<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, 1996
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
- ------------------------------------------------------------
(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.
16,270,953 shares of Common Stock, $.01 par value, at April 30, 1996.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31,
1996 and June 30, 1995 3
Condensed Consolidated Statements of Operations -
Nine months ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1996 and 1995 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
EXHIBIT 10.56 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND JUNE 30, 1995
(000s omitted except per share amounts)
<TABLE>
(Unaudited) (Audited)
03/31/96 06/30/95
ASSETS --------------- ---------------
<S> <C> <C>
Current Assets:
Cash and short-term investments $ 9,876 $ 11,252
Receivables (less allowance for doubtful
accounts: $13,061 at March 31, 1996,
and $12,313 at June 30, 1995) 269,865 264,898
Inventories
Finished goods and inventory
purchased for resale 196,983 146,132
Work in process 25,786 28,412
Raw materials and supplies 79,788 61,988
--------------- ---------------
Total inventories 302,557 236,532
Other current assets 51,390 39,973
--------------- ---------------
Total current assets 633,688 552,655
Property, plant and equipment, net 198,051 189,823
Other assets 16,822 21,890
Excess of cost over fair value of assets acquired, net 136,946 122,504
--------------- ---------------
Total assets $ 985,507 $ 886,872
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 21,831 $ 27,208
Current portion of long-term debt 12,932 13,006
Accounts payable 103,567 90,755
Accrued liabilities 150,995 164,122
--------------- ---------------
Total current liabilities 289,325 295,091
Other non-current liabilities 26,238 31,199
Borrowings under Revolving Credit Facility 205,858 106,244
Senior long-term debt 38,416 50,277
Subordinated long-term debt 109,800 109,500
Deferred income 259 1,082
Minority interest 3,896 3,989
Shareholders' Equity:
Common stock, $0.01 par value 160 152
Additional paid-in capital 182,950 156,257
Equity adjustment from foreign
currency translation (2,621) 6,157
Retained earnings 131,226 126,924
--------------- ---------------
Net shareholders' equity 311,715 289,490
--------------- ---------------
Total liabilities and
shareholders' equity $ 985,507 $ 886,872
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 339,339 $ 310,493 $ 988,482 $ 827,818
Cost of sales 235,909 216,598 687,651 567,220
--------------- --------------- --------------- ---------------
Gross profit 103,430 93,895 300,831 260,598
Selling, general and
administrative expenses 75,712 70,839 226,414 198,567
--------------- --------------- --------------- ---------------
Operating income 27,718 23,056 74,417 62,031
Other expenses:
Interest expense 7,207 7,155 21,682 19,064
Miscellaneous, net 258 217 1,123 1,628
--------------- --------------- --------------- ---------------
Income before income
taxes, minority interest
and extraordinary items 20,253 15,684 51,612 41,339
Income tax expense 6,384 4,300 16,332 13,466
Minority interest (18) 12 27 133
--------------- --------------- --------------- ---------------
Income before
extraordinary items 13,887 11,372 35,253 27,740
Extraordinary items,
net of income taxes -- -- -- (274)
--------------- --------------- --------------- ---------------
Net income $ 13,887 $ 11,372 $ 35,253 $ 27,466
========= ========= ========= =========
Earnings per share of
common stock before
extraordinary items $ 0.86 $ 0.72 $ 2.17 $ 1.76
========= ========= ========= =========
Earnings per common share $ 0.86 $ 0.72 $ 2.17 $ 1.74
========= ========= ========= =========
Weighted average number
of common shares
outstanding 16,242 15,888 16,177 15,858
========= ========= ========= =========
</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, 1996 AND 1995
($000s omitted) (UNAUDITED)
</TABLE>
<TABLE> 1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 35,253 $ 27,466
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 35,110 33,610
Amortization of intangible assets 4,567 1,905
Amortization of deferred income (969) (971)
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) decrease in:
Receivables (2,799) (14,387)
Inventories (62,152) 11,492
Other current assets (6,659) (21,181)
Increase (decrease) in:
Accounts payable 11,962 (46,012)
Accrued liabilities (28,871) 9,432
--------------- ---------------
Total adjustments (49,811) (26,112)
--------------- ---------------
Net cash provided by (used in) operating activities $ (14,558) $ 1,354
--------------- ---------------
Cash flow from investing activities:
Payment for purchase of companies, net of
cash acquired $ (18,650) $ (9,556)
Proceeds from asset dispositions 7,013 --
Capital expenditures for property, plant and equipment (53,175) (34,632)
Other items, net 5,104 (4,783)
--------------- ---------------
Net cash used in investing activities $ (59,708) $ (48,971)
--------------- ---------------
Cash flow from financing activities:
Net repayments of lines of credit $ (5,472) $ (82,762)
Net proceeds from long-term debt 87,960 129,772
Dividends paid to stockholders (2,396) (1,813)
Proceeds from exercise of stock options 1,576 1,043
Net change, foreign currency translation (8,778) 7,495
--------------- ---------------
Net cash provided by financing activities $ 72,890 $ 53,735
--------------- ---------------
Net increase (decrease) in cash and short-term
investments (1,376) 6,118
Cash and short-term investments at beginning of period 11,252 9,724
--------------- ---------------
Cash and short-term investments at end of period $ 9,876 $ 15,842
========= =========
Supplemental disclosures of cash flow information:
Interest paid $ 20,361 $ 18,648
Income taxes paid $ 13,401 $ 13,153
Supplemental schedule of non-cash investing activities:
Fair value of assets acquired $ 14,650 $ 151,384
Cash paid for the capital stock 11,757 10,715
--------------- ---------------
Liabilities assumed $ 2,893 $ 140,669
--------------- ---------------
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, 1996 and 1995, 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, 1996 and the results of their operations and their cash flows
for the periods presented.
The results of operations for the nine months ended March 31, 1996, 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 include nine months for Madrigal as the
acquisition was made effective July 1, 1995.
In March 1996, the Company settled its remaining consideration due for
the acquisition of Becker GmbH ("Becker"). The settlement resulted in
total consideration paid of 20.7 million Deutschmarks (approximately
$14.2 million) and 220,000 shares of Harman common stock.
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.
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 NINE MONTH PERIODS ENDED
MARCH 31, 1996 AND 1995
Net sales for the quarter ended March 31, 1996, totaled $339.3 million,
a 9 percent increase over the comparable period in the prior year.
Excluding Becker, sales increased 17%. Becker sales in the quarter
were lower than the comparable period in the prior year due to the
phase-out of a group of activities which were irrelevant to our business,
such as sewing machine circuit boards and air bag sensors.
For the first nine months of the year, sales of $988.5 million were 19%
above the prior year and 12% higher excluding the sales contribution of
Becker from both years (Becker sales were reported for the first time in
our third quarter last year).
The Consumer Group reported higher sales for the third quarter and the
nine months. Harman Kardon sales virtually doubled as the unit gained
market share in North America and Europe. Infinity reported vigorous
sales growth, especially in Germany. The addition of the Mark
Levinson and Proceed lines through the September 1995 acquisition of
Madrigal Audio Laboratories contributed to the growth.
The Professional Group contributed higher sales for the third quarter
and the nine months, with virtually all operations reporting increased
sales. JBL Professional sales were enhanced by the international
success of its EON line of compact, portable sound reinforcement
systems. Studer sales were lower due to several large contracts
completed in the prior year.
The OEM Group produced higher sales for the third quarter and the nine
months. Shipments of high fidelity systems for the Chrysler Minivan,
Ford Explorer, Jeep Grand Cherokee and Chrysler T-300 pickup truck
were excellent. Becker reported lower sales in the quarter due to the
phase-out of the non-core businesses referred to above.
The gross profit margin for the quarter ended March 31, 1996, was 30.5
percent ($103.4 million) compared to 30.2 percent ($93.9 million) in the
7
<PAGE>
prior year. The increase in the gross profit margin rate for the quarter
reflects increased operating leverage at the automotive OEM factories in
North America and the United Kingdom and improved performance by
Harman Kardon. The gross profit margin for the first nine months of
fiscal 1996 was 30.4 percent ($300.8 million) compared to 31.5 percent
($260.6 million) in the previous year. The decrease in the gross margin
percentage in the nine months primarily reflects the inclusion of Becker,
which was acquired in the third quarter last year.
Operating income as a percentage of sales was 8.2 percent ($27.7
million) for the third quarter ended March 31, 1996, up from 7.4 percent
($23.1 million) for the same period in the prior year. The increase
results from improved gross margin as discussed above and lower
selling, general and administrative expenses as a percentage of sales.
For the first nine months, operating income as a percentage of sales was
7.5 percent, equivalent to the prior year.
Interest expense for the three months ended March 31, 1996, of $7.2
million was equal to the third quarter of the prior year. For the nine
months ended March 31, 1996, interest expense was $21.7 million, up
from $19.1 million for the nine months ended March 31, 1995. Average
borrowings outstanding were $379.7 million for the third quarter of
fiscal 1996 and $354.6 million for the nine months, up from $287.3
million and $266.2 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 offset by a substantial reduction in the average interest rate on
borrowings. The average interest rate on borrowings was 7.6 percent
for the third quarter and 8.2 percent for the nine months ended March
31, 1996, down from 10.0 percent for the third quarter and 9.6 percent
for the nine months ended March 31, 1995. 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 in September 1994.
Interest expense as a percentage of sales was 2.2 percent for the first
nine months 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 third quarter of fiscal 1996 was $20.3 million, up from $15.7
million in the previous year. For the nine months ended March 31,
1996, income before income taxes, minority interest and extraordinary
8
<PAGE>
items increased to $51.6 million, compared with $41.3 million in the
prior year period.
The effective tax rate for the third quarter of fiscal 1996 was 31.5
percent compared with 27.4 percent in the same period a year ago. The
effective tax rate for the first nine months of fiscal 1996 was 31.6
percent compared with 32.6 percent in the prior year. The effective tax
rates are below United States statutory rates due to the restructuring of
certain foreign subsidiaries to take advantage of prior years' tax losses.
The Company calculates its effective tax rate based upon its current
estimate of annual results.
Net income for the three months ended March 31, 1996, was $13.9
million, or $0.86 per share, compared with $11.4 million, or $0.72 per
share, in the previous year. Net income for the first nine months of
fiscal 1996 was $35.3 million, or $2.17 per share, compared with $27.5
million, or $1.74 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 issued in August 1995.
FINANCIAL CONDITION
- ---------------------------------
Net working capital at March 31, 1996, was $344.4 million, compared
with $257.6 million at June 30, 1995. Working capital increased
primarily due to the increase in inventories from $236.5 million at June
30, 1995, to $302.6 million at March 31, 1996. Higher inventory levels
reflect the support of increased sales volumes, requirements for new
product launches in the fourth quarter and the acquisition of Madrigal.
Borrowings under the revolving credit facility at March 31, 1996, were
$212.6 million, comprised of swing line borrowings of $6.7 million,
which are included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $205.9 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, the Madrigal
acquisition, and final payments for the Becker acquisition. In the
second quarter of fiscal 1996, the revolving credit facility was amended
and increased from $220 million to $275 million, and the maturity was
extended one year to September 30, 2000.
9
<PAGE>
Accrued liabilities decreased $13.1 million, from $164.1 million to
$151.0 million, primarily due to the funding of previously announced
restructuring programs to enhance the productivity of recent
acquisitions.
Excess of cost over fair value of assets acquired increased $14.4 million,
from $122.5 million to $136.9 million, reflecting final acquisition
accounting adjustments for Becker and the acquisition of Madrigal.
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.
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
The following exhibits are filed as part of this report.
Exhibit No. Description
-------------- ------------------------------------------------------------
10.56 Amendment and Settlement Agreement, dated
as of March 20, 1996, to the Share Purchase
Agreement dated February 16, 1995, between
Harman International Industries, Incorporated,
Roland Becker, and Becker Holding S.A.
(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: April 30, 1996 BY: /s/ Sidney Harman
-------------------------------
Sidney Harman
Chairman and Chief
Executive Officer
DATE: April 30, 1996 BY: /s/ Bernard A. Girod
-------------------------------
Bernard A. Girod
President, Chief Operating
Officer, Chief Financial
Officer and Secretary
12
<PAGE>
EXHIBIT 10.56
13
<PAGE>
AMENDMENT AND SETTLEMENT AGREEMENT
This AMENDMENT AND SETTLEMENT
AGREEMENT (this "Agreement" made as of the 20th day of March
1996, between Harman International Industries, having an address at
8500 Balboa Boulevard, Northridge, California 91329 U.S.A., and
Roland Becker ("Shareholder One"), an individual residing in
Courtedoux, Switzerland, and Becker Holding S.A. ("Shareholder
Three"), a societe anonyme organized under the laws of Switzerland and
having an address in Courtedoux, Switzerland (Shareholder One and
Shareholder Three are referred to collectively as the "Sellers").
Capitalized terms used and not defined herein shall have the same
meaning as indicated in the notarial Share Purchase Agreement (the
"SPA") dated February 16, 1995, between the Purchaser and the Sellers.
RECITALS
A. The Sellers and Purchaser entered into the SPA on February 16,
1995.
B. The Sellers and Purchaser desire to amend the SPA and settle
certain claims that have arisen or may arise out of the SPA.
NOW THEREFORE, the parties to this agreement agree as follows:
1. Payments in Settlement of Claims. (a) In full settlement of all
claims that any Seller may have against Purchaser or, other than the
Unwaived Claims (as hereinafter defined), that Purchaser may have
against the Sellers arising out of the SPA, Purchaser shall deliver to
Shareholder One the following:
March 20, 1996
14
<PAGE>
- -2-
(i) 220,000 shares of the Harman Stock (the "Stock
Payment"); and
(ii) DM 10,873,000 (Deutsche Mark 10,873,000) (the "Cash
Consideration").
(b) Purchaser shall make the Stock Payment and transfer the
Cash Consideration to Shareholder One within ten (10) Business Days
of the date of this Agreement.
(c) For purposes of this Agreement, "Unwaived Claims"
shall mean any and all claims arising now or in the future out of
paragraph 1 of Sections 5.3(a) (Release and Waiver Authority), 3.2
(Capital), 5.8 (Non-Competition), 5.10 (Becker Name) and 5.11
(Confidentiality) of the SPA. The sections in the SPA relating to the
Unwaived Claims shall remain in full force and effect including the
indemnification provisions contained in Article 6 of the SPA with
respect to such sections.
2. Waiver of Claims. (a) Conditioned only upon payment of
the Stock Payment and transfer of the Cash Consideration by Purchaser
to Shareholder One, each of the Sellers hereby unconditionally and
irrevocably waives any claims they may now or in the future have
against any indemnified Purchaser arising out of the SPA or arising out
of facts or circumstances existing prior to the execution of this
Agreement.
(b) Conditioned only upon payment of the Stock Payment
and delivery of the Cash Consideration by Purchaser to Shareholder
One and subject to the provisions of this Agreement with respect to
Unwaived Claims, Purchaser, on behalf of itself and each Indemnified
Purchaser, hereby unconditionally and irrevocably waives any claims
arising out of the SPA that Purchaser or such Indemnified Purchaser
may now or in the future have against Sellers.
3. Miscellaneous. The provision of Sections 7.1 through Section
7.10 of the SPA shall apply to this Agreement as if set forth herein.
March 20, 1996
15
<PAGE>
- -3-
IN WITNESS WHEREOF, the parties to this Agreement
have executed this Agreement as of the date first set forth above.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
/s/ Sidney Harman
- --------------------------------------------
By: Sidney Harman
BECKER HOLDING S.A.
/s/ Roland Becker
- -------------------------------------------
By: Roland Becker
/s/ Roland Becker
- --------------------------------------------
ROLAND BECKER
March 20, 1996
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 8985
<SECURITIES> 891
<RECEIVABLES> 282926
<ALLOWANCES> 13061
<INVENTORY> 302557
<CURRENT-ASSETS> 633688
<PP&E> 384538
<DEPRECIATION> 186487
<TOTAL-ASSETS> 985507
<CURRENT-LIABILITIES> 289325
<BONDS> 354074
0
0
<COMMON> 160
<OTHER-SE> 311555
<TOTAL-LIABILITY-AND-EQUITY> 985507
<SALES> 988482
<TOTAL-REVENUES> 988482
<CGS> 558622
<TOTAL-COSTS> 687651
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3635
<INTEREST-EXPENSE> 21682
<INCOME-PRETAX> 51612
<INCOME-TAX> 16332
<INCOME-CONTINUING> 35253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35253
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
</TABLE>
