<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1997
Commission File Number: 1-9764
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2534306
- ---------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004
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(Address of principal executive offices) (Zip code)
(202) 393-1101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
18,454,068 shares of Common Stock, $.01 par value, at April 30, 1997.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1997 and June 30, 1996 3
Condensed Consolidated Statements of Operations -
Three and nine months ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 7-10
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND JUNE 30, 1996
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS 03/31/97 06/30/96
-------------- --------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 4,951 303
Receivables (less allowance for doubtful
accounts of $9,459 at March 31,
1997 and $9,962 at June 30, 1996) 300,635 298,110
Inventories 330,232 308,051
Other current assets 49,519 45,506
-------------- --------------
Total current assets 685,337 651,970
-------------- --------------
Property, plant and equipment, net 204,824 200,958
Excess of cost over fair value of assets
acquired, net 118,114 129,940
Other assets 13,902 13,341
-------------- --------------
Total assets $1,022,177 996,209
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 11,208 26,367
Current portion of long-term debt 23,364 6,423
Accounts payable 96,370 109,565
Accrued liabilities 116,932 132,304
-------------- --------------
Total current liabilities 247,874 274,659
-------------- --------------
Borrowings under revolving credit
facility 170,398 107,986
Senior long-term debt 15,382 37,125
Subordinated long-term debt 108,750 109,500
Other non-current liabilities 26,956 29,603
Minority interest 730 859
Shareholders' equity
Common stock, $.01 par value 185 186
Additional paid-in capital 283,908 293,993
Equity adjustment from foreign currency
translation (13,872) (4,906)
Retained earnings 181,866 147,204
-------------- --------------
Total shareholders' equity 452,087 436,477
-------------- --------------
Total liabilities and shareholders' equity $1,022,177 996,209
-------------- --------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 358,140 339,339 1,097,462 988,482
Cost of sales 254,598 235,909 781,532 687,651
------------- ------------- ------------- -------------
Gross profit 103,542 103,430 315,930 300,831
Selling, general and
administrative expenses 82,854 75,712 242,939 226,414
------------- ------------- ------------- -------------
Operating income 20,688 27,718 72,991 74,417
Other expenses
Interest expense 6,077 7,207 18,971 21,682
Miscellaneous, net (7) 258 507 1,123
------------- ------------- ------------- -------------
Income before income taxes
and minority interest 14,618 20,253 53,513 51,612
Income tax expense 4,254 6,384 16,024 16,332
Minority interest 40 (18) 40 27
------------- ------------- ------------- -------------
Net income $ 10,324 13,887 37,449 35,253
------------- ------------- ------------- -------------
Net income per common share $ 0.56 0.86 2.02 2.17
------------- ------------- ------------- -------------
Weighted average number of
common shares outstanding 18,468 16,242 18,585 16,177
------------- ------------- ------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
($000s omitted) (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,449 35,253
------------- -------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 36,275 35,110
Amortization of intangible assets 3,760 4,567
Amortization of deferred income -- (969)
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) in:
Receivables (3,303) (2,799)
Inventories (24,876) (62,152)
Other current assets (4,013) (6,659)
Increase (decrease) in:
Accounts payable (12,211) 11,962
Accrued liabilities (14,693) (28,871)
------------- -------------
Total adjustments $ (19,061) (49,811)
------------- -------------
Net cash provided by (used in) operating activities $ 18,388 (14,558)
------------- -------------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ -- (18,650)
Proceeds from disposition of assets 1,631 7,013
Capital expenditures (50,594) (53,175)
Other items, net 14,749 5,104
------------- -------------
Net cash used in investing activities $ (34,214) (59,708)
------------- -------------
Cash flows from financing activities:
Borrowings on (repayments of) lines of credit $ (15,159) (5,472)
Net proceeds from long-term debt 57,472 87,960
Dividends paid to shareholders (2,787) (2,396)
Stock retirement (11,000) --
Effect of stock option program 914 1,576
Net change, foreign currency translation (8,966) (8,778)
------------- -------------
Net cash flow provided by financing activities $ 20,474 72,890
------------- -------------
Net increase (decrease) in cash and
short-term investments 4,648 (1,376)
Cash and short-term investments
at beginning of period 303 11,252
------------- -------------
Cash and short-term investments at end of period $ 4,951 9,876
------------- -------------
Supplemental disclosures of cash flow information:
Interest paid $ 18,100 20,361
Income taxes paid $ 14,515 13,401
Supplemental schedule of non-cash investing activities:
Fair value of assets acquired $ -- 14,650
Cash paid for the capital stock -- 11,757
------------- -------------
Liabilities assumed $ -- 2,893
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements for the
three months and nine months ended March 31, 1997 and 1996, have
not been audited by the Company's independent auditors; however, in
the opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
consolidated financial position of the Company and subsidiaries as of
March 31, 1997 and the results of their operations and their cash flows
for the periods presented.
The results of operations for the nine months ended March 31, 1997, are
not necessarily indicative of the results to be expected for the full year.
NOTE B - COMMON STOCK RETIREMENT
In January 1997, the Company purchased and retired 220,000 shares of
its Common Stock.
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ------------------------------------
COMPARISON OF THE THREE AND NINE MONTH PERIODS ENDED
MARCH 31, 1997 AND 1996
Net sales for the quarter ended March 31, 1997 totaled $358.1 million, a
6 percent increase over the comparable period in the prior year.
Exclusive of currency effects, sales rose 10 percent. For the first nine
months of the year, sales increased 11 percent to $1.1 billion. Exclusive
of currency effects, sales rose 14 percent in the first nine months.
The Consumer Group reported sales increases for the third quarter and
the first nine months compared to the same periods in the prior year.
Sales were up excluding currency effects. JBL sales were particularly
strong in the face of soft market conditions in the U.S.
The Professional Group reported third quarter sales matching the same
period in the prior year and higher sales for the first nine months.
Strong gains at JBL Professional, Lexicon and the Harman Music
Group were offset by lower sales at Studer due to delays in shipment of
automated broadcast equipment to customers in emerging nations, and
lower sales at AKG to a large OEM customer.
The OEM Group produced higher sales for the third quarter and the first
nine months. Shipments of high fidelity systems to the automakers
increased over the prior year, reflecting the addition of new models and
growing penetration rates. The addition of the Toyota Camry to our
customer base and higher audio system shipments for Dodge's pickup
truck line contributed to the growth. Sales in the quarter and the first
nine months included shipments to Compaq for its new Presario line.
The gross profit margin for the quarter ended March 31, 1997 was 28.9
percent ($103.5 million) compared to 30.5 percent ($103.4 million) in
the prior year. The gross profit margin for the first nine months of fiscal
1997 was 28.8 percent ($315.9 million) compared to 30.4 percent
($300.8 million) in the previous year. The decrease in the gross profit
margin rate for the quarter and the first nine months results from the
Studer and AKG third quarter sales shortfalls, the effect of the strong
dollar on the Company's European and Asian distribution companies'
profit margins, and lower than anticipated sales volume and higher
factory start-up costs for the Audio for Computers unit.
7
<PAGE>
Operating income as a percentage of sales was 5.8 percent ($20.7
million) for the quarter ended March 31, 1997, compared to 8.2 percent
($27.7 million) for the same period in the prior year. Selling, general
and administrative costs were 23.1 percent of sales for the third quarter
compared to 22.3 percent in the prior year. The operating income
percentage decreased in the third quarter due to lower gross profit
margins and higher selling, general and administrative costs as a
percentage of sales. The increase in the selling, general and
administrative cost percentage for the quarter reflects a $2.5 million
(18%) increase in research and development expenditures over the prior
year and lower than anticipated sales volume. Major product
development efforts include new Harman Kardon products featuring
Dolby Digital (AC-3), home mini-systems and the OEM Group's
development of automotive audio/navigation systems.
For the first nine months, operating income as a percentage of sales was
6.7 percent ($73.0 million) compared to 7.5 percent ($74.4 million) in
the prior year. Selling, general and administrative costs were 22.1
percent of sales for the nine months ended March 31, 1997, down from
22.9 percent for the same period in the prior year. The lower operating
income percentage for the first nine months is due to lower gross profit
margins, partially offset by lower selling, general and administrative
costs as a percentage of sales resulting from overhead reduction at
Becker.
Interest expense for the three months ended March 31, 1997 of $6.1
million was down from $7.2 million in the same quarter last year. For
the nine months ended March 31, 1997, interest expense was $19.0
million, down from $21.7 million last year. Average borrowings
outstanding were $327.9 million for the third quarter of fiscal 1997 and
$320.5 million for the first nine months, down from $379.7 million and
$354.6, respectively, for the same periods in the prior year. Lower
average borrowings result from the May 1996 secondary stock offering,
partially offset by increased working capital requirements and the
January 1997 retirement of 220,000 shares of Common Stock.
The average interest rate on borrowings was 7.4 percent for the third
quarter and 7.9 percent for the nine months ended March 31, 1997. The
average interest rates for the comparable periods in the prior year were
7.6 percent and 8.2 percent, respectively. The decrease in average
interest rates results from lower interest rates in Europe and a decrease
in the percentage of borrowings under the revolving credit facility
drawn in U.S. dollars, which generally carry higher interest rates than
borrowings in European currencies and Japanese yen. Also, the interest
rate on the revolving credit facility was reduced in fiscal 1997 from
8
<PAGE>
LIBOR plus 0.30 percent to LIBOR plus 0.25 percent due to the
Company's achievement of certain financial performance criteria.
Interest expense as a percentage of sales was 1.7 percent for the third
quarter and the first nine months of fiscal 1997, down from 2.1 percent
and 2.2 percent for the same periods in the previous year, respectively.
Income before income taxes and minority interest for the third quarter of
fiscal 1997 was $14.6 million, compared to $20.3 million in the prior
year. For the nine months ended March 31, 1997, income before
income taxes and minority interest was $53.5 million, compared with
$51.6 million in the prior year period.
The effective tax rate for the third quarter of fiscal 1997 was 29.1
percent compared with 31.5 percent in the same period a year ago. The
effective tax rate for the first nine months of fiscal 1997 was 29.9
percent compared with 31.6 percent last year. The lower effective tax
rate is due to the restructuring of certain foreign subsidiaries to realize
the benefit of current and prior year tax losses and the utilization of tax
loss carryforwards at certain foreign subsidiaries. The Company
calculates its effective tax rate based upon its current estimate of annual
results.
Net income for the three months ended March 31, 1997 was $10.3
million, or $0.56 per share, compared with $13.9 million, or $0.86 per
share, in the prior year. Net income for the first nine months of fiscal
1997 was $37.4 million, or $2.02 per share, compared with $35.3
million, or $2.17 per share, in the prior year. Earnings per share is
based on an additional 2.2 million (14 percent) shares outstanding
compared to the prior year due to the May 1996 stock offering.
FINANCIAL CONDITION
- ---------------------------------
Net working capital at March 31, 1997 was $437.5 million, compared
with $377.3 million at June 30, 1996. Working capital increased
primarily due to higher inventories ($308.1 million at June 30, 1996 and
$330.2 million at March 31, 1997) and lower accounts payable and
accrued liabilities ($241.9 million at June 30, 1996 and $213.3 million
at March 31, 1997). Inventories have increased primarily to support
sales to new OEM customers Compaq and Toyota and to support higher
sales. Lower accounts payable and accrued liabilities reflect the timing
of payments to vendors and the timing of payments for interest and
taxes.
9
<PAGE>
Borrowings under the revolving credit facility at March 31, 1997 were
$175.5 million, comprised of swing line borrowings of $5.1 million,
which are included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $170.4 million.
Borrowings under the revolving credit facility at June 30, 1996 were
$120.9 million, comprised of swing line borrowings of $12.9 million
and competitive advance borrowings and revolving credit borrowings of
$108.0 million. Increased borrowings reflect the financing of higher
working capital requirements, the January 1997 Common Stock
retirement and fiscal year 1997 capital expenditures.
The Company's borrowings at March 31, 1997 include $64.5 million of
subordinated debt callable on August 1, 1997 and $17.5 million of
senior debt due on September 30, 1997. The Company intends to
refinance these obligations or to repay them using its lines of credit.
OTHER
- ----------
The Company announced in its April 3, 1997 press release that in the
second half of calendar 1998 it will begin supplying JBL branded audio
systems to Toyota. Toyota will offer the JBL systems in the dominant
portion of its United States models and in some vehicles produced for
sale in Asia only. The Company currently supplies non-branded audio
systems for the Toyota Avalon and Camry models.
The strike at Chrysler's Mound Road Engine Plant, which began on
April 10 and was settled on May 9, resulted in reduced demand for our
auto and truck music systems in the fourth quarter. It is likely that most
of the reductions will not be recovered this year, which will affect fourth
quarter results.
Except for historical information contained herein, the matters
discussed are forward-looking statements which involve risks
and uncertainties that could cause actual results to differ
materially from those suggested in the forward-looking
statements, including, but not limited to the effect of
economic conditions, product demand, currency exchange rates,
competitive products and other risks detailed in the Company's
other Securities and Exchange Commission filings.
10
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries, but, in the opinion of
management, liabilities, if any, arising from such claims will not
have a materially adverse effect upon the consolidated financial
condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
Form 8-K, dated March 17, 1997, filed on March 17, 1997,
containing the following items:
Item 5. Press release announcing outlook for the third and
fourth quarters of fiscal 1997.
Form 8-K, dated April 3, 1997, filed April 3, 1997,
containing the following:
Item 5. Press release disclosing Harman management
remarks to financial analysts.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Registrant)
DATE: May 12, 1997 BY: /s/ Bernard A. Girod
-------------------------------
Bernard A. Girod
President, Chief Operating
Officer and Secretary
DATE: May 12, 1997 BY: /s/ Frank Meredith
-------------------------------
Frank Meredith
Vice President of Finance
and Administration and
Chief Financial Officer
12
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 4809
<SECURITIES> 142
<RECEIVABLES> 310094
<ALLOWANCES> 9459
<INVENTORY> 330232
<CURRENT-ASSETS> 685337
<PP&E> 419296
<DEPRECIATION> 214472
<TOTAL-ASSETS> 1022177
<CURRENT-LIABILITIES> 247874
<BONDS> 294530
<COMMON> 185
0
0
<OTHER-SE> 451902
<TOTAL-LIABILITY-AND-EQUITY> 1022177
<SALES> 1097462
<TOTAL-REVENUES> 1097462
<CGS> 625091
<TOTAL-COSTS> 781532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1798
<INTEREST-EXPENSE> 18971
<INCOME-PRETAX> 53513
<INCOME-TAX> 16024
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