interest and extraordinary items
for the second quarter of fiscal 1996 was $22.3 million, up from $18.6
million in the previous year. For the six months ended December 31,
1995, income before income taxes, minority interest and extraordinary
items increased to $31.4 million, compared with $25.7 million in the
prior year period.
8
<PAGE>
The effective tax rate for the second quarter of fiscal 1996 was 30.6
percent compared with 34.2 percent in the same period a year ago. The
effective tax rate for the first half of fiscal 1996 was 31.7 percent
compared with 35.7 percent in the prior year. The decrease in the
effective tax rate for the quarter and the first half results from the
restructuring of certain foreign subsidiaries to take advantage of prior
years' tax losses. The Company calculates its effective tax rate based
upon its best estimate of annual results.
Net income for the three months ended December 31, 1995, was $15.5
million, or $0.95 per share, compared with $11.9 million, or $0.75 per
share, in the previous year. Net income for the first half of fiscal 1996
was $21.4 million, or $1.31 per share, compared with $16.1 million, or
$1.02 per share, in the previous year. Prior year earnings per share data
has been restated to give effect to the special 5 percent stock dividend
declared and paid in August 1995.
FINANCIAL CONDITION
- ---------------------------------
Net working capital at December 31, 1995, was $341.4 million,
compared with $257.6 million at June 30, 1995. Working capital
increased to support higher sales volume than in the prior year and to
reflect the acquisition of Madrigal. Additionally, finished goods
inventories increased due to weaker than anticipated second quarter
sales in the United States.
Borrowings under the revolving credit facility at December 31, 1995,
were $187.3 million, comprised of swing line borrowings of $4.2
million, which are included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $183.1 million.
Borrowings under the revolving credit facility at June 30, 1995, were
$115.9 million, comprised of swing line borrowings of $9.7 million and
competitive advance borrowings and revolving credit borrowings of
$106.2 million. Increased borrowings reflect the financing of capital
expenditures, additional working capital requirements and the Madrigal
acquisition. In the second quarter of fiscal 1996, the revolving credit
facility was increased from $220 million to $275 million, and the
maturity was extended one year to September 30, 2000.
Accrued liabilities decreased $13.8 million, from $164.1 million to
$150.3 million, primarily due to the funding of previously announced
restructuring programs to enhance the productivity of recent
acquisitions.
9
<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
(a) The date of the annual meeting of stockholders was
November 14, 1995.
(b) Mr. Bernard A. Girod was re-elected as a director of the
Company with 14,189,904 affirmative votes and 51,600
votes withholding authority. Mr. Girod will serve a three-
year term expiring at the 1998 Annual Meeting of
Stockholders.
Ms. Ann McLaughlin was elected as a director of the
Company with 14,236,113 affirmative votes and 5,391
votes withholding authority. Ms. McLaughlin will serve a
three-year term expiring at the 1998 Annual Meeting of
Stockholders.
(c) The proposal to amend the 1992 Incentive Plan was
approved with 12,791,781 affirmative votes, 1,429,716
negative votes and 20,007 votes withholding authority.
10
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION (Continued)
Item 5. Other Information
Except for historical information contained herein, the matters
discussed are forward-looking statements which involve risks
and uncertainties that could cause actual results to differ
materially from those suggested in the forward-looking
statements, including, but not limited to the effect of
economic conditions, product demand, competitive products and
other risks detailed in the Company's other Securities and
Exchange Commission filings.
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 13, 1995 BY: /s/ Sidney Harman
-------------------------------
Sidney Harman
Chairman and Chief
Executive Officer
DATE: February 13, 1995 BY: /s/ F. Gordon Bitter
-------------------------------
F. Gordon Bitter
Chief Financial Officer
12
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 9542
<SECURITIES> 2814
<RECEIVABLES> 289524
<ALLOWANCES> 12402
<INVENTORY> 281077
<CURRENT-ASSETS> 617986
<PP&E> 375494
<DEPRECIATION> 179264
<TOTAL-ASSETS> 958802
<CURRENT-LIABILITIES> 276541
<BONDS> 338092
0
0
<COMMON> 160
<OTHER-SE> 309305
<TOTAL-LIABILITY-AND-EQUITY> 958802
<SALES> 649143
<TOTAL-REVENUES> 649143
<CGS> 369658
<TOTAL-COSTS> 451742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1240
<INTEREST-EXPENSE> 14475
<INCOME-PRETAX> 31359
<INCOME-TAX> 9948
<INCOME-CONTINUING> 21366
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<NET-INCOME> 21366
<EPS-PRIMARY> 1.31
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</TABLE>
