<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: September 30, 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
------------------------------------------------------
(Address of principal executive offices) (Zip code)
(202) 393-1101
------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
18,567,741 shares of Common Stock, $.01 par value, at October 31, 1997.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and June 30, 1997 3
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Three months ended September 30, 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 7-9
PART II. OTHER INFORMATION 10
SIGNATURES 11
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND JUNE 30, 1997
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS 09/30/97 06/30/97
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 8,483 4,230
Receivables (less allowance for doubtful
accounts of $8,760 at September 30,
1997 and $9,116 at June 30, 1997) 299,869 306,230
Inventories 351,427 320,102
Other current assets 57,971 48,737
------------- -------------
Total current assets 717,750 679,299
------------- -------------
Property, plant and equipment, net 219,374 207,947
Excess of cost over fair value of assets
acquired, net 135,304 109,606
Other assets 20,744 17,402
------------- -------------
Total assets $ 1,093,172 1,014,254
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 15,522 15,808
Current portion of long-term debt 6,196 23,949
Accounts payable 100,134 104,121
Accrued liabilities 103,971 107,370
------------- -------------
Total current liabilities 225,823 251,248
------------- -------------
Borrowings under revolving credit
facility 162,602 142,873
Senior long-term debt 163,572 14,770
Subordinated long-term debt 45,000 108,750
Other non-current liabilities 26,175 29,057
Minority interest 798 794
Shareholders' equity
Common stock, $.01 par value 185 185
Additional paid-in capital 285,464 284,490
Equity adjustment from foreign currency
translation (18,774) (16,240)
Retained earnings 202,327 198,327
------------- -------------
Total shareholders' equity 469,202 466,762
------------- -------------
Total liabilities and shareholders' equity $ 1,093,172 1,014,254
------------- -------------
</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 ENDED SEPTEMBER 30, 1997 AND 1996
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 329,269 338,003
Cost of sales 240,263 243,209
------------- -------------
Gross profit 89,006 94,794
Selling, general and
administrative expenses 70,477 77,285
------------- -------------
Operating income 18,529 17,509
Other expense (income)
Interest expense 6,272 6,158
Miscellaneous, net (81) 220
------------- -------------
Income before income taxes
and extraordinary item 12,338 11,131
Income tax expense 3,831 3,562
------------- -------------
Income before extraordinary item 8,507 7,569
------------- -------------
Extraordinary item, net of income taxes (3,583) --
------------- -------------
Net income $ 4,924 7,569
------------- -------------
Income per common share before
extraordinary item $ 0.46 0.41
------------- -------------
Net income per common share $ 0.27 0.41
------------- -------------
Weighted average number of
common shares outstanding 18,499 18,632
------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
($000s omitted) (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,924 7,569
------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 12,492 12,322
Amortization of intangible assets 2,492 1,326
Changes in assets and liabilities, net of effects
from purchase of companies:
(Increase) decrease in:
Receivables 13,404 (12,000)
Inventories (33,200) (23,686)
Other current assets (9,212) (3,541)
Increase (decrease) in:
Accounts payable (11,169) (1,984)
Accrued liabilities (6,266) (2,816)
------------ ------------
Net cash provided by (used in) operating activities $ (26,535) (22,810)
------------ ------------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ (43,532) --
Capital expenditures (14,646) (13,808)
Other items, net 69 (291)
------------ ------------
Net cash used in investing activities $ (58,109) (14,099)
------------ ------------
Cash flows from financing activities:
Borrowings on (repayments of) lines of credit $ (286) (1,171)
Net proceeds from long-term debt 89,133 39,834
Dividends paid to shareholders (924) (932)
Proceeds from exercise of stock options 974 450
------------ ------------
Net cash flow provided by financing activities $ 88,897 38,181
------------ ------------
Net increase (decrease) in cash
cash equivalents 4,253 1,272
Cash and cash equivalents at beginning of period 4,230 303
------------ ------------
Cash and cash equivalents at end of period $ 8,483 1,575
------------ ------------
Supplemental disclosures of cash flow information:
Interest paid $ 6,667 6,937
Income taxes paid $ 8,051 3,678
Supplemental schedule of non-cash
investing activities:
Fair value of assets acquired $ 57,704 --
Cash paid for the assets 43,532 --
------------ ------------
Liabilities assumed $ 14,172 --
------------ ------------
</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 ended September 30, 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
September 30, 1997 and the results of their operations and their cash
flows for the periods presented.
Where necessary, prior years' information has been reclassified to
conform to the current year consolidated financial statement
presentation.
The results of operations for the three months ended September 30,
1997, are not necessarily indicative of the results to be expected for the
full year.
NOTE B - ACQUISITIONS
On August 1, 1997, Harman International Industries, Incorporated,
acquired the automotive OEM loudspeaker manufacturing operations of
Oxford International Ltd. for $43.5 million. Harman funded the
acquisition of Oxford with funds drawn under its revolving credit
facility.
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- -------------------------
COMPARISON OF THE THREE MONTH PERIODS ENDED
SEPTEMBER 30, 1997 AND 1996
Net sales for the quarter ended September 30, 1997 were $329.3
million. Sales in the first quarter last year totaled $338.0 million.
Exclusive of currency effects, sales rose 4%.
Excluding currency effects, consumer audio sales were up 9% in the
quarter in a soft worldwide consumer electronics market. Sales in Japan
were particularly weak. Personal computer audio system shipments to
Compaq were significantly lower than a year ago. A new licensing
agreement with Compaq will generate lower sales figures but improved
earnings in subsequent quarters.
The Professional Group reported higher sales compared to the prior
year. JBL Professional reported particularly strong sales gains for its
cinema loudspeaker systems and the EON product line. The Digital
Signal Processing sub-group also produced excellent sales growth.
The OEM Group's sales were lower than the prior year due to currency
effects on Becker sales and the conclusion of the JBL program for the
Ford Explorer. Exclusive of currency effects, Becker sales increased
over the prior year. The effect of these items was offset by the addition
of Oxford, our recently acquired OEM loudspeaker manufacturer,
higher audio system shipments for the Toyota Camry, and the addition
of new models to our customer base including the Toyota Aristo (JBL),
the BMW Z-3 (harman/kardon) and the Hyundai Grandeur (JBL).
The gross profit margin for the quarter ended September 30, 1997 was
27.0 percent ($89.0 million) compared to 28.0 percent ($94.8 million) in
the prior year. The decrease in the gross profit margin rate for the
quarter resulted from changes in sales mix between Groups, pricing
pressures due to weakness in the consumer audio market and the effect
of the strong dollar on our foreign distribution companies' profit
margins, partially offset by favorable automotive OEM gross profit
margin results.
Operating income as a percentage of sales was 5.6 percent ($18.5
million) for the quarter ended September 30, 1997, compared to 5.2
7
<PAGE>
percent ($17.5 million) for the same period in the prior year. Selling,
general and administrative costs were 21.4 percent of sales for the first
quarter compared to 22.9 percent in the prior year. The operating
income percentage increased in the first quarter due to lower selling,
general and administrative costs. Selling, general and administrative
costs were lower due to the elimination of marketing and development
costs for SmartTV, which was sold in November 1996, reductions in
marketing and advertising expenses, and currency effects.
Interest expense for the three months ended September 30, 1997 was
$6.3 million compared to $6.2 million in the same quarter last year.
Average borrowings outstanding were $352.6 million for the first
quarter of fiscal 1998, up from $307.1 million for the same period in the
prior year. Higher average borrowings resulted from the August 1997
acquisition of Oxford, higher working capital levels and the January
1997 retirement of 220,000 shares of Common Stock.
The weighted average interest rate on borrowings was 7.1 percent for
the first quarter, down from 8.0 percent for the first quarter last year.
The decrease in the weighted average interest rate was due to the early
retirement of $64 million of 12.0% notes, funded with 10-year notes
bearing interest at 7.32%. Also, the interest rate on the revolving credit
facility was reduced in the first quarter of fiscal 1998 from LIBOR plus
0.25 percent to LIBOR plus 0.20 percent due to the Company's
achievement of certain financial performance criteria.
Income before income taxes and extraordinary item for the first quarter
was $12.3 million, compared to $11.1 million in the prior year.
The effective tax rate for the first quarter of fiscal 1998 was 31.0 percent
compared with 32.0 percent in the same period a year ago. The
effective tax rate for both periods was below the U.S. statutory rate due
to the restructuring of certain foreign subsidiaries to realize the benefit
of current 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.
Income before extraordinary item was $8.5 million, or $0.46 per share,
compared to $7.6 million, or $0.41 per share, in the prior year.
The Company reported an extraordinary charge, net of related tax
benefit, of $3.6 million in the first quarter of fiscal 1998 due to the early
extinguishment of $64 million of 12.0% notes, due August 1, 2002.
The debt retirement was funded with 10-year notes bearing interest at
7.32%.
8
<PAGE>
Net income for the three months ended September 30, 1997 was $4.9
million, or $0.27 per share, compared with $7.6 million, or $0.41 per
share, in the prior year.
FINANCIAL CONDITION
- --------------------
Net working capital at September 30, 1997 was $491.9 million,
compared with $428.1 million at June 30, 1997. Current assets
increased $38.5 million, of which $17 million was due to the Oxford
acquisition, $7 million was due to inventory growth to meet higher
audio system shipment forecasts from the automakers, and $4 million
was due to Becker's October introduction of the new TrafficStar
automotive navigation system. The residual increase of $10.5 million
resulted from higher cash and other current asset balances, partially
offset by lower accounts receivable. Current liabilities decreased $25
million due to the retirement of $17.5 million of 10.4% Senior Notes
due September 30, 1997.
Borrowings under the revolving credit facility at September 30, 1997
were $173.1 million, comprised of swing line borrowings of $10.5
million, which were included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $162.6 million.
Borrowings under the revolving credit facility at June 30, 1997 were
$151.1 million, comprised of swing line borrowings of $8.2 million and
competitive advance borrowings and revolving credit borrowings of
$142.9 million. Borrowings under the revolving credit facility
increased due to the Oxford acquisition and higher working capital
requirements, offset by a portion of the net proceeds received by the
Company from its $150 million, 7.32%, 10-year note offering
completed July 1997.
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.
9
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries, but, in the opinion of
management, liabilities, if any, arising from such claims will not
have a materially adverse effect upon the consolidated financial
condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
None.
10
<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: Nov 4, 1997 BY: /s/ Bernard A. Girod
-------------------------------
Bernard A. Girod
President, Chief Operating
Officer and Secretary
DATE: Nov 4, 1997 BY: /s/ Frank Meredith
-------------------------------
Frank Meredith
Vice President of Finance
and Administration and
Chief Financial Officer
11
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<ALLOWANCES> 8760
<INVENTORY> 351427
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0
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