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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1101 Pennsylvania Ave., N.W., Ste. 1010, Washington, D.C. 20004
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 393-1101
Securities registered pursuant Name of each Exchange on
to section 12(b) of the Act: which registered:
Common Stock, par value $.01 per share New York Stock
(Title of class) Exchange, Inc.
Securities registered pursuant to section 12(g) of the Act: None
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. X Yes No.
The aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of August 31, 1996, was $785,574,153.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 18,636,983
shares of Common Stock, par value $.01 per share, as of August 31,
1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 1996, are incorporated by reference in Part I,
Item 1, and Part II, Items 5, 7 and 8.
Portions of the Registrant's definitive Proxy Statement relating to the
1996 Annual Meeting of Stockholders are incorporated by reference in
Part III, Items 10 (as related to Directors), 11, 12, and 13.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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TABLE OF CONTENTS
PART I
Page
Item 1. Business............................................ 5
Item 2. Properties.......................................... 27
Item 3. Legal Proceedings............................. 28
Item 4. Submission of Matters to a Vote of
Security Holders................................ 28
Executive Officers of the Registrant.. 29
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters.............................................. 31
Item 6. Selected Financial Data.................... 32
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations......................... 32
Item 8. Consolidated Financial Statements
and Supplementary Data.................... 32
Item 9. Disagreements on Accounting and
Financial Disclosure.......................... 33
PART III
Item 10. Directors and Executive Officers of
the Registrant.................................... 33
Item 11. Executive Compensation.................. 33
Item 12. Security Ownership of Certain
Beneficial Owners and Management.33
Item 13. Certain Relationships and Related
Transactions...................................... 33
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.33
List of Financial Statements and
Financial Statement Schedules......... 37
Independent Auditors' Report.......... 39
Index to Exhibits.............................. 41
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PART I
ITEM 1. BUSINESS
General Business
Harman International Industries, Incorporated (together with its
subsidiaries, "Harman" or the "Company"), a Delaware corporation
formed in 1980, is a worldwide leader in the design, manufacture and
marketing of high-quality, high-fidelity audio products targeted primarily
at the consumer, professional and original equipment manufacturer
("OEM") markets. For almost 50 years, the Company and its
predecessors have been leaders and innovators in creating loudspeaker
and electronic products that deliver superior sound. The Company
believes that its JBL, Infinity and Harman Kardon brand names are well-
known worldwide for premium quality and performance. In order to
expand and capitalize upon this reputation, Harman has invested
significant management and capital resources over the years in developing
an international design, engineering, manufacturing and marketing
capability that enables it to respond effectively to customer needs, assure
product quality and increase manufacturing efficiency.
In the last three years, the Company's operations have been
repositioned to provide better customer focus and improved efficiency.
The Company's operations are now centered around three primary
Groups: the Consumer Group, the Professional Group and the OEM
Group. During this same three-year period, the Company completed a
number of strategic acquisitions to improve its competitive position in
terms of market, product and technology. These acquisitions include:
AKG Akustiche und Kino-Gerate Gesselschaft m.b.H. ("AKG"), a
manufacturer of microphones based in Austria; Studer Revox AG
("Studer"), a manufacturer of broadcast and recording systems based in
Switzerland; Becker GmbH ("Becker"), a high technology manufacturer
of automotive head units (radio/cassette deck/CD player) based in
Germany; and Madrigal Audio Laboratories, Inc. ("Madrigal"), the
manufacturer of the prestigious Mark Levinson and Proceed brands of
consumer electronics products, based in Connecticut. Through these
acquisitions, the Company believes it has positioned each Group to offer a
more complete line of products, thereby enabling the Company to
compete more effectively in its markets.
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Consumer Group
The Company designs, manufactures and markets loudspeakers under
the JBL and Infinity brand names for the consumer market. The
Company also designs, manufactures and markets a broad range of
consumer electronics products. During fiscal 1996, the Company's
principal consumer electronics division, Harman Kardon, Incorporated
("Harman Kardon"), achieved record sales. The Company's principal
loudspeaker divisions, JBL Incorporated ("JBL") and Infinity Systems,
Inc. ("Infinity"), also achieved record sales in fiscal 1996. The Company
continues to capitalize on these strong brand names by targeting growing
markets, such as home theater, and by developing new and innovative
products. The Company continually seeks to improve its market position
in its core loudspeaker business by introducing new products that offer
greater efficiency and reduced size.
Professional Group
The Company is a leading manufacturer and marketer of professional
audio electronics equipment, including loudspeakers, amplifiers, mixing
consoles, signal processing equipment, microphones and broadcast and
recording products. Such products are marketed worldwide under various
trade names, including: JBL, Soundcraft, Allen & Heath, DOD, Lexicon,
AKG, dbx, BSS, Turbosound, Orban, Spirit and Studer.
The acquisitions of AKG in September 1993 and Studer in March
1994 enable the Professional Group to supply a complete range of
professional audio products and turnkey systems to the principal segments
of the industry, including broadcast and recording, sound reinforcement,
and musical instrument support. The Professional Group is developing
digital systems that are integrated by means of a proprietary digital
architecture that permits all of the components to communicate and
allows for a single point of control. The ability to integrate all of the
audio components in the system also provides the opportunity for better
performance and lower costs.
OEM Group
Automotive Audio Systems. Harman is one of the world's largest
manufacturers of premium branded automotive OEM audio systems.
During the past few years, the Company has invested heavily to
streamline its manufacturing operations and establish relationships with
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new customers. During fiscal 1995 and fiscal 1996, the Company's OEM
Group recorded significant sales increases due to an increase in the
number of automobile models offering the Company's audio systems and
higher penetration levels within existing models. The Company's largest
automotive OEM customer, Chrysler, offers Infinity branded audio
systems as options in thirteen different models. Harman Kardon branded
systems are offered in models from BMW, Saab, Jaguar and Range
Rover. Becker supplies head units to Mercedes, BMW and Porsche.
Other customers include Mitsubishi, Rover and Toyota.
The Company believes significant growth opportunities continue to
exist in the automotive OEM market through higher penetration levels
within existing models, increases in the number of models offering the
Company's audio systems and the addition of new automotive OEM
customers. Furthermore, the acquisition of Becker enables the OEM
Group to offer completely integrated audio systems that include the head
unit, amplifiers, loudspeakers and associated electronics. The Company
believes this integrated audio system provides a platform for further
expansion into associated automotive electronic products such as
communications, security and navigation.
The Company has discontinued Ford's exclusive automotive OEM use
of the JBL brand name and made it available to Toyota, Peugeot and
others from whom commitments have been received beginning in model
year 1998. The JBL program for the Ford Explorer will conclude with
model year 1997 and for the Lincoln line with model year 1998. The
Company believes that these developments will generate increased sales
of JBL branded systems to a larger number of automotive manufacturers.
Audio for Computers. During fiscal 1996, the Company began to
design and manufacture branded audio systems and loudspeakers for
manufacturers of personal computers. The Company intends to develop
its computer OEM audio systems business based on the model of its
established automotive OEM audio systems business. Through an
alliance with Compaq Computer Corporation, the Company began
production of audio systems that will be incorporated as standard
equipment in Compaq's new Presario line of personal computers.
Shipments to Compaq began in June 1996. The Harman designed and
manufactured systems are badged "JBL-Professional."
A complete Harman Kardon surround system was designed for
Gateway 2000 during 1996. The surround system is offered by Gateway
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as an option on its Destination product line. The Destination product is a
new generation of "TV Computers" that combines familiar personal
computer functions with traditional home high fidelity and television
reception functions. The software incorporated in Destination, which
facilitates reception of detailed television program information, has been
developed by the Company's Smart TV Group and is branded Harman
Smart TV. The Company is in discussions with a number of additional
computer makers to whom it hopes to market Harman Smart TV and
OEM audio and loudspeaker systems.
HISTORICAL DEVELOPMENT
Since its formation in 1980, the Company has developed internally and
through acquisitions the capacity to design, manufacture and market its
products to compete worldwide in the most significant areas of the high-
quality, high-fidelity audio markets. While the Company has existed in
its current form since only 1980, its significant subsidiaries have been in
business as many as fifty years previous, some as part of the same
enterprise and under their current management.
In 1953, Dr. Sidney Harman, Chairman and Chief Executive Officer of
the Company, co-founded Harman Kardon to design, manufacture and
market high-fidelity consumer electronic audio components. Harman
Kardon was the first domestic manufacturer to produce and market a
high-fidelity receiver (a combination of tuner, preamplifier and power
amplifier in one chassis). In 1962, Harman Kardon was acquired by a
predecessor of the Company (the "Predecessor"). The Predecessor
expanded its participation in the high-fidelity field in 1969 by acquiring
James B. Lansing Sound (JBL), a top U.S. manufacturer of high-quality
loudspeakers. Founded in 1946, JBL was a driving force in the
introduction of professional loudspeakers developed for the movie
industry. (Amplifiers of the 1940's had limited power, therefore,
transducers had to be efficient and loud for the audience to hear the
movie, thus the term loudspeaker.) JBL later extended its product
offerings to include loudspeakers for the home in response to demand
from consumers who recognized and appreciated the professional quality
sound of JBL's movie theater loudspeakers.
The Predecessor also formed international subsidiaries to market and
distribute its audio products in Europe and Japan, where JBL and Harman
Kardon were, and continue to be, top brand names.
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In August 1977, the Predecessor was acquired by Beatrice Foods Co.
(now Beatrice Companies, Inc. ("Beatrice")), when Dr. Harman became
the Under Secretary of Commerce of the United States. In January 1980,
at the conclusion of his service as Under Secretary of Commerce, Dr.
Harman organized the Company to re-acquire from Beatrice the JBL
loudspeaker business and the international distributing companies, which
together represented approximately 60% of the Predecessor's business.
Harman Kardon and other parts of the business had been sold by Beatrice
in the intervening years.
Since 1980, the Company has grown steadily by internal expansion
and a series of strategic acquisitions. Harman's growth has been fueled by
a focus on three areas of the audio industry: (1) consumer audio,
broadening its range of product offerings from the traditional base of
loudspeakers and electronic components to include wireless loudspeakers,
surround sound processors and home theater products and broadening its
customer base to include large retailers such as Circuit City in the U.S.
and MediaMarkt in Germany; (2) professional audio, providing a
complete range of audio products offered to the sound reinforcement,
broadcast and recording, and music instrument markets; and (3) OEM
audio, offering branded audio systems for installation as original
equipment in automobiles and broadening its base of automotive
customers to include Chrysler, Mercedes, Ford, Jeep, BMW, Mitsubishi,
Toyota, Porsche, Saab, Range Rover and Jaguar, as well as developing the
OEM audio for computers market, including current customers Compaq
and Gateway 2000.
The Company's consumer business has been built around the markets
served by JBL, Infinity and Harman Kardon. The Infinity consumer
loudspeaker business was acquired in 1983, adding another true high-end
speaker brand to the Company's product offerings. The Harman Kardon
consumer electronics business was acquired from Shin Shirasuna in 1985,
which had purchased Harman Kardon from Beatrice. The addition of the
renowned Harman Kardon brand name served to further strengthen the
Company's consumer product portfolio.
The Company has made a number of small acquisitions of consumer
loudspeaker and electronics companies to expand its consumer electronics
portfolio and to add product expertise to meet strategic requirements.
Among these, the Company expanded its electronic audio components
business and entered the home theater market through its acquisition of
Fosgate, Inc. in January 1991. The Company's consumer electronics
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presence was expanded further through the fiscal 1994 acquisition of
AudioAccess, a manufacturer of home audio/video system control devices
and the fiscal 1996 acquisition of Madrigal, manufacturer of the renowned
Mark Levinson and Proceed lines of high end electronics.
The JBL professional loudspeaker business provided the foundation
for the development of the Company's professional audio business, which
has been realized through a series of strategic acquisitions. In 1983, the
Company acquired the UREI professional amplifier business to expand its
presence in the professional audio electronics arena. In April 1988, the
Company acquired Soundcraft, a U.K. manufacturer of professional
mixing boards, as a logical progression of the exclusive U.S. distribution
of Soundcraft products by JBL Professional. In March 1990, the
Company acquired DOD Electronics to bring the Professional Group into
the musical instrument and digital signal processing markets. In
September 1991, the Company acquired Allen & Heath Brennell,
Limited, a U.K. producer of professional mixing boards. In April 1993,
Harman acquired Lexicon, a U.S. manufacturer of professional digital
audio signal processing equipment and disk-based audio production
systems, adding to the Company's digital audio product offerings.
Austrian microphone and headphone manufacturer AKG was acquired
in September 1993, providing the Company the ability to offer complete
system solutions for the sound reinforcement market. Other brands added
to the Harman portfolio through the AKG acquisition include:
Turbosound professional loudspeakers; BSS professional amplifiers,
loudspeaker management systems and signal processing devices; and
Orban broadcast electronics. In March 1994, the Company acquired
Studer, a Swiss manufacturer of professional recording and broadcast
equipment, expanding the Company's presence in these key segments of
the professional audio market. As a result of the acquisition and
development of these professional audio companies and the renowned
brand names which they offer, management believes that Harman is now
a world leader in the professional audio market.
In June 1981, the Company entered the automotive OEM market for
loudspeakers through the acquisition of the Essex Loudspeaker Division
of United Technologies, which was renamed Harman Motive, U.S. The
Company strengthened its position in the European automotive OEM
loudspeaker market through the acquisition of Harman Motive, Ltd.,
formerly ELAC, a U.K. automotive OEM loudspeaker manufacturer, in
December 1989. The Company has derived value from its strategic entry
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into the automotive OEM market by optimizing engineering, design and
manufacturing processes and by leveraging the market strength of its
brand names, such as Infinity, JBL and Harman Kardon. In February
1995, the company expanded its automotive OEM market position with
the acquisition of Becker GmbH, a German manufacturer of radios and
other electronics for the automotive OEM market and the automotive
aftermarket. Becker is a principal automotive audio head unit supplier to
Mercedes Benz. The addition of Becker enables the OEM Group to offer
completely integrated audio systems that include the head unit, amplifiers,
loudspeakers and associated electronics.
The Company has developed its computer OEM business through the
use of internal resources such as its multimedia software capabilities, its
automotive OEM marketing and management talent and its established
brand names - JBL, Harman Kardon and Infinity.
The manufacturing capabilities of the Company include North
American and European operations. Primary manufacturing sites are
located in California, Denmark, France and the United Kingdom.
The Company maintains marketing offices in Hong Kong, Denmark,
Japan, Singapore and Brazil to support and protect the Harman brand
names worldwide. These organizations maintain close contact with their
markets, interpret user needs and facilitate product discussion between
distributors and the Professional and Consumer Group companies.
ORGANIZATION
The Company is organized in three core groups - Consumer,
Professional and OEM - with each group incorporating all related
manufacturing, marketing and distribution operations. The Consumer
Group contributed approximately 34% of fiscal 1996 total net sales, the
Professional Group accounted for approximately 34% of net sales, and the
OEM Group generated approximately 32% of net sales.
Financial Information about Geographic Segments
Financial information about geographic segments required to be
included hereunder is incorporated by reference to Note 9 of Notes to
Consolidated Financial Statements contained in the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1996.
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Description of Business
The Company's business is conducted through its wholly owned
subsidiaries which include:
<TABLE>
Name Principal products
- --------------------------------------- ------------------------------------------
<S> <C>
AKG Akustiche u. Kino-Gerate
Gessellschaft m.b.H. Professional electronics
Audax Industries, SNC Consumer home, automotive and
professional loudspeakers;
OEM loudspeakers
Becker GmbH Automotive OEM and automotive
aftermarket electronics
Harman Music Group, Incorporated Professional electronics
Harman Belgium NV Consumer home, automotive and
professional audio products
Harman Consumer Europe A/S Consumer home and automotive
electronics
Harman Deutschland GmbH Consumer home, automotive and
professional audio products
Harman France, S.N.C. Consumer home, automotive and
professional audio products
Harman International Industries, Consumer home and automotive,
Limited automotive OEM loudspeakers
and electronics and professional
audio products
Harman International Japan Consumer home, automotive,
Co., Limited and professional audio
products
Harman-Kardon, Incorporated Consumer home and automotive
electronics
Harman-Motive, Inc. OEM loudspeakers
and electronics
Infinity Systems, Inc. Consumer home and automotive
loudspeakers and electronics
</TABLE> 12
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<TABLE>
Name Principal products
- --------------------------------------- ------------------------------------------
<S> <C>
JBL Incorporated Consumer and professional
loudspeakers and electronics
Lexicon, Incorporated Professional electronics
Lydig of Scandinavia A/S Components, cabinets and
loudspeaker systems
Madrigal Audio Laboratories, Inc. Consumer electronics
Studer Professional Audio AG Professional electronics
</TABLE>
Markets for Products
Based on the Company's experience in, and knowledge of, the
industry, the Company believes that the consumer, professional and OEM
markets, both domestic and international, have experienced significant
growth in recent years. The growth of digital audio technology has
changed the way music is recorded and reproduced and has led to the
development of a new generation of consumer and professional audio
products, including software-driven audio systems with integrated digital
architecture that permits communication among all components.
Market growth in consumer audio is particularly strong in home
theater and multimedia. The advent of the digital video disc (DVD) will
provide additional growth opportunities in the consumer market. The
Company is meeting consumer demand with products carrying its
respected and well-known brand names JBL, Infinity, Harman Kardon,
Mark Levinson, Proceed and Citation.
The Company is well-positioned to meet the digital requirements of
the professional market with the expertise of its professional companies,
particularly JBL, Soundcraft, Studer, Lexicon, Harman Music Group and
AKG.
Harman is a leader in the design and production of premium, branded
high-fidelity systems for automobile manufacturers. The Company
believes significant growth opportunities exist within the automotive
audio market to increase sales by increasing product penetration in OEM
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models currently supplied, expanding the number of automobile models
offering its systems and adding new OEM customers. The Becker
acquisition complements the Company's JBL, Infinity and Harman
Kardon automotive audio programs and enables the Company to offer
fully-integrated audio systems to the automobile manufacturers.
The Company has broadened its OEM business to include personal
computers by developing branded audio systems for Compaq, Gateway
and other manufacturers of personal computers. The Company believes
that the number of personal computers equipped with multimedia
capabilities will continue to increase at a high rate on a worldwide basis,
and that the Company is well-positioned to capitalize on this emerging
market segment with its JBL, Infinity and Harman Kardon brand names.
Products
The Company designs, engineers, manufactures and markets
worldwide a broad range of high-quality, high-fidelity audio loudspeakers
and electronics for the consumer (home and automotive aftermarket),
professional (sound reinforcement, broadcast and recording, and musical
instrument support), and OEM (automotive and computer) markets. The
Company also distributes a small amount of complementary audio
products manufactured by other companies. The Consumer Group
accounted for approximately 34% of the Company's fiscal 1996 sales, of
which 80% was attributable to home loudspeaker and automotive
aftermarket systems and 20% was from home electronic components.
The Professional Group contributed approximately 34% of fiscal 1996
sales The OEM Group generated approximately 32% of fiscal 1996 sales.
CONSUMER PRODUCTS. The Company designs, manufactures and
markets loudspeakers principally under the JBL and Infinity brand names
for the consumer market. JBL loudspeakers sold to the consumer market
employ techniques originally developed for products used in recording
studios, concert halls, theaters, airports and other acoustically demanding
environments. JBL's diverse product line gives customers a wide range of
speaker choices: floorstanding, bookshelf, built-in, wireless, transportable
and wall or ceiling mountable loudspeakers, in styles and finishes ranging
from high gloss piano lacquer to genuine wood veneers. JBL's
introduction of wireless technology in its SoundEffects speaker systems
provides improved speaker placement flexibility and simplifies
installation for home theater and multi-room applications.
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From its beginning in 1968, Infinity has developed high quality
loudspeakers with their own audio character, which is commonly
identified as "linear," "symmetrical," or "neutral." These characteristics
are expressed in sophisticated acoustic configurations utilizing injection-
molded graphite speaker cone material, electro-magnetic induction
tweeters and mid-range drivers. Compostions, Infinity's home theater
loudspeakers, have received excellent reviews from the high fidelity audio
press for outstanding design and performance.
The more expensive JBL and Infinity loudspeakers are housed in high-
gloss lacquer or wooden veneer cabinets which complement the quality
components they enclose. The Company has made significant
investments in its loudspeaker cabinet production facilities in California
and Denmark and believes that they are among the most advanced cabinet
production facilities in the world.
The Company designs, manufactures and markets a broad range of
consumer audio electronics products on a worldwide basis. The
Company's consumer electronics products facilitate the marketing of
complete systems incorporating the Company's loudspeakers, such as
surround sound home theater installations.
Founded in 1953, Harman Kardon has been a leading innovator in the
development of high-quality audio components which improve the
listening experience and reflect a commitment to value and ease-of-use.
The realization of these principles is reflected in Harman Kardon's current
product offerings, including audio-video stereo receivers, surround sound
processors featuring Dolby Pro-Logic AC-3 technology and Lucasfilm
Home THX, and front-loading, bit stream compact disc changers.
Madrigal is a designer and manufacturer of high-end digital
electronics, including amplifiers, pre-amplifiers, digital signal processors,
and compact disc transports and players. Madrigal markets its products
under the renowned Mark Levinson and Proceed brand names.
Citation is a designer and manufacturer of high-end surround sound
processors, amplifiers and loudspeakers for the growing U.S. and
international home theater market. Citation products feature patented Six-
Axis steering logic surround processing and provide solutions for all
component and system needs for home theater and home audio.
AudioAccess products provide in-home, multi-source, multi-zone sound
system controls, serving home theater and multi-room applications.
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The Company's automotive aftermarket products include loudspeakers
and amplifiers marketed under the JBL and Infinity brand names and
Becker head units (radios with either cassette or compact disc functions),
amplifiers and compact disc changers.
PROFESSIONAL PRODUCTS. The Company designs, manufactures
and markets products in all significant segments of the professional
market, offering complete systems solutions to professional installations
and users around the world.
The Professional Group includes many of the most respected names in
the industry including JBL, Soundcraft, Allen & Heath, DOD, Lexicon,
AKG, BSS, dbx, Orban, Turbosound, Studer and UREI. Professional
installations of Harman products include stadiums, opera houses, concert
halls, recording studios, broadcast studios, theaters, cinemas and touring
performing artists.
Sound systems incorporating components manufactured by JBL,
Lexicon, AKG, Turbosound, Studer and Soundcraft are in use around the
world in such places as the Great Hall of the People in Beijing, China, the
Royal Danish Theater in Copenhagen and Abbey Road Studio in
England. Performing artists such as Pink Floyd, U2, The Rolling Stones,
Oasis and Wynton Marsalis use Harman professional equipment on tour.
The professional market has advanced rapidly and is heavily involved
in digital technology. Harman's Professional Group is a leader in this
market. The Professional Group derives value from its ability to share
research and development, engineering talent and other digital resources
among its divisions. Soundcraft, Lexicon, Studer and Harman Music
Group each have substantial digital resources and work together to
achieve common goals by sharing resources and technical expertise.
The Professional Group's loudspeaker products are well-known for
high quality and superior sound. The JBL Professional portfolio of
products includes studio monitors, loudspeaker systems, power
amplifiers, sound reinforcement systems, bi-radial horns, theater systems,
surround systems and industrial loudspeakers. The Turbosound
Floodlight and Flashlight professional loudspeaker lines were added to
the Company's portfolio through the acquisition of AKG.
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The Company is a leading manufacturer and marketer of audio
electronics equipment for professional use. Such products are marketed
on a worldwide basis under various trade names, including Soundcraft,
Allen & Heath, DOD, Digitech, Lexicon, AKG, BSS, dbx, Orban, Studer,
Audio Logic, and UREI, and are often sold in conjunction with the
Company's professional loudspeakers.
The Soundcraft line of high-quality sound mixing consoles extends
from automated multi-track consoles for master recording studios to
compact professional mixers for personal recording and home studios.
Soundcraft products span four main market areas: sound reinforcement,
recording studios, broadcast studios and musical instrument dealers.
Allen & Heath manufactures cost effective mixing consoles for use in
broadcast studios and for use on stage in smaller venues.
The Harman Music Group product line is marketed under the DOD,
dbx, Digitech and Audio Logic brand names, and is sold primarily to
professional audio and musical instrument dealers. Harman Music Group
products include signal processing equipment, equalizers, mixers and
special effects devices. Performers who have used Harman Music Group
products on tour include: Van Halen, Aerosmith, the Rolling Stones,
Trent Reznor of Nine Inch Nails, and David Gilmour of Pink Floyd.
Lexicon is a leader in the design, manufacture and marketing of high-
quality digital audio signal processing equipment and disk-based audio
production systems for professional use in the audio, video, musical
entertainment and broadcasting markets worldwide. Lexicon digital
signal processing products are used in live sound applications as well as
recording studios to process sound effects and refine final mixes.
Additionally, Lexicon designs, manufactures and markets a series of high-
end consumer ambiance and Home Theater Surround Sound processors.
AKG is one of the world's largest manufacturers of high-quality
microphones and headphones. The AKG product line includes
microphones, audio headphones, surround-sound headphones and other
professional audio products marketed under the AKG brand name.
Studer Professional Audio is recognized for the high quality and
reliability of its professional products, which include analog and digital
tape recorders, mixing consoles, switching systems, digital audio
workstations, professional compact disc players and recorders and turnkey
broadcasting studio installations.
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OEM PRODUCTS. Harman is a leading global manufacturer of
premium branded automotive OEM audio systems. In its sale of
loudspeakers, head units, amplifiers and other audio products to the
automobile manufacturers, the Company leverages its expertise in the
design and manufacture of high-quality loudspeakers, radios and other
electronics, as well as the reputation for quality associated with its JBL,
Infinity, Harman Kardon and Becker brand names. The Company's
ability to design and manufacture transducers utilizing special materials
enables the Company to collaborate with automobile manufacturers to
design lighter sound systems that contribute to increases in automobile
fuel efficiency. The addition of head unit and other electronics design and
manufacturing capabilities through the Becker acquisition enables the
Company to provide complete high-fidelity audio systems solutions to
automobile manufacturers.
The Company manufactures audiophile OEM sound systems for
automobiles, including Infinity systems sold to Chrysler and Mitsubishi in
models such as the Jeep Grand Cherokee and the Mitsubishi 3000GT,
JBL systems sold to Ford in models such as the Lincoln Continental and
the Ford Explorer and Harman Kardon systems sold to BMW (3-series),
Jaguar, Saab and Land Rover (Range Rover), as well as a non-branded
premium system sold to Toyota for the Avalon. Becker supplies head
units and other electronics to Mercedes, BMW and Porsche. These
premium OEM audio systems are engineered for each automobile to
maximize acoustic performance and complement interior design.
The Company discontinued Ford's exclusive automotive OEM use of
the JBL brand name and made it available to Toyota, Peugeot and others
from whom new commitments have been received beginning in model
year 1998. The JBL program for the Ford Explorer will conclude with
model year 1997 and for the Lincoln line with model year 1998. The
Company believes these developments will generate increased sales of
JBL branded systems to a larger number of automotive manufacturers.
The Company manufactures a series of "JBL-Professional" branded
audio systems for Compaq's Presario line of personal computers and a
higher-powered Harman Kardon system for Gateway's new Destination
TV-PC product. Destination also includes Harman's Smart TV. These
audio systems provide high-quality sound and thus enhance the appeal
and capability of the personal computer as an entertainment device.
18
<PAGE>
Manufacturing
The Company believes that its manufacturing capabilities are essential
to maintaining and improving the quality and performance of its products.
The Company manufactures most of the products that it sells other than
the Harman Kardon electronic components. The Company also produces
some products for other loudspeaker companies on an OEM basis. Many
of the Company's manufacturing facilities are certified as conforming to
the requirements of ISO 9000 for manufacturing, engineering and service.
The Company's manufacturing capabilities with respect to
loudspeakers include the production of its own high-gloss lacquer and
wooden veneer loudspeaker enclosures, wire milling, voice coil winding
and the use of numerically controlled lathes and other machine tools to
produce its many precision components. The Company's high degree of
manufacturing integration enables it to maintain consistent quality levels,
resulting in reliable, high-performance products. The Company
capitalizes on opportunities to transfer technology and materials
developments across product lines to maximize the benefits accruing from
investments in engineering, design and development.
The Company's principal domestic manufacturing facility is located in
Northridge, California (Northridge Manufacturing) where it manufactures
JBL and Infinity loudspeakers, including cabinets, for consumer,
professional, automotive aftermarket and personal computer applications
and amplifiers for the automotive OEM market and the automotive
aftermarket. The Company manufactures loudspeakers and assembles
sound systems for the OEM automotive market in Martinsville, Indiana.
Harman Music Group manufactures professional electronics products at
its facility in Salt Lake City, Utah. Lexicon manufactures its professional
electronics products at its Waltham, Massachusetts facility. Madrigal
manufactures consumer electronics at its Middletown, Connecticut
facility.
The Company has established a strong manufacturing presence in
Europe to better respond to customer demands in that market. Audax
Industries SNC ("Audax"), a manufacturer of high-quality, high-
performance tweeters, manufactures speakers in France, and the
Company's Lydig of Scandinavia A/S ("Lydig") subsidiary manufactures
cabinet enclosures and assembles complete JBL and Infinity loudspeakers
in Denmark. The Company also manufactures drivers for its Turbosound
line of professional loudspeakers at its Precision Devices manufacturing
19
<PAGE>
site in the United Kingdom. Final assembly of Turbosound loudspeakers
is performed in the United Kingdom. Cabinet production will begin in
the United Kingdom during fiscal 1997 at the Company's new factory in
Cornwall to supply the Turbosound line and to meet increased demand for
JBL Professional loudspeakers in Europe.
European professional electronics manufacturing includes Soundcraft
in the United Kingdom (mixing consoles), Studer in Switzerland
(professional recording and broadcast equipment) and AKG in Austria
(microphones and headphones)
European automotive loudspeaker and electronics manufacturing
includes the production of automotive OEM loudspeakers in the United
Kingdom and automotive OEM and automotive aftermarket radios and
other electronics at Becker in Germany.
Marketing and Distribution
The Company's products are sold domestically and internationally in
the consumer, professional and OEM markets. The consumer market for
audio entertainment systems consists of home and automotive
aftermarket. The professional market includes a wide range of
professional uses, including live music applications, recording facilities,
entertainment venues such as concert halls, stadiums and movie theaters,
broadcast facilities and music instrument support. The OEM market
includes automobile manufacturers which purchase components and
systems on either a branded or generic basis and manufacturers of
personal computers.
The Company primarily markets its consumer audio products through
audio and audio-video specialty stores and certain audio-video chain
stores, such as Circuit City in North America and MediaMarkt in
Germany. The Company enjoys broad distribution of its products and
selects dealers who emphasize high-quality audio systems and who are
knowledgeable about the features and capabilities of audio products. The
Company's sales and marketing activities include dealer education
programs and comprehensive product literature. The Company's dealers
typically stock a number of home audio equipment lines including
competing products (sometimes both JBL and Infinity loudspeakers) and
may also carry automobile audio systems and other consumer-oriented
electronics products.
20
<PAGE>
The Company's professional audio products are marketed worldwide
through professional sound equipment dealers, including sound system
contractors which directly assist major users. The Company's sales and
marketing group for its professional products is separate and independent
from its consumer product sales group.
The Company markets its branded OEM audio products to automobile
and personal computer manufacturers. OEM customers include Chrysler,
Mercedes Benz, Ford, Mitsubishi, Toyota, BMW, Jaguar, Porsche, Range
Rover and Saab in the automotive segment and Compaq and Gateway in
the personal computer segment.
Suppliers
Products designed by Harman Kardon in the United States are
manufactured by several suppliers. The Company believes it has good
working relationships with these suppliers. The use of multiple vendors
helps to mitigate risks associated with potential disruption. However, the
loss of the largest supplier would have a material impact on the earnings
of Harman Kardon until alternate sources could be found.
Northridge Manufacturing relies on several suppliers for a large
percentage of certain parts, such as wood, speaker grilles, plastic molded
parts and magnets. The loss of any one of these suppliers would have a
material impact on the earnings of Northridge Manufacturing until
alternate sources for these components could be found.
Trademarks and Patents
The Company markets its products under numerous trademarks and
logos, including JBL, Infinity, Harman Kardon, Citation, Concord,
Audax, Becker, Soundcraft, Spirit, DOD, Audio Logic, DigiTech,
Lexicon, AKG, Studer, Numisys, BSS, Orban, Precision Devices, dbx,
AudioAccess, Turbosound, Mark Levinson, Proceed, EON, Harman
SmartTV, Control, Compositions, Optimod, C-Audio, Auto Azimuth and
Dynamic Midi which are registered or otherwise protected in substantially
all major industrialized countries. The Company's registrations cover use
of its trademarks and logos in connection with various applicable
products, such as loudspeakers, speaker systems, speaker system
components and other electrical and electronic devices. As of June 30,
1996, the Company held approximately 352 United States and foreign
21
<PAGE>
patents covering various products, product designs and circuits, and had
approximately 195 patent applications pending around the world. The
Company vigorously protects and enforces its trademark and patent
rights.
Seasonality
Overall, the Company's consolidated net sales are not materially
impacted by seasonality. However, the first fiscal quarter is usually
weakest due to the July and August holidays in Europe and the
automotive OEM model changeovers. Variations in seasonal demands
among end-user markets may cause operating results to vary from quarter
to quarter.
Customers
Sales to Chrysler for fiscal year 1996 accounted for 10.4% of the
Company's consolidated net sales. The loss of automotive OEM system
sales to Chrysler would have a material adverse impact on the sales and
earnings of Harman Motive and the Company as a whole. The
Company's next largest customer, Mercedes Benz, accounted for 7.7% of
the Company's consolidated net sales for the year ended June 30, 1996.
The loss of automotive OEM sales to Mercedes Benz would have a
material adverse impact on the sales and earnings of the Company.
Backlog Orders
Because the Company's practice is to maintain sufficient inventories of
finished goods to fill orders promptly, the level of backlog is not
considered to be an important index of future performance. The
Company's backlog was approximately $36.2 million at June 30, 1996,
and $31.3 million at June 30, 1995.
Warranties
Harman generally warrants its home products to be free from defects in
materials and workmanship for a period ranging from 90 days to five
years from the date of purchase by the consumer, depending on the
22
<PAGE>
product. The warranty is a "limited" warranty insofar as it imposes
certain shipping costs on the consumer, and excludes deficiencies in
appearance except for those evident when the product is delivered.
Harman dealers normally perform warranty service for loudspeakers in
the field, using parts supplied on an exchange basis by the Company.
Warranties in the international markets are generally similar to those in
the domestic market, although claims arising under these warranties are
the responsibility of the distributor, including the Company's distributing
subsidiaries.
Competition
In general, the audio industry is fragmented and competitive with
many manufacturers, large and small, domestic and international, offering
audio products which vary widely in price and quality and are marketed
through a variety of channels. Professional products are offered through
music instrument retailers, professional audio dealers, contractors and
installers and on a contract bid basis. Consumer products are offered
through various channels including audio specialty stores, discount stores,
department stores and mail order firms. The Company concentrates on
the higher-quality, higher-priced segments of the audio industry.
While the Company manufactures and markets many compatible and
complementary products, other products that the Company manufactures
and markets compete directly. For example, Turbosound professional
loudspeakers are compatible with and marketed by the same staff as BSS
professional amplifiers and loudspeaker management systems. However,
JBL and Infinity home loudspeakers compete directly and are two of the
leading loudspeaker brands in the world. The Company's strategy uses its
brand leadership to increase market share.
The Company believes that it currently has a significant share of the
consumer market for loudspeakers (home and aftermarket automotive),
primarily as a result of the strength of its brand names. JBL and Infinity
are two of the most recognized loudspeaker brands in the world. The
Company competes based upon its ability to meet customer demands
through new product introduction, the breadth of its product lines, world-
class marketing and its ability to take advantage of the economies of scale
resulting from the Company's use of common manufacturing facilities.
23
<PAGE>
The Company's principal competitors in the consumer loudspeaker
market include Bose, Boston Acoustics, Bowers & Wilkins, KEF,
Celestion, Paradigm, Acoustic Research, Cambridge SoundWorks and
Polk Audio. Harman's principal competitors in the consumer automotive
aftermarket area include Alpine, Kenwood, Bose, Nakamichi, Clarion,
Rockford-Fosgate and Blaupunkt.
Competition in the consumer electronic components segment remains
intense, with this market dominated by large Japanese competitors. The
short life cycle of products and a need for continuous design and
development efforts characterize this segment. The Company's
competitive strategy is to compete in the upper segments of this market
and to continue to emphasize the Company's ability to provide systems
solutions to customers, including a combination of loudspeakers and
electronics products, providing integrated surround sound and home
theater systems. Principal electronics competitors include: Sony, Denon,
Onkyo, Nakamichi, Pioneer and Kenwood. With the addition of Madrigal
in fiscal 1996, the Company competes in the high end of the consumer
electronics market with the Mark Levinson and Proceed brands. Principal
competitors include: Krell, McIntosh, Audio Research, Meridian, Linn
and Accuphase.
The market for professional sound systems is highly competitive. The
Company has historically held a leading market position in the
professional loudspeaker market and has complemented its professional
loudspeaker line by adding digital professional electronics products and
broadcast and recording equipment. The Company competes using its
ability to provide complete systems solutions to meet the complete audio
requirements of its professional customers. Harman offers a product for
virtually every professional audio application.
The Company competes in the sound reinforcement market with many
of its brand names, including JBL, Turbosound, AKG, Soundcraft, and
BSS. Its principal competitors in sound reinforcement include Electro
Voice, Inc. and Altec Lansing (subsidiaries of Mark IV Industries),
Eastern Acoustic Works, Crest, Sennheiser, Tannoy, Bose, Peavy,
Tascam, Klark-Teknik, Marshall, Fender and Sony. The Professional
Group competes in the broadcast and recording areas with its Studer,
AKG, Soundcraft, Lexicon and Orban brands. Principal competitors in
broadcast and recording include: Sony, Neve, Sennheiser, Denon, SSL,
Shure and Audio Technica. In the Music Instrument area the Company's
24
<PAGE>
DOD, Digitech, dbx, Lexicon and Spirit products meet competitors
Yamaha, Peavy, Rane, Roland, Alesis, Marshall, Fender and Sony.
The Professional Group also competes in the industrial and
architectural sound market; competitors within this market include
Siemens, Peavy and Tannoy.
In the automotive OEM market, the Company's principal competitors
include Bose, International Jensen, Oxford Electric, and Foster Electric in
the loudspeaker systems segment and Alpine, Blaupunkt and Panasonic in
the electronics segment. The Company is the only supplier of branded
loudspeaker systems for Ford, Chrysler, Jeep and Mitsubishi automobiles
in the United States, and also supplies branded loudspeaker systems to
BMW, Jaguar, Rover and Saab as well as supplying systems for the
Toyota Avalon. Additionally, the company is a primary supplier of radio
head units to Mercedes-Benz. The Company competes based upon the
strength of its brand name recognition and the quality of its products
together with its technical expertise in designing loudspeaker systems and
electronics to fit the acoustic properties of each automobile model.
Harman International is unique in its ability to provide multiple brands,
each with its own unique characteristics and loyal consumer following,
and also in its ability to provide complete, branded audio systems to the
automobile manufacturers.
In the developing computer OEM market, the Company supplies audio
systems for Compaq's Presario line of personal computers and the
Gateway Destination TV-PC. Principal competitors in this segment
include Bose, Altec-Lansing and LabTec.
Environmental Matters
The Company is subject to various federal, state, local and
international environmental laws and regulations, including those
governing the use, discharge and disposal of hazardous materials. The
Company's manufacturing facilities are believed to be in substantial
compliance with current laws and regulations. The cost of compliance
with current laws and regulations has not been, and is not expected to be,
material.
During fiscal 1995, the Company gave notice to certain state agencies
that an environmental release had occurred at one of its facilities. The
Company agreed to a remediation plan with the state agency. The
25
<PAGE>
Company has begun the remediation of this site and does not believe that
the future cost will exceed $250,000.
The Company has been named as a "potentially responsible party"
with respect to the disposal of hazardous wastes at four hazardous waste
sites. In addition, there are other sites to which the Company has sent
hazardous wastes which the Company believes are currently under
regulatory scrutiny. It is possible that additional environmental issues
may arise in the future which the Company cannot now predict. Although
ultimate liability cannot be determined with respect to the sites mentioned
above, and applicable law provides that a potentially responsible party at
any site may be held jointly and severally liable for the total cost of
remediation, the Company believes, based upon internal investigations
and information made available to the Company with regard to its
potential liability at these sites, that its proportionate share of the costs
related to the investigation and remedial work at these sites will not
exceed $100,000.
Research, Development and Engineering
The Company's expenditures for research, development and
engineering were $59,171,000, $40,257,000, and $22,324,000 for the
fiscal years ending June 30, 1996, 1995 and 1994, respectively. The
increase in expenditures in fiscal 1996 results from: the development of
the new OEM audio for computers business; the addition of Becker,
which was included for only six months in fiscal 1995; the inclusion of
Madrigal, acquired September 1995; and increased product development
activity at JBL Professional, Studer and Harman Motive. The increase in
expenditures in fiscal 1995 reflects the inclusion of Becker, acquired
February 1995, and a full year of development efforts at AKG and Studer,
acquired in September 1993 and March 1994, respectively.
Number of Employees
As of June 30, 1996, the Company had 8,369 full-time employees,
including 4,179 domestic employees and 4,190 international employees.
The increase in number of employees as of June 30, 1996 compared to the
prior year primarily results from the acquisition of Madrigal and the
expansion of the Company's OEM business into the personal computer
segment.
26
<PAGE>
Financial Information - Foreign & Domestic Operations, Export Sales
Financial information about foreign and domestic operations and
export sales to be filed hereunder is incorporated by reference to Note 9 of
Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
(Effects of Inflation and Exchange Rates) on pages 33 and 23,
respectively, in the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1996.
Forward-Looking Statements
Except for the historical information contained herein, the matters
discussed herein contain forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially from
those suggested in the forward-looking statements, including, without
limitation, the effect of economic conditions, product demand,
competitive products and other risks detailed herein and in the Company's
other filings with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
The Company's principal activities are conducted at the facilities
described in the following table.
<TABLE>
Square Owned or Percentage
Location Footage Leased Utilization Division
- ----------------------------- ----------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Northridge, California 693,932 Leased 100% JBL, Harman
Motive
Martinsville, Indiana 224,107 Owned 100% Harman Motive
Ontario, California 212,600 Leased 100% JBL, Infinity
Ringkobing, Denmark 145,119 Owned 100% Lydig
25,920 Leased 80%
</TABLE>
27
<PAGE>
<TABLE>
Square Owned or Percentage
Location Footage Leased Utilization Division
- ----------------------------- ----------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
Ittersbach, Germany 169,465 Owned 61% Becker
Huntington, Indiana 167,557 Owned 100% Pyle
Potters Bar, UK 160,000 Leased 100% Soundcraft
Vienna, Austria 128,593 Leased 100% AKG
Sandy, Utah 122,000 Leased 100% Harman Music
Group
Heilbronn, Germany 48,571 Owned 92% Harman
63,183 Leased 60% Deutschland
Bridgend, UK 101,400 Leased 100% Harman Motive
Worth-Schaitt, Germany 89,640 Owned 50% Becker
Regensdorf, Switzerland 86,111 Leased 100% Studer
Chateau-du-Loir, France 66,712 Owned 100% Audax
</TABLE>
The company considers its properties to be suitable and adequate for
its present needs.
ITEM 3. LEGAL PROCEEDINGS
There are various legal claims pending against the Company, but in the
opinion of management, liabilities, if any, arising from such claims will
not have a material effect upon the consolidated financial condition and
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
28
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
Age at
Name August 1, 1996 Position
- --------------------------- ------------------- ------------------------------------------------
<S> <C> <C>
Sidney Harman 77 Chairman of the Board of Directors
and Chief Executive Officer
Bernard A. Girod 54 President, Chief Operating Officer,
Chief Financial Officer, Secretary
and Director of the Company
Philip J. Hart 51 President - Harman Professional Group
Thomas Jacoby 42 President - Harman Consumer Group
Gregory P. Stapleton 49 President - OEM Group
Jerome H. Feingold 54 Vice President - Quality
Frank Meredith 39 Vice President and General Counsel
William S. Palin 53 Vice President-International Controller
Sandra B. Robinson 37 Vice President - Financial Operations
Floyd E. Toole 50 Vice President - Engineering
</TABLE>
Officers are elected annually by the Board of Directors and hold office
at the pleasure of the Board of Directors until the next annual selection of
officers or until their successors are elected and qualified.
Sidney Harman, Ph.D., the Company's founder, has been Chairman of
the Board and Chief Executive Officer and a director of the Company
since the Company's founding in 1980. From 1977 to 1979, Dr. Harman
was the Under Secretary of Commerce of the United States. From 1962
to 1977, Dr. Harman was an officer and director of the Predecessor of the
Company.
Bernard A. Girod has been President of the Company since March
1994, Chief Operating Officer of the Company since March 1993,
Secretary of the Company since November 1992 and a Director of the
Company since July 1993. Mr. Girod also serves as Chief Financial
29
<PAGE>
Officer of the Company, a position he held from September 1986 to
August 1995 and again since March 1996. From September 1979 to
September 1986, Mr. Girod was the Vice President and General Manager
of Permacel, a subsidiary of Avery International and Vice President of
Planning and Business Development for Avery International. From 1977
to 1979, Mr. Girod was the Chief Financial Officer of the Predecessor of
the Company.
Philip J. Hart has been President of the Harman Professional Group
since November 1993. Prior to that time, Mr. Hart served as President of
Soundcraft since Harman's 1988 acquisition.
Thomas Jacoby has been President of the Harman Consumer Group
since February 1993. Prior to that time, Mr. Jacoby served as President of
JBL Consumer since August 1990. From July 1988 to August 1990, Mr.
Jacoby served as Executive Vice President of Harman Kardon.
Gregory P. Stapleton has been President of the OEM Group since
October 1987. Prior to his association with the Company, Mr. Stapleton
was Senior Vice President of General Electric Venture Capital
Corporation from January 1986 to September 1987, and was General
Manager, Industrial Products Section, Factory Automation Products
Division, of General Electric Corporation from October 1982 through
December 1985.
Jerome H. Feingold has been the Vice President-Quality of the
Company since January 1992. Prior to that time, Mr. Feingold served as
President of Harman Speaker Manufacturing since July 1985. Prior to
1985, Mr. Feingold held various management positions within the
manufacturing division of the Company.
Frank Meredith has been Vice President, General Counsel and
Assistant Secretary of the Company since July 1992. Prior to that time,
Mr. Meredith held other positions within the Company since May 1985.
William S. Palin has been Vice President-International Controller of
the Company since March 1994. Prior to joining the Company, Mr. Palin
was a partner of MacHardy Palin & Co. from January 1982 to March
1994. From July 1978 to January 1982, Mr. Palin served as an officer of
two of the Company's international subsidiaries.
30
<PAGE>
Sandra B. Robinson has been Vice President-Financial Operations
since November 1992. Prior to that time, Ms. Robinson was Director of
Corporate Accounting and has been employed by the Company since
December 1984.
Floyd E. Toole, Ph.D., joined the Company as Vice President-Acoustic
Research in November 1991. Prior to joining the Company, Dr. Toole
spent 25 years, most recently as Senior Research Officer, with the
National Research Council of Canada's Acoustics and Signal Processing
Group. At the National Research Council, Dr. Toole worked to develop
psychoacoustic-optimized adaptive digital techniques for improving the
performance of loudspeakers in rooms.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The information required by Part II, Item 5 is incorporated by
reference to the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1996 (Shareholder Information on page 36).
31
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary
(in thousands, except per share data,
for the fiscal years ended June 30)
<TABLE>
1996 1995 1994 1993 1992
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $1,361,595 $1,170,224 $862,147 $664,913 $604,454
Operating income 105,378 87,449 66,332 41,255 27,547
Income before taxes 75,024 61,157 42,686 18,570 5,893
Net income 52,042 41,161 25,664 11,246 3,487
Net income per share 3.16 2.58 1.83 .99 .37
Total assets 996,209 886,872 680,691 431,726 415,909
Long-term debt 254,611 266,021 156,577 175,583 132,675
Shareholders' equity 436,477 289,490 232,021 111,149 111,241
Dividends per share 0.20 0.17 -- -- --
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information required by Part II, Item 7 is incorporated by
reference to the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1996 (Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 20 through 23).
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The information required by Part II, Item 8 is incorporated by
reference to the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1996 (Consolidated Financial Statements on pages 20
and 24 through 35).
32
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
With the exception of information relating to the executive officers of
the Company which is provided in Part I hereof, all information required
by Part III (Items 10, 11, 12, and 13) of Form 10-K, including the
information required by Item 405 of Regulation S-K, is incorporated by
reference to the Company's definitive Proxy Statement relating to the
1996 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a) 1. Financial statements required to be filed hereunder
are indexed on page 37 hereof.
2. Financial statement schedules required to be filed
hereunder are indexed on page 37 hereof.
3. The exhibits required to be filed hereunder are
indexed on pages 41 through 48 hereof.
b) Reports on Form 8-K
None.
33
<PAGE>
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34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant): HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
By: (Signature and Title) /s/ Sidney Harman
--------------------------------
Sidney Harman, Chairman of the Board
and Chief Executive Officer
Date: September 13, 1996
-------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
/s/ Sidney Harman Chairman of the Board, September 13, 1996
- ------------------------------ Chief Executive Officer -------------------------
Sidney Harman and Director
/s/ Bernard Girod President, Chief Operating September 13, 1996
- ------------------------------ Officer, Chief Financial -------------------------
Bernard A. Girod Officer (Principal Accounting
Officer), Secretary and
Director
/s/ Shirley M. Hufstedler Director September 13, 1996
- ------------------------------ -------------------------
Shirley M. Hufstedler
/s/ Ann McLaughlin Director September 13, 1996
- ------------------------------ -------------------------
Ann McLaughlin
/s/ Edward Meyer Director September 13, 1996
- ------------------------------ -------------------------
Edward Meyer
</TABLE>
35
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
36
<PAGE>
LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Index to Item 14(a)
<TABLE>
Page Reference
----------------------------------
Annual
Report to
Form 10-K Shareholders
----------------------------------
<S> <C> <C>
Consolidated Financial Data (pages 20 and
24 through 35 of the 1996 Annual Report
to Shareholders herein incorporated
by reference as Exhibit 13.1):
Financial Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Consolidated Balance Sheets as of
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of
Operations for the years ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash
Flows for the years ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Shareholders'
Equity for the years ended June 30,
1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 28
Independent Auditors' Report . . . . . . . . . . . . . . .39 . . . . . . . . . . . . 35
Schedules for the years ended June 30,
1996, 1995 and 1994:
II Valuation and Qualifying
Accounts and Reserves . . . . . . . . . . . . . . . . 38
</TABLE>
All other schedules have been omitted because they are not applicable, not
required, or the information has been otherwise supplied in the financial
statements or notes to the financial statements.
37
<PAGE>
Schedule II
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
Valuation and Qualifying Accounts and Reserves
Three Years Ended June 30, 1996
($000's omitted)
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Charged
Balance at Charged to To Other Balance
Beginning Costs and Accounts Deductions at End
Classification of Period Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended June 30, 1994
Allowance for
doubtful
accounts $ 3,435 $ 2,757 $ 7,189 (1) $ 3,140 (2) $10,241
Year Ended June 30, 1995
Allowance for
doubtful
accounts $10,241 $ 4,263 $ 2,217 (3) $ 4,408 (2) $12,313
Year Ended June 30, 1996
Allowance for
doubtful
accounts $12,313 $ 3,103 $ (1,405) (4) $ 4,049 (2) $ 9,962
</TABLE>
(1) Additions due to AKG, Studer and Harman Belgium (Beltronics) acquisitions.
(2) Deductions for accounts receivable written off net of recoveries.
(3) Additions due to Becker, D.A.V.I.D. and Harman Interactive (NewMediaWare)
acquisitions.
(4) Deductions due to account reclassifications, foreign currency translation,
and sale of Studer Singapore.
38
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------
The Board of Directors
Harman International Industries, Incorporated
Under date of August 15, 1996, we reported on the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1996 and 1995, and the related consolidated statements of
operations, cash flows and shareholders' equity for each of the years in
the three year period ended June 30, 1996, as contained in the 1996
annual report to shareholders. These consolidated financial statements
and our report thereon are incorporated by reference in the annual report
on Form 10-K for the year ended June 30, 1996. In connection with our
audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in the
accompanying index. The financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 15, 1996
39
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
40
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
INDEX TO EXHIBITS
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed
statement or report, such statement or report is identified in parenthesis.
There are omitted from the exhibits filed with this Annual Report
on Form 10-K certain promissory notes and other instruments and
agreements with respect to long-term debt of the Company, none of which
authorizes securities in a total amount that exceeds 10 percent of the total
assets of the Company and its subsidiaries on a consolidated basis.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Company hereby
agrees to file with the Securities and Exchange Commission copies of all
such omitted promissory notes and other instruments and agreements as
the Commission requests.
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
3.1, 4.1 Restated Certificate of Incorporation filed with the
Delaware Secretary of State on October 7, 1986,
as amended by the Certificates of Amendment
filed with the Delaware Secretary of State on
November 13, 1986 and on November 9, 1993.
(Filed as Exhibit 4.1 to Amendment 1 to the
Company's Registration Statement on Form S-3
dated November 15, 1993 (File No. 1-9764) and
hereby incorporated by reference.).................................IBR
3.2,4.5 Amended By-Laws of Harman International
Industries, Incorporated. (Filed as Exhibit 4.5 to the
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992 (File No. 0-15147) and hereby
incorporated by reference.).............................................IBR
</TABLE>
41
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
4.4, 10.29 Composite conformed copy of the Note Purchase
Agreement dated December 1, 1988, relating to the
sale of $45.0 million principal amount of 11.2% Senior
Subordinated Notes due December 1, 1998, including
as an exhibit thereto the form of 11.2% Senior
Subordinated Notes due December 1, 1998. (Filed as
Exhibit 4 to the Quarterly Report on Form 10-Q for the
quarter ended December 31, 1988 (File No. 0-15147),
and hereby incorporated by reference.) .........................IBR
4.6 Indenture dated June 4, 1992, between Harman
International Industries, Incorporated and Security
Trust Company N.A., as Trustee, relating to
$70,000,000 principal amount of 12.0% Senior
Subordinated Notes due 2002, including as an
exhibit thereto the form of 12.0% Senior
Subordinated Notes due 2002. (Filed as Exhibit
4.6 to the Annual Report on Form 10-K for the
year ended June 30, 1992 (File No. 0-15147),
and hereby incorporated by reference.)..........................IBR
10.1 Lease dated as of June 18, 1987 between Harman
International Industries Business Campus Joint
Venture and JBL Inc., as amended. (Filed as Exhibit
10.1 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1987 (File No. 0-15147)
and hereby incorporated by reference.)..........................IBR
10.2 Guaranty dated as of June 18, 1987 by Harman
International Industries, Inc. of Lease dated as of
June 18, 1987 between Harman International
Industries Business Campus Joint Venture and JBL
Inc., as amended. (Filed as Exhibit 10.2 to the
Annual Report on Form 10-K for the fiscal year
ended June 30, 1987 (File No. 0-15147) and hereby
incorporated by reference.).............................................IBR
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
10.18 Harman International Industries, Inc. 1987 Executive
Incentive Plan (adopted December 8, 1987). (Filed
as Exhibit 10.18 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1988 (File No.
0-15147), and hereby incorporated by reference.).........IBR
10.19 Form of Incentive Stock Option Agreement under
the 1987 Executive Incentive Plan. (Filed as Exhibit
10.19 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1988 (File No. 0-15147),
and hereby incorporated by reference.)..........................IBR
10.20 Form of Non-Qualified Stock Option Agreement
under the 1987 Executive Incentive Plan. (Filed as
Exhibit 10.20 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1988 (File No.
0-15147), and hereby incorporated by reference.).........IBR
10.21 Form of Non-Qualified Stock Option Agreement
with non-officer directors. (Filed as Exhibit 10.21
to the Annual Report on Form 10-K for the fiscal
year ended June 30, 1988 (File No. 0-15147), and
hereby incorporated by reference.).................................IBR
10.23 Lease Agreement dated April 28, 1988, by and
between Harman International Business Campus
Joint Venture and Harman Electronics, Inc. (Filed
as Exhibit 10.23 to the Annual Report on Form
10-K for the fiscal year ended June 30, 1988
(File No. 0-15147), and hereby incorporated by
reference.).......................................................................IBR
</TABLE>
43
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
10.26 Harman International Industries, Incorporated
Retirement Savings Plan. (Filed on Form S-8
Registration Statement on June 16, 1989
(Reg. No. 33-28973), and hereby incorporated
incorporated by reference.)..............................................IBR
10.27 Harman International Industries, Incorporated
Supplemental Executive Retirement Plan. (Filed
as Exhibit 10.27 to the Annual Report on Form
10-K for the fiscal year ended June 30, 1989
(File No. 0-15147), and hereby
incorporated by reference.)..............................................IBR
10.28 Form of Benefit Agreement under the Supplemental
Executive Retirement Plan. (Filed as Exhibit A to
the Supplemental Executive Retirement Plan at
Exhibit 10.27 and hereby incorporated by reference.)....IBR
10.30 Form of Restricted Stock Agreement. (Filed as
Exhibit 10.30 to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1989 (File No.
0-15147), and hereby incorporated by reference.)..........IBR
10.38 Amendment to the Harman International Industries,
Incorporated Supplemental Executive Retirement
Plan. (Filed as Exhibit 19.1 to the Quarterly Report
Report on Form 10-Q for the quarter ended March
31, 1992 (File No. 0-15147), and hereby
incorporated by reference.)..............................................IBR
</TABLE>
44
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
10.40 Harman International Industries, Incorporated 1992
Incentive Plan. (Filed as Exhibit A to the Definitive
Proxy Statement for the fiscal year ended June 30,
1995 as approved by shareholders at the November
1995 Annual Meeting of Shareholders (File No.
001-09764) and hereby incorporated by reference..........IBR
10.41 Form of Incentive Stock Option Agreement under the
1992 Incentive Plan. (Filed as Exhibit 10.41 to the
Annual Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-15147), and hereby
incorporated by reference.)..............................................IBR
10.42 Form of Non-qualified Stock Option Agreement under
the 1992 Incentive Plan. (Filed as Exhibit 10.42 to
the Annual Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-15147), and hereby
hereby incorporated by reference.)..................................IBR
10.43 Form of Restricted Stock Agreement under the 1992
Incentive Plan. (Filed as Exhibit 10.43 to the Annual
Report on Form 10-K for the fiscal year ended
June 30, 1993 (File No. 0-15147), and hereby
incorporated by reference.)..............................................IBR
10.44 Form of Non-qualified Stock Option Agreement
for Non-officer Directors under the 1992 Incentive
Plan. (Filed as Exhibit 10.44 to the Annual
Report on Form 10-K for the fiscal year ended
June 30, 1993 (File No. 0-15147), and hereby
incorporated by reference.).............................................IBR
</TABLE>
45
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
10.45 Harman International Industries, Inc. Executive
Deferred Compensation Plan. (Filed as Exhibit
10.45 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1993 (File No. 0-15147),
and hereby incorporated by reference.)..........................IBR
10.46 Harman International Industries, Inc. Executive
Deferred Compensation Plan Split-Dollar Life
Insurance Agreement. (Filed as Exhibit 10.46 to
the Annual Report on Form 10-K for the fiscal year
ended June 30, 1993 (File No. 0-15147), and
hereby incorporated by reference.).................................IBR
10.47 Share Purchase Agreement between Harman
International Industries, Inc., Roland Becker and
Becker Holding S.A. (Filed as Exhibit 2.1 to the
Current Report on Form 8-K dated February 27,
1995 (File No. 001-09764), and hereby
incorporated by reference...............................................IBR
10.53 Multi-Currency, Multi-Option Credit Agreement
dated September 30, 1994, among Harman
International Industries, Incorporated, the Subsidiary
Borrowers and Subsidiary Guarantors, and the
Several Lenders named therein with Chemical
Securities, Inc., as Arranger, NationsBank of North
Carolina, N.A., as Co-Agent and Chemical Bank,
as Administrative Agent. (Filed as Exhibit 10.53
to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994 (File No. 001-09764),
and hereby incorporated by reference.)..........................IBR
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
10.54 First Amendment dated February 15, 1995, to the
Multi-Currency, Multi-Option Credit Agreement
dated September 30, 1994. (Filed as Exhibit 10.54
to the Annual Report on Form 10-K for the fiscal
year ended June 30, 1995 (File No. 001-09764), and
hereby incorporated by reference.).................................IBR
10.55 Second Amendment dated November 9, 1995, to the
Multi-Currency, Multi-Option Credit Agreement
dated September 30, 1994. (Filed as Exhibit 10.55
to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 001-09764),
and hereby incorporated by reference.)..........................IBR
10.56 Amendment and Settlement Agreement dated
March 20, 1996, between Harman International
Industries, Inc., Roland Becker and Becker Holding
S.A. (Filed as Exhibit 10.56 to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996
(File No. 001-09764), and hereby incorporated by
reference.)........................................................................IBR
10.57 First Amendment to the Lease Agreement by and
between Harman International Business Campus
Joint Venture and Harman Electronics, Inc. dated
October 1995.....................................................................49
10.58 First Amendment to the Lease Agreement by and
between Harman International Business Campus
Joint Venture and JBL, Inc. dated October 1995.............55
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
Exhibit Page
No. Description No.
<S> <C> <C>
13.1 Pages 20 through inside back cover of Harman
International Industries, Incorporated Annual
Report to Shareholders for the fiscal year ended
June 30, 1996....................................................................61
21.1 Subsidiaries of the Company...........................................81
23.1 Consent of Independent Auditors....................................87
27.1 EDGAR Financial Data Schedule...................................91
</TABLE>
48
<PAGE>
EXHIBIT 10.57
49
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
50
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT
("Amendment") is made and entered into as of the __ day of October
1995, by and between HARMAN INTERNATIONAL BUSINESS
CAMPUS JOINT VENTURE, in which the joint venturers are The
Alaska Permanent Fund Corporation and The Riggs National Bank of
Washington, D.C., as Trustee for the Multi-Employer Property Trust
("Landlord"), and JBL Incorporated the predecessor to HARMAN
ELECTRONICS, INC., a Delaware corporation ("Tenant").
RECITALS
A. Tenant is the tenant pursuant to the Lease dated as of April 28,
1988 between Landlord and Tenant (the "Lease"), pursuant to which
Tenant leased from Landlord approximately 122,800 rentable square feet
of space commonly known as 8400 Balboa Boulevard, Northridge,
California (the "Premises"), as such Premises are more particularly
described in the Lease.
B. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings ascribed to them in the Lease.
C. Landlord and Tenant mutually desire to amend the Lease in
accordance with the terms set forth below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Lease Term. Paragraph 2 of the Lease is hereby amended to (a)
extend the Lease Term to December 31, 2010, and (b) delete Tenant's
option to terminate set forth in the penultimate sentence thereof.
2. Base Rent.
(a) Paragraph 3.A of the Lease is hereby amended to provide that
effective as of October 1, 1995, the Base Rent shall be Eighty Two
Thousand Eight Hundred Ninety and 00/100 Dollars ($82,890.00) per
month.
51
<PAGE>
(b) The monthly Base Rent (as set forth in Section 2(a) above) shall be
subject to adjustment as set forth in Paragraph 3.B of the Lease, except
that Paragraph 3.B of the Lease is hereby modified to provide that the
adjustment dates shall be April 1, 1998, and each successive thirty (30)
month anniversary thereafter.
3. Base Rent Credit. Provided that Tenant is not in default under any
of the terms of conditions of the Lease, as amended hereby, Tenant shall
be credited with the payment of Base Rent due and payable under the
Lease (as amended hereby) for the month of October, 1995, as and when
the same becomes due. No such Base Rent credit shall reduce of limit
any additional rent or other sum due and payable under the Lease.
4. Condition of Premises. Tenant acknowledges that it has inspected
and accepts the Premises in their present "as-is", "where-is" condition as
suitable for the purposes for which the Premises are leased, and Tenant
hereby acknowledges and agrees that Landlord shall have no obligation
whatsoever to alter, remodel, refurbish or improve all or any portion of
the Premises, except as expressly stated to the contrary in the Lease.
5. No Broker. Landlord and Tenant each represent and warrant to the
other that it has dealt with no broker, agent or other person in connection
with this transaction and that no broker, agent or other person brought
about this transaction, and Landlord and Tenant each hereby agrees to
indemnify, defend, protect and hold harmless the other from and against
any claims, losses, liabilities, demands, costs, expenses or causes of action
by any broker, agent or other person claiming any commission or other
form of compensation by virtue of having dealt with such party with
regard to this transaction.
6. Further Assurances. In addition to the obligations required to be
performed under the Lease, as amended hereby, Landlord and Tenant
shall each perform such other acts, and shall execute, acknowledge and/or
deliver such other instruments, documents and other materials, as may be
reasonably required in order to accomplish the intent and purposes of this
Amendment.
7. Authority. Each party hereby represents and warrants to the other
that it has the due power and authority to enter into this Amendment and
to be bound by the terms hereof.
52
<PAGE>
8. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of Landlord, its successors and assigns and Tenant and its
permitted successors and permitted assigns.
9. Attorneys' Fees. Should any party initiate a legal proceeding
against any other party, including an arbitration, then the prevailing party
shall be entitled to receive reasonable attorneys' fees and costs incurred in
connection with such legal proceeding.
10. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
11. No Other Amendment. Except as modified by this Amendment,
the provisions of the Lease shall remain unaffected and in full force and
effect. To the extent that any terms or provisions of this Amendment are
inconsistent with any terms or provisions of the Lease, the terms and
provisions of this Amendment shall control.
IN WITNESS WHEREOF, this Amendment is executed as of the day
and year aforesaid.
"LANDLORD"
Harman International Business Campus Joint Venture
By: The Alaska Permanent Fund Corporation, Venturer
By: Kennedy Associates Real Estate Counsel, Inc.
Its: Investment Advisor
By: /s/ John Parker
-----------------------------
John Parker
Senior Vice President
By: The Riggs National Bank of Washington, D.C., as Trustee
for the Multi-Employer Property Trust, Venturer
By: /s/ Patrick O. Mayberry
--------------------------------
Its: Vice President
--------------------------
53
<PAGE>
"TENANT"
JBL Incorporated,
a Delaware Corporation
By: /s/ Bernard Girod
----------------------------
Its: Vice President
-----------------------
CONSENT OF GUARANTOR
For value received, and in consideration of the Landlord's consent to
the foregoing First Amendment to Lease Agreement dated as of
September 22, 1995 ("Amendment"), the undersigned (having fully read
and understood said Amendment) hereby consents to the terms and
conditions of such Amendment and acknowledges and agrees that
Landlord's and Tenant's execution of such Amendment shall not modify,
limit waive or otherwise impair the obligations of the undersigned
pursuant to that certain Guaranty of Lease dated as of April 28, 1988,
given by the undersigned in favor of Landlord. The undersigned
specifically reaffirms the terms and conditions of said guaranty and agrees
that it shall remain in full force and effect with respect to the Lease (as
that term is defined in the Amendment), as amended by the Amendment.
HARMAN INTERNATIONAL INDUSTRIES,
INCORPORATED, a Delaware corporation
By: /s/ Bernard Girod
------------------------
Its: President
-------------------
54
<PAGE>
EXHIBIT 10.58
55
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
56
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("Amendment") is made
and entered into as of the __ day of October, 1995, by and between
HARMAN INTERNATIONAL INDUSTRIES BUSINESS CAMPUS
JOINT VENTURE, in which the joint venturers are The Alaska
Permanent Fund Corporation and The Multi-Employer Property Trust
("Landlord"), and JBL, INC., a Delaware corporation ("Tenant").
RECITALS
A. Tenant is the tenant pursuant to the Lease dated as of June 18, 1987
between Landlord and Tenant (the "Lease"), pursuant to which Tenant
leased from Landlord approximately 416,600 rentable square feet of space
located in Northridge, California and commonly known as the JBL
facility (the "Premises"), as such Premises are more particularly described
in the Lease.
B. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings ascribed to them in the Lease.
C. Landlord and Tenant mutually desire to amend the Lease in
accordance with the terms set forth below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Initial Term. The Basic Lease Information and Paragraphs 1(a)(28)
and 4(a) of the Lease are hereby amended to extend the Initial Term to
December 31, 2010.
2. Basic Rent.
(a) The Basic Lease Information and Paragraph 5(a) of the Lease are
hereby amended to provide that effective as of October 1, 1995, the Basic
Rent shall be Two Hundred Eighty-One Thousand Two Hundred Five and
00/100 Dollars ($281,205.00) per month.
57
<PAGE>
(b) The monthly Basic Rent (as set forth in Section 2(a) above) shall
be subject to adjustment as set forth in Paragraph 5(b) of the Lease, except
that Paragraph 5(b) of the Lease is hereby modified to provide that the
adjustment dates shall be April 1, 1998, and each successive thirty (30)
month anniversary thereafter.
3. Basic Rent Credit. Provided that Tenant is not in default under any
of the terms or conditions of the Lease, as amended hereby, Tenant shall
be credited with the payment of Basic Rent due and payable under the
Lease (as amended hereby) for the month of October, 1995, as and when
the same becomes due. No such Basic Rent credit shall reduce or limit
any additional rent or other sum due and payable under the Lease.
4. Condition of Premises. Tenant acknowledges that it has inspected
and accepts the Premises in their present "as-is", "where-is" condition as
suitable for the purposes for which the Premises are leased, and Tenant
hereby acknowledges and agrees that Landlord shall have no obligation
whatsoever to alter, remodel, refurbish or improve all or any portion of
the Premises, except as expressly stated to the contrary in the Lease.
5. No Broker. Landlord and Tenant each represent and warrant to the
other that it has dealt with no broker, agent or other person in connection
with this transaction and that no broker, agent or other person brought
about this transaction, and Landlord and Tenant each hereby agrees to
indemnify, defend, protect and hold harmless the other from and against
any claims, losses, liabilities, demands, costs, expenses or causes of action
by any broker, agent or other person claiming any commission or other
form of compensation by virtue of having dealt with such party in regard
to this transaction.
6. Further Assurances. In addition to the obligations required to be
performed under the Lease, as amended hereby, Landlord and Tenant
shall each perform such other acts, and shall execute, acknowledge and/or
deliver such other instruments, documents and other materials, as may be
reasonably required in order to accomplish the intent and purposes of this
Amendment.
7. Authority. Each party hereby represents and warrants to the other
that it has the due power and authority to enter into this Amendment and
to be bound by the terms hereof.
58
<PAGE>
8. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of Landlord, its successors and assigns and Tenant and its
permitted successors and permitted assigns.
9. Attorneys' Fees. Should any party initiate a legal proceeding
against any other party, including an arbitration, then the prevailing party
shall be entitled to receive reasonable attorneys' fees and costs incurred in
connection with such legal proceeding.
10. Counterparts. This Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
11. No Other Amendment. Except as modified by this Amendment,
the provisions of the Lease shall remain unaffected and in full force and
effect. To the extent that any terms or provisions of this Amendment are
inconsistent with any terms or provisions of the Lease, the terms and
provisions of this Amendment shall control.
IN WITNESS WHEREOF, this Amendment is executed as of the day
and year aforesaid.
"LANDLORD"
Harman International Business
Campus Joint Venture
By: The Alaska Permanent Fund Corporation, Venturer
By: Kennedy Associates Real Estate Counsel, Inc.
Its: Investment Advisor
By: /s/ John Parker
----------------------------------
John Parker
Senior Vice President
By: The Riggs National Bank of Washington, D.C., as Trustee
for the Multi-Employer Trust, Venturer
By: /s/ Patrick O. Mayberry
----------------------------------
Its: Vice President
----------------------------
59
<PAGE>
"TENANT"
JBL, INC., a Delaware corporation
By: /s/ Bernard Girod
---------------------------------
Its: Vice President
-----------------------------
CONSENT OF GUARANTOR
For value received, and in consideration of the Landlord's consent to
the foregoing First Amendment to Lease dated as of September 22, 1995
("Amendment"), the undersigned (having fully read and understood said
Amendment) hereby consents to the terms and conditions of such
Amendment and acknowledges and agrees that Landlord's and Tenant's
execution of such Amendment shall not modify, limit waive or otherwise
impair the obligations of the undersigned pursuant to that certain
Guaranty of Lease dated as of ______________, 1987, given by the
undersigned in favor of Landlord. The undersigned specifically reaffirms
the terms and conditions of said guaranty and agrees that it shall remain in
full force and effect with respect to the Lease (as that term is defined in
the Amendment), as amended by the Amendment.
HARMAN INTERNATIONAL INDUSTRIES,
INCORPORATED, a Delaware corporation
By: /s/ Bernard Girod
------------------------------
Its: President
-------------------------
60
<PAGE>
EXHIBIT 13.1
61
<PAGE>
FINANCIAL INFORMATION Table of Contents
<TABLE>
<S> <C>
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................21
Consolidated Financial Statements
Balance Sheets................................................................24
Statements of Operations................................................25
Statements of Cash Flows...............................................26
Statements of Shareholders' Equity................................27
Notes to Consolidated Financial Statements.......................28
Independent Auditors' Report.............................................35
Statement of Management Responsibility...........................36
Shareholder Information......................................................36
Officers and Directors.................................inside back cover
Annual Meeting...........................................inside back cover
</TABLE>
Except for the historical information contained herein,
the matters discussed herein contain forward-looking
statements that involve risks and uncertainties that
could cause actual results to differ materially from
those suggested in the forward-looking statements,
including, without limitation, the effect of economic
conditions, product demand, competitive products and
other risks detailed herein and in the Company's other
filings with the Securities and Exchange Commission.
20
62
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Net sales for fiscal 1996 increased by 16.4 percent to $1,361.6 million
from $1,170.2 million in fiscal 1995 and in fiscal 1995 increased by 35.7
percent from fiscal 1994 sales of $862.1 million. The sales increases for
both fiscal 1996 and fiscal 1995 result from the growth of the Consumer
Group, the Professional Group and the OEM Group.
Higher sales were reported by the Consumer Group, resulting from
increases at Infinity and Harman Kardon and the acquisition of Madrigal
Audio Laboratories, Inc. ("Madrigal"), maker of the Mark Levinson and
Proceed electronics lines. Infinity reported strong sales in Europe,
particularly in Germany, and Harman Kardon achieved robust sales
growth due to the success of its new line of audio/video receivers.
The Professional Group produced higher sales for the year. The
international success of the EON line of compact, portable sound
reinforcement systems generated excellent growth for JBL Professional.
Strong demand for the Turbosound line of professional loudspeaker
systems and the BSS line of digital signal processors and loudspeaker
management systems also contributed.
OEM Group growth was driven by increased sales volume at Harman
Motive and by the contribution of Becker GmbH ("Becker"), which was
acquired in February 1995, and thus not represented in the first half last
year. The growth at Harman Motive is attributable to increased shipments
of Infinity high fidelity systems for the Chrysler Minivan and the Dodge
Ram pickup truck, higher sales of Ford/JBL premium systems for the
Ford Explorer, and the success of the Toyota Avalon, which offers a high-
end audio system supplied by Harman Motive. Excellent sales growth
was also reported by Harman Motive, Ltd., due to increased sales to
Chrysler in Europe and the introduction of a premium branded Harman
Kardon system for the BMW 3-series. Becker reported good sales to its
automotive customers: Mercedes, BMW and Porsche.
The Company discontinued Ford's exclusive automotive OEM use of the
JBL brand name and made it available to Toyota, Peugeot and others
from whom new commitments have been received beginning in model
year 1998. The JBL program for the Ford Explorer will conclude with
model year 1997 and for the Lincoln line with model year 1998. The
Company believes that this transition will generate increased sales of JBL
branded systems to a larger number of automotive manufacturers.
During fiscal 1996, the Company began to design and manufacture
branded audio systems and loudspeakers for manufacturers of personal
computers. Production of JBL Professional branded speakers for
Compaq's new Presario line of personal computers began in the fourth
quarter of fiscal 1996.
Overall, the Company's consolidated net sales are not materially impacted
by seasonality. However, the first fiscal quarter is usually the weakest
due to the July and August holidays in Europe and automotive model
changeovers. Variations in seasonal demands among end-user markets
may cause operating results to vary from quarter to quarter.
The gross profit percentage in fiscal 1996 was 30.0 percent, compared to
31.1 percent in fiscal 1995 and 31.2 percent in fiscal 1994. The decrease
in fiscal 1996 reflects the impact of aggressive pricing in consumer
markets to grow market share combined with the inclusion of Becker for a
full year. The slight decrease in fiscal 1995 was primarily due to the
Becker acquisition, which contributed substantially to sales at a gross
margin percentage lower than the Company's average, partially offset by
higher margin contribution from the Professional Group and the OEM
Group.
Selling, general and administrative expenses as a percentage of sales were
22.2 percent in fiscal 1996 compared with 23.6 percent in fiscal 1995 and
23.5 percent in fiscal 1994. The decrease in fiscal 1996 selling, general
and administrative expenses as a percentage of sales primarily reflects
reorganization programs at Studer and Becker.
Operating income as a percentage of net sales was 7.7 percent for fiscal
1996 compared with 7.5 percent for fiscal 1995 and 7.7 percent for fiscal
1994. The increase for fiscal 1996 resulted from the decrease in selling,
general and administrative expenses, partially
21
63
<PAGE>
offset by the decrease in gross profit percentage. The decrease for fiscal
1995 resulted from the decrease in gross profit percentage and the
increase in selling, general and administrative expenses.
Interest expense in fiscal 1996 was $27.5 million compared with $25.3
million in fiscal 1995 and $22.1 million in fiscal 1994. Interest expense
increased in fiscal 1996 due to increased levels of average borrowings.
Fiscal 1996 average borrowings were $348.3 million compared with
$276.6 million in fiscal 1995 and $222.8 million in fiscal 1994. The
increase in average borrowings in fiscal 1996 primarily resulted from the
Becker and Madrigal acquisitions, the financing of increased working
capital requirements associated with higher sales volumes, and
investments in the new OEM audio for computers business. Borrowings
decreased significantly in the fourth quarter of fiscal 1996 due to the
utilization of proceeds from the Company's May 1996 issuance of 2.3
million common shares to pay down outstanding debt.
The weighted average interest rate in fiscal 1996 was 7.9 percent,
compared with 9.1 percent in fiscal 1995 and 9.9 percent in fiscal 1994.
The decrease in average interest rates in fiscal 1996 reflects the increased
usage of the Company's $275 million committed revolving credit facility,
which bears interest at the London Interbank Offered Rate (LIBOR) plus
0.30 percent.
In fiscal 1996 the Company reported income before income taxes,
minority interest and extraordinary item of $75.0 million, compared with
$61.2 million in fiscal 1995 and $42.7 million in fiscal 1994.
In fiscal 1996 the Company reported income tax expense of $23.8
million, reflecting an effective tax rate of 31.7 percent. This compares
with an income tax expense of $19.6 million and an effective tax rate of
32.1 percent in fiscal 1995. The fiscal 1994 tax provision was $16.2
million with an effective tax rate of 38.1 percent. The effective tax rate
for fiscal years 1996 and 1995 is below the U.S. statutory rate due to the
restructuring of certain foreign subsidiaries to take advantage of prior
years' and current year tax losses and the utilization of tax loss
carryforwards at certain foreign subsidiaries. The effective tax rate in
fiscal 1994 was above the U.S. statutory rate due to higher effective tax
rates for international subsidiaries and state income taxes.
The Company reported no extraordinary charges in fiscal 1996. The
Company reported extraordinary charges, net of related tax benefits, of
$274,000 in fiscal 1995 due to the early extinguishment of $5.5 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
$748,000 in fiscal 1994 associated with the early extinguishment, through
an in-substance defeasance, of the 10.08% $25.0 million Senior Notes,
Series A, due September 30, 1994.
Net income for fiscal 1996 was $52.0 million, compared with $41.2
million in fiscal 1995 and $25.7 million in fiscal 1994.
FINANCIAL CONDITION
Liquidity and Capital Resources
Harman International primarily finances its working capital requirements
through cash generated by operations, the revolving credit facility and
normal trade credit.
At June 30, 1996, the Company had outstanding indebtedness under the
revolving credit facility of $120.9 million. The indebtedness at June 30,
1996, consists of committed rate loans, which bear interest at LIBOR plus
0.30 percent, and swing line borrowings, which bear interest at base rates.
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.
At June 30, 1996, certain international subsidiaries of the Company
maintained unsecured short-term lines of credit of $19.9 million and had
outstanding indebtedness thereunder of approximately $13.5 million.
In May 1996, the Company issued 2,300,000 shares of Common Stock,
using the net proceeds of $109.1 million to repay short-term and long-
term debt.
22
64
<PAGE>
Capital expenditures were $80.6 million in fiscal 1996, compared with
$54.7 million in fiscal 1995 and $40.7 million in fiscal 1994.
Expenditures in fiscal 1996 and fiscal 1995 were primarily for new
product tooling and machinery and equipment required to increase
manufacturing capacity and efficiency.
The Company anticipates capital expenditures of approximately $90.0
million during the next fiscal year. Firm commitments of approximately
$6.7 million existed as of June 30, 1996, for capital expenditures during
fiscal 1997. The Company anticipates that a portion of these capital
expenditures will be financed through lease financing arrangements.
Net working capital at June 30, 1996 was $377.3 million compared with
$257.6 million at June 30, 1995. The increase in working capital
primarily results from higher inventory levels associated with increased
sales volumes, requirements for new product launches and the acquisition
of Madrigal.
Excess of cost over fair value of assets acquired increased to $129.9
million at June 30, 1996, from $122.5 million at June 30, 1995. The
increase reflects final acquisition accounting adjustments for Becker and
the fiscal 1996 acquisition of Madrigal.
Shareholders' equity was $436.5 million at June 30, 1996, compared with
$289.5 million at June 30, 1995, and $232.0 million at June 30, 1994.
The increase in fiscal 1996 reflects the impact of the May 1996 stock
offering and fiscal 1996 earnings. Foreign currency translation produced
a negative adjustment of $11.1 million in fiscal 1996, due to the
strengthening of the U.S. dollar against most other major currencies
during the year, and positive adjustments of $5.8 million in fiscal 1995
and $5.5 million in fiscal 1994 were recorded.
ACQUISITIONS
On August 30, 1995, the Company exercised its option to purchase the
remaining 80 percent of the issued and outstanding shares of Madrigal,
increasing its ownership to 100 percent. 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.
In March 1996, the Company settled its remaining consideration due for
the acquisition of Becker. The settlement resulted in total consideration
paid for the Becker shares of 20.7 million German marks (U.S. $14.2
million) and 220,000 shares of Harman Common Stock and assumption
of post-acquisition bank indebtedness of U.S. $57.7 million.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
The Company maintains significant assets and operations in Germany, the
United Kingdom, France, Denmark, Austria, Switzerland and Japan. As a
result, it has direct and continuing exposure to foreign currency gains and
losses. The Company hedges a portion of its foreign currency exposure
by incurring liabilities, including bank debt, denominated in the local
currency of those countries where its subsidiaries are located.
The subsidiaries of the Company purchase certain products and parts in
Japanese yen, German marks, British pounds, Danish kroner, Austrian
schillings, Swiss francs, French francs and U.S. dollars. As a result of its
procurement of products in multiple currencies, the Company may be
exposed to cost increases relative to local currencies in the markets in
which it sells. To mitigate such adverse trends, the Company enters into
forward exchange contracts and other hedging activities, as appropriate.
Additionally, foreign currency positions are partially offsetting and are
netted against one another to reduce exposure.
A portion of the Company's sales relate to products made in the U.S. and
sold abroad. As a result, sales of such products are somewhat dependent
on the value of the U.S. dollar relative to other currencies. Any long-term
strengthening of the U.S. dollar could have an adverse effect on these
sales.
Competitive conditions in the Company's markets may limit its ability to
increase the prices of its products in the face of adverse currency
movements; however, due to the multiple currencies involved in the
Company's business and the netting effect of various simultaneous
transactions, the Company's foreign currency positions are partially
offsetting.
23
65
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Harman International Industries, Incorporated and Subsidiaries
June 30, 1996 and 1995
($000s omitted except share amounts)
ASSETS 1996 1995
-------------- --------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 303 11,252
Receivables (less allowance for doubtful
accounts of $9,962 in 1996 and
$12,313 in 1995) 298,110 264,898
Inventories (note 2) 308,051 236,532
Other current assets 45,506 39,973
-------------- --------------
Total current assets 651,970 552,655
-------------- --------------
Property, plant and equipment, net
(notes 3, 5 and 6) 200,958 189,823
Excess of cost over fair value of assets
acquired (less accumulated amortization
of $12,930 in 1996 and $8,702 in 1995) 129,940 122,504
Other assets 13,341 21,890
-------------- --------------
Total assets $ 996,209 886,872
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable (notes 4 and 5) $ 26,367 27,208
Current portion of long-term debt (note 5) 6,423 13,006
Accounts payable 109,565 90,755
Accrued liabilities 115,168 148,834
Income taxes payable 17,136 15,288
-------------- --------------
Total current liabilities 274,659 295,091
-------------- --------------
Borrowings under revolving credit
facility (note 5) 107,986 106,244
Senior long-term debt (note 5) 37,125 50,277
Subordinated long-term debt (note 5) 109,500 109,500
Other non-current liabilities 29,231 31,199
Deferred income 372 1,082
Minority interest 859 3,989
Shareholders' equity (notes 5 and 7)
Preferred stock, $.01 par value. Authorized
5,000,000 shares; none issued and outstanding -- --
Common stock, $.01 par value. Authorized
50,000,000 shares; issued and outstanding
18,618,064 shares in 1996 and 16,235,096
shares in 1995 186 152
Additional paid-in capital 293,993 156,257
Equity adjustment from foreign currency
translation (4,906) 6,157
Retained earnings 147,204 126,924
-------------- --------------
Total shareholders' equity 436,477 289,490
-------------- --------------
Commitments and contingencies
(notes 6, 12 and 13)
-------------- --------------
Total liabilities and shareholders' equity $ 996,209 886,872
-------------- --------------
</TABLE>
24
See accompanying notes to consolidated financial statements.
66
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1996, 1995 and 1994
($000s omitted except share and per share amounts)
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $1,361,595 1,170,224 862,147
Cost of sales 953,470 806,143 592,985
------------- ------------- -------------
Gross profit 408,125 364,081 269,162
Selling, general and administrative
expenses 302,747 276,632 202,830
------------- ------------- -------------
Operating income 105,378 87,449 66,332
Other expenses
Interest expense 27,510 25,284 22,110
Miscellaneous, net 2,844 1,008 1,536
------------- ------------- -------------
Income before income taxes,
minority interest and
extraordinary item 75,024 61,157 42,686
Income tax expense (note 8)
Federal 14,401 12,012 12,589
Foreign and state 9,349 7,630 3,659
------------- ------------- -------------
Total income tax expense 23,750 19,642 16,248
Minority interest (768) 80 26
------------- ------------- -------------
Income before extraordinary item 52,042 41,435 26,412
Extraordinary item, net of income
tax effect of $182 in 1995 and
$495 in 1994 -- (274) (748)
------------- ------------- -------------
Net income $ 52,042 41,161 25,664
------------- ------------- -------------
Income per common share before
extraordinary item $ 3.16 2.60 1.88
------------- ------------- -------------
Extraordinary item, net of tax 0.00 (0.02) (0.05)
------------- ------------- -------------
Net income per common share $ 3.16 2.58 1.83
------------- ------------- -------------
Weighted average number of
common shares outstanding 16,473,673 15,980,154 14,042,172
------------- ------------- -------------
</TABLE>
25
See accompanying notes to consolidated financial statements.
67
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1996, 1995 and 1994
($000s omitted)
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 52,042 41,161 25,664
------------- ------------- -------------
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 46,594 40,772 31,210
Amortization of intangible assets 5,418 4,972 2,342
Amortization of deferred income (1,078) (1,294) (1,293)
Deferred income taxes 7,394 642 --
Changes in assets and liabilities, net
of effects from purchase of
companies:
Decrease (increase) in:
Receivables (31,044) (38,053) (35,566)
Inventories (67,646) 23,837 (56,510)
Other current assets (2,466) (5,150) (8,253)
Increase (decrease) in:
Accounts payable 17,960 (18,340) 14,052
Accrued liabilities (47,564) (11,010) 12,035
------------- ------------- -------------
Total adjustments $ (72,432) (3,624) (41,983)
------------- ------------- -------------
Net cash provided by (used in)
operating activities $ (20,390) 37,537 (16,319)
------------- ------------- -------------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ (18,650) (9,457) 6,852
Proceeds from asset dispositions 16,670 1,257 1,418
Investments in unconsolidated
subsidiaries -- -- (2,500)
Capital expenditures for property,
plant and equipment (80,554) (54,654) (40,720)
Other items, net 8,689 (1,011) (3,637)
------------- ------------- -------------
Net cash used in investing activities $ (73,845) (63,865) (38,587)
------------- ------------- -------------
Cash flows from financing activities:
Net repayments of lines of credit $ (936) (80,598) (8,007)
Proceeds from issuance of
long-term debt 5,083 114,991 7,559
Repayments of long-term debt (19,236) (11,482) (32,309)
Proceeds from issuance of
common stock 109,069 -- 87,488
Dividends paid to shareholders (3,210) (2,571) --
Effect of stock option program 3,579 1,751 2,245
Net change, foreign currency
translation (11,063) 5,765 5,475
------------- ------------- -------------
Net cash flow provided by
financing activities $ 83,286 27,856 62,451
------------- ------------- -------------
Net increase (decrease) in cash
and short-term investments (10,949) 1,528 7,545
Cash and short-term investments
at beginning of year 11,252 9,724 2,179
------------- ------------- -------------
Cash and short-term investments
at end of year $ 303 11,252 9,724
------------- ------------- -------------
Supplemental schedule of non-cash
investing activities:
Fair value of assets acquired $ 14,650 153,071 138,861
Cash paid for the capital stock 11,757 10,610 1,858
------------- ------------- -------------
Liabilities assumed $ 2,893 142,461 137,003
------------- ------------- -------------
</TABLE>
26
See accompanying notes to consolidated financial statements.
68
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Harman International Industries, Incorporated and Subsidiaries
Years ended June 30, 1996, 1995 and 1994
($000s omitted)
Equity
adjustment
Common Additional from foreign Net
Stock $.01 paid in currency Retained shareholders'
par value capital translation earnings equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
June 30, 1993 $ 109 53,453 (5,083) 62,670 111,149
Issuance of
common stock 40 87,448 -- -- 87,488
Exercise of stock
options 2 2,243 -- -- 2,245
Foreign currency
equity adjustment -- -- 5,475 -- 5,475
Net income -- -- -- 25,664 25,664
------------- ------------- ------------- ------------- -------------
Balance,
June 30, 1994 $ 151 143,144 392 88,334 232,021
------------- ------------- ------------- ------------- -------------
Exercise of stock
options 1 1,195 -- -- 1,196
Tax benefit
attributable to
stock option
plan -- 555 -- -- 555
Foreign currency
equity adjustment -- -- 5,765 -- 5,765
Stock to be issued
for Becker
acquisition -- 11,363 -- -- 11,363
Dividends ($.17
per share) -- -- -- (2,571) (2,571)
Net income -- -- -- 41,161 41,161
------------- ------------- ------------- ------------- -------------
Balance,
June 30, 1995 $ 152 156,257 6,157 126,924 289,490
------------- ------------- ------------- ------------- -------------
Issuance of
common stock 23 109,046 -- -- 109,069
Exercise of stock
options 2 2,467 -- -- 2,469
Tax benefit
attributable to
stock option
plan -- 1,110 -- -- 1,110
Foreign currency
equity adjustment -- -- (11,063) -- (11,063)
Final settlement of
Becker acquisition 2 (3,429) -- -- (3,427)
Stock dividend (5%) 7 28,542 -- (28,552) (3)
Dividends ($.20
per share) -- -- -- (3,210) (3,210)
Net income -- -- -- 52,042 52,042
------------- ------------- ------------- ------------- -------------
Balance,
June 30, 1996 $ 186 293,993 (4,906) 147,204 436,477
------------- ------------- ------------- ------------- -------------
</TABLE>
27
See accompanying notes to consolidated financial statements.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Harman International Industries, Incorporated and Subsidiaries
1. Summary of Significant Accounting Policies
Consolidation and Revenue Recognition Principles.
The consolidated financial statements include the accounts of the
Company and subsidiaries after the elimination of significant
intercompany transactions and accounts.
Revenue is primarily recognized upon shipment of goods.
Where necessary, prior years' information has been reclassified to
conform to the 1996 consolidated financial statement presentation.
Inventories. Inventories are valued at the lower of cost or market. Cost is
determined principally by the first-in, first-out method.
Property, Plant and Equipment. Property, plant and equipment is
recorded at cost or, in the case of capitalized leases, at the present value of
the future minimum lease payments.
Depreciation and amortization of property, plant and equipment is
provided primarily using the straight-line method over useful lives
estimated from 3 to 35 years. Amortization of leasehold improvements is
provided by the straight-line method over the estimated useful lives of the
assets or the terms of the lease, whichever is shorter.
Income Taxes. The deferred income tax asset or liability is determined by
applying currently enacted tax laws and rates to the expected reversal of
the cumulative temporary differences between the carrying value of assets
and liabilities for financial statement and income tax purposes. Deferred
income tax expense is measured by the change in the net deferred income
tax asset or liability during the year.
The Company accrues, as an expense, income taxes attributable to the
undistributed earnings of foreign subsidiaries. Such income taxes are
substantially offset by foreign tax credits.
Net income per Common Share. Net income per common share is based
upon the weighted average number of shares outstanding during each
period, adjusted for dilutive stock options, and gives effect to the 5
percent stock dividend paid on August 25, 1995.
Foreign Currency Translation. Assets and liabilities in foreign functional
currencies are translated into U.S. dollars based upon the prevailing
currency exchange rates in effect at the balance sheet date. Translation
gains and losses are not included in the determination of net income but
are accumulated in a separate component of shareholders' equity.
Excess of Cost over Fair Value of Assets Acquired. The net excess of
cost over fair value of assets acquired is being amortized over periods not
to exceed 40 years, using the straight-line method. The Company
evaluates the recoverability of the intangible assets through comparisons
of projected cash flows from the related assets.
Research and Development. Research and development costs are
expensed as incurred. The Company's expenditures for research and
development were $59,171,000, $40,257,000 and $22,324,000 for the
fiscal years ending June 30, 1996, 1995 and 1994, respectively.
Use of Estimates. Estimates and assumptions have been made relating to
the reporting of assets and liabilities to prepare the consolidated financial
statements in conformity with generally accepted accounting principles.
Actual results may differ from those estimates.
Recent Accounting Pronouncements.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." SFAS No. 121 provides guidelines for the recognition of
impairment losses related to long-term assets and is effective for the
Company's fiscal year ending June 30, 1997. The effect of adoption of
SFAS No. 121 is expected to be immaterial to the consolidated financial
statements of the Company.
28
70
<PAGE>
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123,
which is effective for the Company's fiscal year ending June 30, 1997,
encourages (but does not require) adoption of the fair value method of
accounting for stock-based compensation plans. The statement requires
pro forma disclosures presenting the effect of the fair value method for
those entities that do not elect to adopt it. At this time, the Company has
not determined whether it will adopt the fair value method.
2. Inventories
<TABLE>
Inventories consist of the following:
June 30 ($000s omitted) 1996 1995
----------- -----------
<S> <C> <C>
Raw materials and supplies $ 82,638 61,988
Work in process 25,029 28,412
Finished goods and inventory
purchased for resale 200,384 146,132
----------- -----------
Total $308,051 236,532
----------- -----------
</TABLE>
3. Property, Plant and Equipment
<TABLE>
Property, plant and equipment are composed
of the following:
June 30 ($000s omitted) 1996 1995
----------- -----------
<S> <C> <C>
Land $ 3,282 6,050
Buildings and improvements 79,025 80,484
Machinery and equipment 279,125 228,468
Furniture and fixtures 32,716 32,401
----------- -----------
394,148 347,403
Less accumulated depreciation
and amortization (193,190) (157,580)
----------- -----------
Property, plant and equipment, net $200,958 189,823
----------- -----------
</TABLE>
4. Notes Payable
At June 30, 1996, the Company had unsecured short-term lines of credit
for certain international subsidiaries aggregating $19.9 million with
outstanding borrowings of approximately $13.5 million. Interest rates
based on various indices ranged from 4.0 percent in Austria to 19.8
percent in India.
The Company utilizes the swing line feature of the revolving credit
facility to meet its short-term borrowing requirements. At June 30, 1996,
the Company had $12.9 million drawn on its swing lines at base rates in
the local countries where the funds were drawn, ranging from 1.6 percent
in Japan to 6.5 percent in Canada.
5. Long-Term Debt
On September 30, 1994, the Company and certain of its subsidiaries
entered into a five-year multi-currency revolving credit facility with a
group of eleven banks committing $220 million to the Company for cash
borrowings and letters of credit. In November 1995, 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. At June
30, 1996, the Company had borrowings of $120.9 million on the
revolving credit facility (including swing line, competitive advance and
revolving credit borrowings) and outstanding letters of credit of $5.4
million. The unused credit under the revolving credit facility at June 30,
1996, was $148.7 million. Interest rates, based on the London Interbank
Offered Rate of the lending bank plus 0.30 percent, ranged from 0.8
percent in Japan to 6.2 percent in the United Kingdom. The Company is
required under the revolving credit agreement to maintain certain
financial ratios and meet certain net worth and indebtedness tests.
Additionally, the Company's long-term debt agreements contain
covenants that, among other things, limit the ability of the Company and
its subsidiaries to incur additional indebtedness, create restrictions on
subsidiary dividends and distributions, limit the Company's ability to
encumber certain assets, restrict the Company's ability to issue capital
stock of its subsidiaries and allow each holder
29
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Harman International Industries, Incorporated and Subsidiaries
of the 12.0% notes to require the Company to repurchase such notes
above face upon the occurrence of a Change of Control, as defined in the
agreements. The Company must comply with the terms of its long-term
debt agreements. Under the most restrictive provisions, limited amounts
of dividends may be paid as of June 30, 1996.
Interest paid for both short- and long-term borrowings was $26,675,000,
$23,148,000 and $22,443,000 during the fiscal years ended June 30, 1996,
1995 and 1994, respectively.
<TABLE>
Long-term debt is composed of the following:
June 30 ($000s omitted) 1996 1995
----------- -----------
<S> <C> <C>
Series B unsecured senior notes,
due September 30, 1997, interest
payments due semiannually at 10.4% $ 17,500 17,500
Senior subordinated notes, unsecured,
due December 1, 1998, interest
payments due semiannually at 11.2% 45,000 45,000
Senior subordinated notes, unsecured,
due August 1, 2002, interest
payments due semiannually at 12.0% 64,500 64,500
Borrowings under revolving credit
facility, due September 30, 2000,
with rates ranging from 0.8% to
6.2% at June 30, 1996 107,986 106,244
Obligations under capital
leases (note 6) 9,739 9,893
Other unsubordinated loans due
in installments through 2012,
some of which vary with the
prime rate, bearing interest at
an average effective rate of
8.6% at June 30, 1996 16,309 35,890
----------- -----------
Total 261,034 279,027
Less current installments (6,423) (13,006)
----------- -----------
Long-term debt $254,611 266,021
----------- -----------
</TABLE>
In fiscal 1995, the Company purchased at a premium $5.5 million of the
12.0% Senior Subordinated Notes, due August 1, 2002. The purchases
resulted in extraordinary charges of $274,000, net of related tax benefits,
or $.02 per share.
In December 1993, the Company utilized funds from the November 1993
Common Stock offering to purchase United States government securities
at a cost of $26.9 million which were deposited irrevocably with PNC
Bank, N.A. to satisfy principal and interest payments through the stated
maturity on the Company's $25.0 million 10.08% Series A Senior Notes,
due September 30, 1994. The debt and accrued interest thereon were
removed from the balance sheet in an in-substance defeasance transaction
resulting in an extraordinary loss, net of tax benefit, of $748,000.
Long-term debt, including obligations under capital leases, maturing in
each of the next five fiscal years ($000s omitted) is as follows:
1997 $ 6,423
1998 24,008
1999 48,672
2000 2,938
2001 109,505
Thereafter 69,488
6. Leases
<TABLE>
The following analysis represents property
under capital leases:
June 30 ($000s omitted) 1996 1995
----------- -----------
<S> <C> <C>
Capital lease assets $ 14,848 14,822
Less accumulated amortization (5,021) (4,625)
----------- -----------
Net $ 9,827 10,197
----------- -----------
</TABLE>
30
72
<PAGE>
At June 30, 1996, the Company is liable for the following minimum lease
commitments under terms of noncancelable lease agreements (the
operating lease commitments do not reflect the offset of the amortization
of deferred income):
<TABLE>
Capital Operating
($000s omitted) Leases Leases
----------- -----------
<S> <C> <C>
1997 $ 3,399 $ 19,324
1998 2,674 17,416
1999 1,894 16,010
2000 1,363 15,093
2001 646 12,461
Thereafter 2,320 71,530
----------- -----------
Total minimum lease payments 12,296 $151,834
less interest (2,557) -----------
-----------
Present value of minimum
lease payments $ 9,739
-----------
</TABLE>
Operating lease expense, net of deferred income amortization
($1,078,000, $1,294,000 and $1,293,000 for the years ended June 30,
1996, 1995 and 1994, respectively) and subrental income under operating
leases having noncancelable terms of greater than one year for the years
ended June 30, 1996, 1995 and 1994 was $25,871,000, $21,849,000 and
$15,677,000, respectively.
7. Stock Option Plan
The 1992 Incentive Plan (the 1992 Plan) provides for the grant of stock
options, stock appreciation rights in tandem with options, restricted stock
and performance units to officers, key employees and consultants of the
Company and its subsidiaries. In addition, the 1992 Plan provides for the
automatic annual grant of options to the non-officer directors of the
Company and for a further automatic grant to such non-officer directors
each year in which the Company achieves a specified level of return on
consolidated equity.
The 1992 Plan is intended to supplement the Company's 1987 Plan (the
1987 Plan) and to add the automatic grant feature for non-officer
directors. While both Plans remain in effect, the Compensation and
Option Committee will retain the ability to make awards under both
Plans. The 1987 Plan will be terminated upon the grant of awards with
respect to the shares of Common Stock remaining available thereunder.
Automatic awards to non-officer directors will only be made under the
1992 Plan. When the 1987 Plan is ultimately terminated, options
previously granted pursuant to the 1987 Plan will remain outstanding and
will be exercisable in accordance with the terms of the 1987 Plan.
Stock appreciation rights allow the holders to receive a predetermined
percentage of the spread between the option price and the current value of
the shares. A grant of restricted stock involves the immediate transfer to a
participant of ownership of a specified number of shares of Common
Stock in consideration of the performance of services. The participant is
entitled immediately to voting, dividend and other share ownership rights.
A transfer of restricted stock may be made without consideration or in
consideration of a payment by the participant that is less than current
market value, as the Compensation and Option committee may determine.
A performance unit is the equivalent of $100 and is granted for the
achievement of specified management objectives.
No stock appreciation rights or performance units were outstanding at
June 30, 1996. Options to purchase shares of Common Stock have been
granted under both Plans. Options granted are at prices not less than
market value on the date of grant and, under the terms of the 1992 Plan,
may not be repriced. Options granted pursuant to the 1987 and 1992
Plans generally vest over five years and expire ten years from the date of
grant.
31
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
Changes in the status of options are
summarized as follows:
Years ended June 30 1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Balance at beginning of year 1,250,770 910,750 625,720
Stock Dividend 62,550 -- --
Granted 95,500 464,250 553,500
Canceled (78,859) (30,260) (85,400)
Exercised (185,878) (93,970) (183,870)
------------- ------------- -------------
Balance at end of year 1,144,083 1,250,770 910,750
------------- ------------- -------------
Exercisable stock options 707,716 618,960 487,545
------------- ------------- -------------
Price range of options:
Outstanding at end of period $ 6.31-52.50 6.63-38.88 6.63-33.94
------------- ------------- -------------
Granted during period $36.75-52.50 25.13-38.88 19.25-33.94
------------- ------------- -------------
Exercised during period $ 6.31-37.02 6.63-25.63 6.63-20.63
------------- ------------- -------------
</TABLE>
At June 30, 1996, a total of 33,484 shares of Common Stock were
reserved for issuance under the 1987 Plan and 513,335 were reserved for
issuance under the 1992 Plan.
8. Income Taxes
<TABLE>
Income tax expense (benefit)
consists of the following:
Years ended June 30 1996 1995 1994
($000s omitted) ------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ 14,281 8,566 16,716
State 585 923 1,894
Foreign 8,796 6,501 2,246
------------- ------------- -------------
23,662 15,990 20,856
------------- ------------- -------------
Deferred:
Federal 120 3,446 (4,127)
State (32) 206 (481)
------------- ------------- -------------
88 3,652 (4,608)
------------- ------------- -------------
Total $ 23,750 19,642 16,248
------------- ------------- -------------
</TABLE>
<TABLE>
The tax provisions and analysis of
effective income tax rates are
comprised of the following:
Years ended June 30 1996 1995 1994
($000s omitted) ------------- ------------- -------------
<S> <C> <C> <C>
Provision for Federal income
taxes before credits at
statutory rate $ 26,258 21,405 14,940
State income taxes 553 1,126 1,413
Difference between Federal
statutory rate and foreign
effective rate (4,947) (999) (1,466)
Permanent differences
between financial and tax
accounting income 141 354 211
Tax exempt foreign sales
corporation earnings (1,089) (883) (1,136)
Change in valuation allowance -- 4,204 1,973
Losses without (with) income
tax benefit 1,164 (4,944) 1,683
Federal income tax credits (858) (514) (250)
Other 2,528 (107) (1,120)
------------- ------------- -------------
Total $ 23,750 19,642 16,248
------------- ------------- -------------
</TABLE>
Deferred taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities and available tax loss
carryforwards. The following deferred taxes are recorded:
<TABLE>
Assets/(liabilities) 1996 1995
June 30 ($000s omitted) ------------- -------------
<S> <C> <C>
Inventory costing differences $ 6,284 4,950
Deferred income -- 410
Valuations and other allowances 15,503 12,959
------------- -------------
Total gross deferred tax asset $ 21,787 18,319
Less valuation allowance (9,418) (9,418)
------------- -------------
Deferred tax asset $ 12,369 8,901
------------- -------------
Total gross deferred tax liability
from fixed asset depreciation (7,624) (4,159)
------------- -------------
Net deferred tax asset $ 4,745 4,742
------------- -------------
</TABLE>
32
74
<PAGE>
Management believes the results of future operations will generate
sufficient taxable income to realize the net deferred tax asset.
The Company acquired tax loss carryforwards from foreign subsidiaries
Becker, AKG and Studer of approximately 100 million German marks,
250 million Austrian schillings and 70 million Swiss francs, respectively.
The AKG and Studer tax losses expire within 5 to 7 years from the date
incurred. An asset has not been booked to reflect the potential benefit of
these carryforwards. Goodwill is reduced, to the extent available, for the
benefits related to the utilization of these losses. Goodwill reduction
resulting from tax loss carryforward utilization in fiscal 1996 was 4.7
million German marks for Becker and 1.2 million Swiss francs for Studer,
and in fiscal 1995 was 0.7 million Swiss francs for Studer.
Cash paid for Federal, state and foreign income taxes was $15,637,000,
$12,422,000 and $14,095,000, during fiscal years ended June 30, 1996,
1995 and 1994, respectively.
9. Business Segment Data
The Company's predominant business is the design, manufacture and
distribution of high fidelity audio products. The Company's activities
comprise the domestic and international distribution of products
manufactured by the Company and by other manufacturers.
In the domestic and international segments, one customer accounted for
approximately 10.4%, 9.5% and 13.7% of consolidated net sales for the
years ended June 30, 1996, 1995 and 1994.
The following tables show net sales, operating income and other financial
information by geographic segment for the years ended June 30, 1996,
1995 and 1994.
The net sales shown below for the United States include export and
military sales of $259.1 million, $209.5 million and $179.1 million for the
fiscal years ended June 30, 1996, 1995 and 1994, respectively.
<TABLE>
Geographic Segmentation
Years ended June 30 1996 1995 1994
($000s omitted) ------------- ------------- -------------
<S> <C> <C> <C>
Net sales:
U.S. $ 908,111 784,989 673,305
International 635,452 502,809 282,191
Intercompany/Interregion (181,968) (117,574) (93,349)
------------- ------------- -------------
Total $ 1,361,595 1,170,224 862,147
------------- ------------- -------------
Operating income:
U.S. $ 78,710 81,901 73,539
International 40,695 20,871 12,039
Unallocated operating expenses (14,027) (15,323) (19,246)
------------- ------------- -------------
Total $ 105,378 87,449 66,332
------------- ------------- -------------
Identifiable assets:
U.S. $ 519,422 427,777 418,840
International 463,466 438,435 252,360
Corporate 13,321 20,660 9,491
------------- ------------- -------------
Total $ 996,209 886,872 680,691
------------- ------------- -------------
</TABLE>
10. Employee Benefit Plans
Under the Retirement Savings Plan, domestic employees may contribute
to the Retirement Savings Plan by deferring up to 12.0% of their pretax
compensation. With the approval of the Board of Directors, each division
may also make a basic contribution equal to 2.0% of a participating
employee's salary; a matching contribution of up to 3.0% (50.0% on the
first 6.0% of an employee's tax-deferred contribution); and a profit
sharing contribution. Profit sharing and matching contributions vest at a
rate of 25.0% for each year of service with the employer, beginning with
the third full year of service. Expenses related to the Retirement Savings
Plan for the years ended June 30, 1996, 1995 and 1994 totaled
$4,388,000, $4,152,000 and $3,536,000, respectively.
The Company also has a Supplemental Executive Retirement Plan
(SERP) that provides normal retirement, pre-retirement and termination
benefits, as defined, to certain key executives designated by
33
75
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
Harman International Industries, Incorporated and Subsidiaries
the Board of Directors. Expenses related to the SERP for the years ended
June 30, 1996, 1995 and 1994 were $214,000, $875,000 and $667,000,
respectively.
Additionally, certain of the Company's non-domestic subsidiaries
maintain defined benefit pension plans. These plans are not material to
the accompanying consolidated financial statements.
11. Fair Value of Financial Instruments
The estimated fair value amounts of the Company's financial instruments
have been determined using appropriate market information and valuation
methodologies. In the measurement of the fair value of certain financial
instruments, quoted market prices were unavailable and other valuation
techniques were utilized. These derived fair value estimates are
significantly affected by the assumptions used.
Foreign currency contracts. The fair value of foreign currency contracts
used for hedging purposes is estimated by obtaining quotes from brokers.
The cost of foreign currency contracts approximated fair value at June 30,
1996.
Long-term debt. Fair values of long-term debt are based on market prices
when available. When quoted market prices are not available, fair values
are estimated using discounted cash flow analysis, based on the
Company's current incremental borrowing rates for similar types of
borrowing arrangements. The carrying value and fair value of long-term
debt, excluding obligations under capital leases and unsubordinated loans
are $235.0 million and $240.3 million, respectively, at June 30, 1996.
12. Foreign Currency Transactions
The Company enters into foreign exchange contracts as a hedge against
transactions denominated in foreign currencies. At June 30, 1996, the
Company had contracts maturing through December 1996 to purchase
and sell the equivalent of approximately $25.5 million of various
currencies.
13. Commitments and Contingencies
The Company and its subsidiaries are involved in several legal actions.
The results cannot be predicted with certainty; however, management,
based upon advice from legal counsel, believes such actions are either
without merit or do not represent a potential material liability.
14. Acquisitions
On August 30, 1995, the Company exercised its option to purchase the
remaining 80 percent of the issued and outstanding shares of Madrigal,
increasing its ownership to 100 percent. Harman paid approximately $9.8
million for the remaining shares and related acquisition costs. The
acquisition would not significantly affect prior years' results.
In February 1995, the Company acquired Becker, a German manufacturer
of automotive OEM and automotive aftermarket electronics. Final
settlement of the transaction in March 1996 resulted in total consideration
paid for the Becker shares of approximately U.S. $14.2 million and
220,000 shares of Harman Common Stock and assumption of post-
acquisition bank indebtedness of approximately U.S. $57.7 million.
In March 1994 the Company acquired Studer, a manufacturer of
professional recording and broadcast equipment, for consideration of
approximately U.S. $70.00 and assumption of post-acquisition bank
indebtedness of approximately U.S. $16 million.
In September 1993, the Company acquired a 76% interest in AKG, a
manufacturer of microphones, headphones and other professional audio
equipment headquartered in Vienna, Austria, for consideration of
approximately U.S. $7.00 and assumption of post-acquisition bank
indebtedness of approximately U.S. $24.5 million. The Company
subsequently acquired the remaining 24% of AKG in July 1994 for
consideration of approximately U.S. $3.7 million.
34
76
<PAGE>
15. Quarterly Summary of Operations (Unaudited)
The following is a summary of operations by quarter for fiscal 1996 and
1995:
<TABLE>
Three months ended:
($000s omitted except per share amounts)
Fiscal 1996 Sept 30 Dec 31 Mar 31 Jun 30
<S> <C> <C> <C> <C>
Net sales $300,474 348,669 339,339 373,113
Gross profit $ 89,486 107,915 103,430 107,294
Income before extraordinary items $ 5,904 15,462 13,887 16,789
Net income $ 5,904 15,462 13,887 16,789
Income per share before
extraordinary items* $ .36 .95 .86 .97
Net income per common share* $ .36 .95 .86 .97
*Quarters do not add to full year for fiscal 1996 due to differences in number of shares outstanding
in the quarters.
Fiscal 1995
Net sales $228,607 288,718 310,493 342,406
Gross profit $ 75,866 90,837 93,895 103,483
Income before extraordinary items $ 4,198 12,170 11,372 13,695
Net income $ 4,150 11,944 11,372 13,695
Income per share before
extraordinary items $ .27 .77 .72 .84
Net income per common share $ .27 .75 .72 .84
</TABLE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND SHAREHOLDERS
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED:
We have audited the accompanying consolidated balance sheets of
Harman International Industries, Incorporated and subsidiaries as of June
30, 1996 and 1995 and the related consolidated statements of operations,
cash flows and shareholders' equity for each of the years in the three-year
period ended June 30, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Harman
International Industries, Incorporated and subsidiaries as of June 30, 1996
and 1995 and the results of their operations and their cash flows for each
of the years in the three-year period ended June 30, 1996 in conformity
with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 15, 1996
35
77
<PAGE>
STATEMENT OF MANAGEMENT RESPONSIBILITY
Harman International Industries, Incorporated and Subsidiaries
The consolidated financial statements and accompanying information
were prepared by, and are the responsibility of, the management of
Harman International Industries, Incorporated. The statements were
prepared in conformity with generally accepted accounting principles,
and, as such, include amounts that are based on management's best
estimates and judgements.
The Company's internal control systems are designed to provide reliable
financial information for the preparation of financial statements, to
safeguard assets against loss or unauthorized use and to ensure that
transactions are executed consistent with Company policies and
procedures. Management believes that existing internal accounting
control systems are achieving their objectives and that they provide
reasonable assurance concerning the accuracy of financial statements.
Oversight of management's financial reporting and internal accounting
control responsibilities is exercised by the Board of Directors through an
audit committee which consists solely of outside directors. The
Committee meets periodically with financial management and the
independent auditors to ensure that each is meeting its responsibilities and
to discuss matters concerning auditing, accounting control and financial
reporting. The independent auditors have free access to meet with the
Audit Committee without management's presence.
/s/ Bernard A. Girod
Bernard A. Girod
President, Chief Operating Officer and Chief Financial Officer
Shareholder Information
<TABLE>
Market Price Fiscal 1996 Fiscal 1995 Fiscal 1994
High Low High Low High Low
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
First quarter ended
September 30 $ 49.75 35.596 $ 33.334 24.048 $ 20.953 16.548
Second quarter ended
December 31 48.875 39.75 36.191 30.477 27.858 17.977
Third quarter ended
March 31 41.25 32.00 40.001 34.048 32.024 25.953
Fourth quarter ended
June 30 56.50 37.375 39.048 32.382 29.763 23.334
</TABLE>
The Common Stock of the Company is listed on the New York Stock
Exchange and is reported on the New York Stock Exchange Composite
Tape under the symbol HAR. As of June 30, 1996, the Company's
Common Stock was held by approximately 214 record holders.
The table above sets forth the reported high and low sales prices of the
Company's Common Stock, as reported on the New York Stock
Exchange, for each quarterly period for fiscal years ended June 30, 1996,
1995 and 1994.
The Company paid dividends during fiscal 1996 of $.20 per share, with a
dividend of $.05 paid in each of the four quarters. In August 1995, a
special 5 percent stock dividend was paid.
36
78
<PAGE>
CORPORATE OFFICERS
Sidney Harman
Chairman & Chief Executive Officer
Bernard A. Girod
President, Chief Operating Officer & Chief Financial Officer
Jerome H. Feingold
Vice President - Quality
Frank Meredith
Vice President & General Counsel
William S. Palin
Vice President - International Controller
Sandra B. Robinson
Vice President - Financial Operations
Floyd E. Toole
Vice President - Engineering
GROUP PRESIDENTS
Philip Hart
Professional Group
Thomas Jacoby
Consumer Group
Gregory Stapleton
OEM Group
Advanced Technology Council
Michael Watts
Chairman
Erich Geiger
Vice Chairman
High-End Council
Sanford Berlin
Chairman
Cover photograph shot on location at the Levine School of Music,
Washington, D.C. with young music students: Timothy Abbondelo,
Jackie Garlock, Scott Geiser, Mecca Hayes, and Chris Johnson.
DIRECTORS
Bernard A. Girod
Sidney Harman
Shirley Mount Hufstedler
Ann McLaughlin
Edward H. Meyer
Annual Meeting
The annual meeting of shareholders will be held on November 13, 1996, at
Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017 at
11:00 a.m. EST. A proxy statement was sent to shareholders on or about
September 18, 1996, at which time proxies for the meeting were requested.
Registrar and Transfer Agent
ChaseMellon Shareholder Services
15821 Ventura Boulevard
Encino, CA 91436
(818) 971-4751
Securities Traded
New York Stock Exchange
Symbol: HAR
Independent Auditors
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, CA 90017
(213) 972-4000
Corporate Headquarters
1101 Pennsylvania Avenue, NW
Suite 1010
Washington, DC 20004
(202) 393-1101
Design: Fitch Inc.
Photography: John Shotwell
Photograph facing AKG microphone: Frank Stewart
Photograph with President Clinton: Fancher Murray
Except for the historical information contained in this Annual Report, the
matters discussed herein contain forward-looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those suggested in the forward-looking statements, including, without
limitation, the effect of economic conditions, product demand, competitive
products and other risks detailed herein and in the Company's other filings
with the Securities and Exchange Commission.
79
<PAGE>
(BACK COVER OF ANNUAL REPORT)
(PICTURE HERE)
(Harman International logo here)
Harman International Industries, Incorporated
1101 Pennsylvania Avenue, NW, Suite 1010, Washington,DC 20004
(202) 393-1101
80
<PAGE>
EXHIBIT 21.1
81
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
82
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
AKG Acoustics GmbH Germany
AKG Acoustics India, Ltd. India
AKG Akustische u. Kino-Gerate
Gessellschaft m.b.H. Republic of Austria
Allen & Heath Limited United Kingdom
Audax Industries, SNC France
Audax of America, Inc. Delaware
Becker Automotive (Pty) Ltd. South Africa
Becker GmbH Germany
Becker Holding GmbH Germany
Becker of North America, Inc. Delaware
Becker Service und Verwaltungs GmbH Germany
BSS Audio Ltd United Kingdom
D.A.V.I.D. GmbH Germany
Edge Technology Group Ltd. United Kingdom
Fosgate, Inc. Delaware
Harco Properties, Inc. Delaware
Harman Audio Outlet, Inc. Delaware
Harman Belgium NV Kingdom of Belgium
</TABLE>
83
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
Harman Consumer Europe A/S Denmark
Harman Consumer Manufacturing -
El Paso, Inc. Delaware
Harman Consumer Netherlands BV Netherlands
Harman Deutschland GmbH Germany
Harman Enterprises, Inc. Delaware
Harman France, S.N.C. France
Harman Holding Europe A/S Denmark
Harman Interactive, Inc. California
Harman International
Foreign Sales Corporation Guam
Harman International
Industries Limited United Kingdom
Harman International Japan Co., Limited Japan
Harman International Singapore PTE., Limited Singapore
Harman Investment Company, Inc. Delaware
Harman-Kardon, Incorporated Delaware
Harman Marketing Europe A/S Denmark
Harman-Motive, Inc. Delaware
</TABLE>
84
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
Harman Motive Limited United Kingdom
Harman Music Group Incorporated Utah
Harman Pro North America, Inc. Delaware
Harman UK Limited United Kingdom
Infinity Systems A/S Denmark
Infinity Systems, Inc. California
JBL Europe A/S Denmark
JBL Incorporated Delaware
Lexicon, Incorporated Massachusetts
Lydig of Scandinavia A/S Denmark
Madrigal Audio Laboratories, Inc. Connecticut
Orban, Inc. Delaware
Precision Devices, Ltd United Kingdom
Pyle Industries, Inc. Indiana
Soundcraft Electronics, Limited United Kingdom
Soundcraft Magnetics Limited United Kingdom
Spirit by Soundcraft, Inc. Delaware
Studer Deutschland GMBH Germany
</TABLE>
85
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
Studer Digitec S.A. France
Studer Editech Corp. California
Studer Professional Audio AG Switzerland
Studer Canada Limited Canada
Studer Japan Ltd. Japan
Studer U.K. Limited United Kingdom
Turbosound Ltd. United Kingdom
</TABLE>
86
<PAGE>
EXHIBIT 23.1
87
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
88
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------
The Board of Directors
Harman International Industries, Incorporated:
We consent to incorporation by reference in the Registration Statement
Nos. 33-20559, 33-28973, 33-36388, 33-60234, 33-60236, 33-59605 and
333-02917 on Form S-8 of Harman International Industries, Incorporated
of our report dated August 15, 1996, relating to the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1996 and 1995, and the related consolidated statements of
operations, cash flows and shareholders' equity and related schedule for
each of the years in the three year period ended June 30, 1996, which
report appears in the June 30, 1996 annual report on Form 10-K of
Harman International Industries, Incorporated.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
September 13, 1996
89
<PAGE>
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90
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> (74)
<SECURITIES> 377
<RECEIVABLES> 308072
<ALLOWANCES> 9962
<INVENTORY> 308051
<CURRENT-ASSETS> 651970
<PP&E> 394148
<DEPRECIATION> 193190
<TOTAL-ASSETS> 996209
<CURRENT-LIABILITIES> 274659
<BONDS> 254611
<COMMON> 186
0
0
<OTHER-SE> 436291
<TOTAL-LIABILITY-AND-EQUITY> 996209
<SALES> 1361595
<TOTAL-REVENUES> 1361595
<CGS> 772736
<TOTAL-COSTS> 953470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3103
<INTEREST-EXPENSE> 27510
<INCOME-PRETAX> 75024
<INCOME-TAX> 23750
<INCOME-CONTINUING> 52042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52042
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.16
</TABLE>
