<PAGE>
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, 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 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, 1997, was $789,489,972.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 18,474,918 shares
of Common Stock, par value $.01 per share, as of August 31, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended June 30, 1997, 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
1997 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 YES NO
Page 1 of 113
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
2
<PAGE>
TABLE OF CONTENTS
PART I
Page
Item 1. Business.................................... 5
Item 2. Properties.................................. 28
Item 3. Legal Proceedings........................... 29
Item 4. Submission of Matters to a Vote of
Security Holders........................ 29
Executive Officers of the Registrant.... 29
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters................................. 32
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.................. 33
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 Auditor's Report........... 39
Index to Exhibits...................... 41
3
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
4
<PAGE>
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 loudspeakers
and electronic audio products that deliver superior sound. The Company
believes that its JBL, Mark Levinson, Infinity and Harman Kardon brand
names are well-known worldwide for premium quality and performance.
Since its formation in 1980, the Company has developed, internally and
through a series of strategic acquisitions, a broad range of product
offerings sold under renowned brand names in each of its three major
markets. Concurrently, the Company has developed its engineering,
manufacturing and distribution capabilities worldwide to achieve the
benefits of vertical integration of design, manufacturing and marketing.
The Company's operations are organized into three primary Groups:
the Consumer Group, the Professional Group and the OEM Group. From
September 1993 through March 1995, the Company completed four
strategic acquisitions to strengthen the competitive position of each of the
three Groups in terms of market, product and technology. The companies
acquired were: 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 has broadened each Group's range of product
offerings, thereby enabling the Company to offer complete systems
solutions to customers in its principal markets.
5
<PAGE>
Consumer Group
The Company's Consumer Group designs, manufactures and markets
loudspeakers under the JBL and Infinity brand names for home and
automotive audio systems. The Company also designs, manufactures and
markets a broad range of consumer electronics products under the
Harman Kardon, Mark Levinson, Citation, AudioAccess and Proceed
brand names. The Company has the preeminent portfolio of brand names
and range of product offerings in the consumer audio market. The JBL,
Infinity and Harman Kardon brands are recognized throughout the world
for superior sound quality and good value. High-end amplifiers and other
electronic components bearing the Mark Levinson, Citation and Proceed
brand names are acclaimed for their superior build quality and state-of-
the-art sound reproduction.
The Company has leveraged its strong brand names in growing
consumer audio markets such as the home theater/multi-channel arena and
the mini-systems market. Sales of Harman Kardon audio/video receivers,
JBL and Infinity surround sound loudspeaker systems and multi-channel
amplifiers and digital signal processing components from Citation and
Proceed have benefited from the vigorous home theater market.
Integrated mini-systems, including the JBL ESC550 Simply Cinema
System and the Harman Kardon Festival line, will capitalize on the
Company's strong brand names in this significant segment of the
consumer audio market.
The Company believes the new digital versatile disc (DVD)
technology will provide additional growth opportunities for its consumer
brands. DVD players bearing the Harman Kardon, Mark Levinson,
Citation and Proceed brands will be introduced in fiscal 1998. The
Company also expects DVD to stimulate loudspeaker sales due to
increased customer traffic in audio dealers' stores and the improvement in
audio performance from DVD over current analog audio/video and digital
audio components. Sales expectations are dependent, to a substantial
extent, on discretionary spending by consumers, which may be affected
by economic conditions.
The Consumer Group's distribution strategy includes sale of its
products through large, multi-location consumer electronics retailers, such
as Circuit City in the United Sates and MediaMarkt in Europe (the
Consumer Group's two largest customers), and through high-fidelity
audio specialists. The Company operates marketing and distribution
6
<PAGE>
subsidiaries in its major European and Asian markets to enhance
responsiveness and service for its international customers.
The Consumer Group also manufactures branded audio systems and
loudspeakers for manufacturers of personal computers, including a line of
JBL-branded audio systems for Compaq Computer Corporation's
Presario line of personal computers and a higher-powered Harman
Kardon branded sound system for Gateway's Destination "TV
Computer." These audio systems provide high-quality sound and thus
enhance the appeal and capability of the personal computer as an
entertainment device.
Professional Group
The Company's Professional Group designs, manufactures and
markets professional audio equipment, including loudspeakers,
amplifiers, mixing consoles, signal processing equipment, microphones
and effects devices. Such products are marketed on a worldwide basis
under brand names including JBL, Soundcraft, Allen & Heath, DOD,
Digitech, Lexicon, AKG, dbx, BSS, Turbosound, Orban, Spirit and
Studer. The Professional Group is uniquely equipped to provide turnkey
systems solutions for professional audio applications that offer the
customer improved performance, ease of installation and reduced cost.
The principal market segments served by the Professional Group are
sound reinforcement, broadcast and recording and music instrument
support.
JBL is the leader in the vibrant cinema market, holding a dominant
share of Dolby and THX theater sound systems and serving customers
such as Cineplex Odeon and United Artists Theaters. Stadiums, concert
halls, houses of worship and major concert tours rely on sound
reinforcement products from the Professional Group, such as Turbosound
loudspeakers, JBL and BSS amplifiers, AKG microphones, Lexicon,
DOD and dbx signal processing equipment, and Soundcraft and Allen &
Heath mixing consoles, to produce top quality sound.
Customers in the recording and broadcast segment include radio and
television stations and recording studios. Customers in these markets,
including AMS Westfunk Radio, Abbey Road Studios and The Hit
Factory, are primarily served by Studer and Orban, with additional
offerings from JBL, Lexicon, Soundcraft and AKG.
7
<PAGE>
JBL, DOD and Spirit serve the music instrument support segment of
the professional audio market. JBL manufactures and markets
loudspeakers, monitors and amplifiers. DOD manufactures and markets
guitar amplifiers, sound effects processors and portable mixing consoles.
Spirit markets portable mixing consoles. Music instrument support
products are sold through music retail stores such as Guitar Center and
Sam Ash.
OEM Group
Harman is one of the world's largest manufacturers of premium
branded automotive OEM audio systems. The Company believes
excellent growth opportunities are still available 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.
The Company's largest automotive OEM customer, Chrysler, offers
Infinity branded audio systems in the majority of its car, truck and sport-
utility vehicle platforms. Becker supplies head units to Mercedes Benz,
BMW and Porsche. Harman Kardon branded audio systems are offered
in cars produced by BMW, Saab, Jaguar and Range Rover. Other
customers include Toyota, Mitsubishi and Ford. The loss of, or a material
decrease or delay in purchasing the Company's products by, any of the
Company's significant customers could have an adverse effect on the
results of operations of the Company. Sales of the Company's audio
products to the automotive OEM market are dependent on the sales of the
automobile industry and automobile purchasers' willingness to pay for the
option of a premium branded automotive audio system.
In 1995, the Company withdrew Ford's exclusive use of the JBL brand
name for automotive audio and made the brand name available to other
automakers. The JBL program for the Ford Taurus ended with model
year 1996, for the Ford Explorer ended with model year 1997 and for the
Lincoln line is scheduled to conclude with model year 1998.
The Company recently reached an agreement with Toyota to provide JBL
branded audio systems in the majority of its broad range of vehicles
beginning in fiscal 1999, including vehicles produced by Toyota for sale
in Asia. In fiscal year 1998, the OEM Group will add the BMW 5-Series
(Becker radio), the Toyota Aristo (JBL audio system), the Peugeot 406
8
<PAGE>
(JBL audio system), the Hyundai Grandeur (JBL audio system), the
Chrysler Durango (Infinity audio system), and the BMW Z3 (Harman
Kardon audio system) to its list of offerings. The OEM Group offers
integrated audio systems that provide a platform for further expansion
into associated automotive electronic products such as communication,
security and navigation.
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 most major segments 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. 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.
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,
9
<PAGE>
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 two-
channel stereo loudspeakers and electronic components to include multi-
channel, surround-sound electronics and loudspeaker systems, powered
loudspeakers, mini-systems and audio systems for computers, and
broadening its customer base to include large retailers such as Circuit City
in the U.S. and MediaMarkt in Europe; (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, Jeep, BMW, Toyota,
Mitsubishi, Ford, Porsche, Saab, Range Rover and Jaguar.
The manufacturing capabilities of the Company include North
American and European operations. Primary manufacturing sites are
located in California, Indiana, Germany, 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 38% of fiscal 1997 total net sales, the
Professional Group accounted for approximately 32% of net sales, and the
OEM Group generated approximately 30% of net sales.
10
<PAGE>
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, 1997.
Description of Business
The Company's business is conducted through its wholly owned
subsidiaries which include:
<TABLE>
<CAPTION>
Name Principal products
- --------------------------------- ------------------------------------
<S> <C>
AKG Acoustics GmbH 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 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
</TABLE> 11
<PAGE>
<TABLE>
<CAPTION>
Name Principal products
- --------------------------------- --------------------------------
<S> <C>
Harman-Motive, Inc. OEM loudspeakers
and electronics
Harman Motive Limited OEM loudspeakers
and electronics
Infinity Systems, Inc. Consumer home and automotive
loudspeakers and electronics
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 its experience in, and knowledge of, the audio industry, the
Company believes that the consumer, professional and OEM markets,
both domestic and international, have experienced significant growth in
recent years. In 1997, the consumer and professional audio markets
slowed somewhat due to uncertainty associated with technology
transitions. The transition from analog to digital audio technology has
transformed music recording and reproduction 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.
Although this transition has created near-term market weakness due to
customer confusion and hesitancy, management believes that the
evolution of digital audio will fuel long-term growth in the consumer and
professional audio markets.
12
<PAGE>
In the consumer audio market, the Company produced higher sales in
fiscal 1997 despite the market uncertainty associated with new surround
sound processing technologies and the new DVD digital versatile disc.
Management believes that maturation and broadened acceptance of DVD
and the new multi-channel audio technologies will provide growth
opportunities in the consumer market. The Company's broad range of
renowned consumer audio brand names includes JBL, Infinity, Harman
Kardon, Mark Levinson, Proceed and Citation.
The Company has developed branded audio systems for Compaq,
Gateway and other manufacturers of personal computers. The Company
also produces aftermarket audio systems for multimedia applications.
The Company believes that the number of personal computers equipped
with multimedia capabilities will continue to increase.
The professional audio markets served by the Company include sound
reinforcement, broadcast and recording and music instrument support.
The sound reinforcement market includes theaters (cinema and live
performance), stadiums, concert halls, and houses of worship. The
broadcast and recording market includes radio and television stations and
recording studios. The Company serves the music instrument support
market primarily through the provision of portable digital signal
processing components and compact, portable loudspeaker systems used
by touring performers. Much of the professional audio market is
undergoing a transition from analog to digital audio technology, and the
Company is well-equipped for this evolutionary period with the
engineering and marketing expertise of 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
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.
13
<PAGE>
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, automotive aftermarket and
computer/multimedia), professional (sound reinforcement, broadcast and
recording, and musical instrument support), and OEM automotive
markets. The Company also distributes a small amount of
complementary audio products manufactured by other companies. The
Consumer Group accounted for approximately 38% of the Company's
fiscal 1997 sales, of which 71% was attributable to home loudspeaker and
automotive aftermarket systems, 23% was from home electronic
components and 6% was from audio systems for computer manufacturers.
The Professional Group contributed approximately 32% of fiscal 1997
sales, of which 55% was attributable to sound reinforcement, 25% was
from broadcast and recording and 20% was from musical instrument
support. OEM Group sales to the automakers produced approximately
30% of fiscal 1997 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 the Simply Cinema series of home loudspeaker systems,
including the ESC550 mini-system, provides excellent home theater
performance in an easily installed and operated system.
From its inception 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. Compositions, Infinity's premier home
theater loudspeaker line, has received excellent reviews from the high
fidelity audio press for superior design and performance.
14
<PAGE>
The more expensive JBL and Infinity loudspeakers are housed in high-
gloss lacquer or wooden veneer cabinets that 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 that 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 receivers featuring Dolby Digital
AC-3 and Lucasfilm Home THX surround sound processing capabilities
and multi-channel amplifiers. Digital versatile disc (DVD) machines
currently in development reflect Harman Kardon's commitment to deliver
state-of-the-art audio reproduction equipment to its customers.
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.
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.
15
<PAGE>
The Company manufactures a series of JBL-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.
These audio systems provide high-quality sound and thus enhance the
appeal and capability of the personal computer as an entertainment
device.
PROFESSIONAL PRODUCTS. The Company designs, manufactures
and markets products in all significant segments of the professional audio
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.
16
<PAGE>
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 home theater surround sound processors and amplifiers.
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.
17
<PAGE>
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, and
Harman Kardon systems sold to BMW (3-series and Z3), Jaguar, Saab
and Land Rover (Range Rover), as well as premium systems sold to
Toyota for the Avalon and Camry. 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 the JBL program for the Lincoln line is scheduled to
conclude with model year 1998.
The Company has reached agreement with Toyota to provide JBL
branded sound systems for its cars and light trucks, beginning with the
Toyota Aristo in Japan in model year 1998 and rolling out through the
majority of the Toyota product line in model year 1999. JBL branded
sound systems will also be offered in the 1998 models of the Peugeot 406
and the Korean Hyundai Grandeur.
18
<PAGE>
Manufacturing
The Company believes that its manufacturing capabilities are essential
to maintaining and improving product quality and performance. The
Company manufactures most of the products that it sells other than certain
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, Northridge
Manufacturing in Northridge, California, manufactures JBL and Infinity
loudspeakers, including cabinets, for consumer, professional, automotive
aftermarket and personal computer applications and amplifiers for the
automotive OEM market. 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
professional electronics products at its Bedford, Massachusetts facility.
Madrigal manufactures consumer electronics at its Middletown,
Connecticut facility. The Company manufactures automotive aftermarket
amplifiers and has recently begun to manufacture consumer electronics
for home use at its El Paso, Texas 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, drivers and automotive OEM loudspeakers, is
located 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
19
<PAGE>
manufactures drivers for its Turbosound line of professional loudspeakers
at its Precision Devices manufacturing site in the United Kingdom. Final
assembly of Turbosound loudspeakers is performed in the United
Kingdom. Cabinet production was begun 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 and amplifiers
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, automotive aftermarket
and personal computer (OEM and 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 either branded or generic components and systems.
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 Europe.
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
20
<PAGE>
products. The Company's principal customers in the personal computer
audio segment are Compaq and Gateway.
The Company's professional audio products are marketed worldwide
through professional sound equipment dealers, including sound system
contractors that 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
manufacturers. OEM customers include Chrysler, Mercedes Benz,
Toyota, Ford, Mitsubishi, BMW, Jaguar, Porsche, Range Rover and Saab
in the automotive 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. In addition, the
Company is developing the electronics manufacturing capabilities of its
El Paso, Texas facility, in order to enable the manufacture of certain
Harman Kardon products in its own domestic factory.
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,
Allen & Heath, AudioAccess, Turbosound, Mark Levinson, Proceed,
Revel, VMAx, EON, Harman, Control, Compositions, Optimod, C-
Audio, Auto Azimuth and Dynamic Midi which are registered or
otherwise protected in substantially all major industrialized countries.
21
<PAGE>
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, 1997, the Company held
approximately 221 United States and foreign patents covering various
products, product designs and circuits, and had approximately 227 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 1997 accounted for 9.9% 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 6.2% of
the Company's consolidated net sales for the year ended June 30, 1997.
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 $23.8 million at June 30, 1997.
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, depending on the product. The warranty
is a "limited" warranty insofar as it imposes certain shipping costs on the
22
<PAGE>
customer, 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 that 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.
The Company's principal competitors in the consumer loudspeaker
market include Bose, Boston Acoustics, Bowers & Wilkins, KEF,
23
<PAGE>
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, Kenwood and Yamaha. 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.
In the personal computer audio 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.
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 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. Principal competitors in sound reinforcement include Electro
Voice, Inc., Altec Lansing, Eastern Acoustic Works, Crest, Sennheiser,
Tannoy, 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 recording
and broadcast competitors include: Sony, Neve, Sennheiser, Denon, SSL,
24
<PAGE>
Shure and Audio Technica. In the Music Instrument area, competitors for
the Company's DOD, Digitech, dbx, Lexicon and Spirit products include
Yamaha, Peavey, 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, Peavey and Tannoy.
In the automotive OEM market, the Company's principal competitors
include Bose, International Jensen 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 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 non-branded systems for the Toyota
Avalon and Camry. Beginning in fiscal year 1999, the Company will
supply JBL branded loudspeaker systems for Toyota cars and light trucks
worldwide. 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.
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>
remediation process has proceeded in accordance with the plan, and the
Company believes that the future cost to complete remediation will not
exceed $130,000.
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 $66,451,000, $59,171,000, and $40,257,000 for the
fiscal years ending June 30, 1997, 1996 and 1995, respectively. The
increase in expenditures in fiscal 1997 resulted from increased consumer
electronics product development activity and product development
programs at Harman Motive and Becker. The increase in fiscal 1996 was
due to: the development of the audio for computers business; the addition
of Becker, which was only included for six months in fiscal 1995; the
inclusion of Madrigal, acquired September 1995; and increased product
development activity at JBL Professional, Studer and Harman Motive.
Number of Employees
As of June 30, 1997, the Company had 8,384 full-time employees,
including 4,137 domestic employees and 4,247 international employees,
compared to 8,369 employees at June 30, 1996.
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 46 and 34,
respectively, in the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1997.
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, currency
exchange rates, competitive products and other risks detailed herein and
in the Company's other filings with the Securities and Exchange
Commission.
27
<PAGE>
ITEM 2. PROPERTIES
The Company's principal activities are conducted at the facilities
described in the following table.
<TABLE>
<CAPTION>
Square Owned or Percentage
Location Footage Leased Utilization Division
- ------------------------- ---------- ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Northridge, California 722,715 Leased 94% JBL, Infinity,
Harman Motive
Ontario, California 212,600 Leased 100% JBL, Infinity
Martinsville, Indiana 182,664 Owned 100% Harman Motive
20,000 Leased 100%
Ringkobing, Denmark 145,119 Owned 100% Lydig
25,920 Leased 80%
Ittersbach, Germany 169,465 Owned 80% Becker
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 80% Deutschland
Bridgend, UK 126,000 Leased 100% Harman Motive
Worth-Schaitt, Germany 89,640 Owned 75% Becker
Regensdorf, Switzerland 86,111 Leased 100% Studer
El Paso, Texas 80,000 Leased 75% Harman El Paso
</TABLE>
The company considers its properties to be suitable and adequate for
its present needs.
28
<PAGE>
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.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Age at
Name August 1, 1997 Position
- --------------------- ------------------- ----------------------------------
<S> <C> <C>
Sidney Harman 78 Chairman of the Board of Directors
and Chief Executive Officer
Bernard A. Girod 55 President, Chief Operating Officer,
Secretary and Director of the
Company
Frank Meredith 40 Vice President - Finance &
Administration and Chief
Financial Officer
Philip J. Hart 52 President - Harman Professional Group
Thomas Jacoby 43 President - Harman Consumer Group
Gregory P. Stapleton 50 President - OEM Group
Jerome H. Feingold 55 Vice President - Quality
William S. Palin 54 Vice President - Controller
Sandra B. Robinson 38 Vice President - Financial Operations
Paul Shave 45 Vice President - Worldwide Sourcing
Floyd E. Toole 51 Vice President - Engineering
</TABLE>
29
<PAGE>
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 served as Chief Financial Officer of
the Company from September 1986 to August 1995 and from March
1996 to March 1997. 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.
Frank Meredith has been Vice President - Finance and Administration
and Chief Financial Officer of the Company since March 1997. Prior to
that time, Mr. Meredith served as 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.
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
30
<PAGE>
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.
William S. Palin has been Vice President - 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.
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.
Paul Shave has been Vice President - Worldwide Sourcing of the
Company since June 1997. Prior to joining the Company, Mr. Shave was
Vice President - Sourcing and Logistics for Zenith Electronics since
January 1996. From 1989 through 1996, Mr. Shave was Director of
Materials for Scientific Atlanta.
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.
31
<PAGE>
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, 1997 (Shareholder Information on page 48).
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary
(in thousands, except per share data,
for the fiscal years ended June 30)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $1,474,094 $1,361,595 $1,170,224 $862,147 $664,913
Operating income 101,973 105,378 87,449 66,332 41,255
Income before taxes 77,901 75,024 61,157 42,686 18,570
Net income 54,832 52,042 41,161 25,664 11,246
Net income per share 2.96 3.16 2.58 1.83 .99
Total assets 1,014,254 996,209 886,872 680,691 431,726
Long-term debt 266,393 254,611 266,021 156,577 175,583
Shareholders' equity 466,762 436,477 289,490 232,021 111,149
Dividends per share 0.20 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, 1997 (Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 31 through 34).
32
<PAGE>
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, 1997 (Consolidated Financial Statements on pages 30
and 35 through 48).
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
1997 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>
THIS PAGE LEFT BLANK INTENTIONALLY
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 15, 1997
-------------------------
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>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Sidney Harman Chairman of the Board, September 15, 1997
- -------------------------- Chief Executive Officer -------------------------
Sidney Harman and Director
/s/ Bernard Girod President, Chief Operating September 15, 1997
- -------------------------- Officer, Secretary -------------------------
Bernard A. Girod and Director
/s/ Frank Meredith Vice President - Finance & September 15, 1997
- -------------------------- Administration and Chief -------------------------
Frank Meredith Financial Officer (Principal
Accounting Officer)
/s/ Shirley M. Hufstedler Director September 15, 1997
- -------------------------- -------------------------
Shirley M. Hufstedler
/s/ Ann McLaughlin Director September 15, 1997
- -------------------------- -------------------------
Ann McLaughlin
/s/ Edward H. Meyer Director September 15, 1997
- -------------------------- -------------------------
Edward H. 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>
<CAPTION>
Page Reference
----------------------------------
Annual
Report to
Form 10-K Shareholders
----------------------------------
<S> <C> <C>
Consolidated Financial Data (pages 30 and
36 through 48 of the 1996 Annual Report
to Shareholders herein incorporated
by reference as Exhibit 13.1):
Financial Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Independent Auditor's Report . . . . . . . . . . . . . . . . . 39 . . . . . . . 35
Consolidated Balance Sheets as of
June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of
Operations for the years ended
June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Cash
Flows for the years ended
June 30, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . 38
Consolidated Statements of Shareholders'
Equity for the years ended June 30,
1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . 40
Schedules for the years ended June 30,
1997, 1996 and 1995:
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, 1997
($000's omitted)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
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, 1995
Allowance for
doubtful
accounts $10,241 $ 4,263 $ 2,217 (1) $ 4,408 (2) $12,313
Year Ended June 30, 1996
Allowance for
doubtful
accounts $12,313 $ 3,103 $ (1,405) (3) $ 4,049 (2) $ 9,962
Year Ended June 30, 1997
Allowance for
doubtful
accounts $ 9,962 $ 1,977 $ (781) (4) $ 2,042 (2) $ 9,116
</TABLE>
(1) Additions due to Becker, D.A.V.I.D. and Harman Interactive
(NewMediaWare) acquisitions.
(2) Deductions for accounts receivable written off net of recoveries.
(3) Deductions due to account reclassifications, foreign currency
translation, and sale of Studer Singapore.
(4) Deductions due to foreign currency translation and disposition of
AKG India.
38
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------
The Board of Directors
Harman International Industries, Incorporated
Under date of August 20, 1997, we reported on the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1997 and 1996, 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, 1997, as contained in the 1997
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, 1997. 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 20, 1997
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>
<CAPTION>
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>
<CAPTION>
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>
<CAPTION>
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>
<CAPTION>
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 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>
<CAPTION>
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>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
10.45 Harman International Industries, Inc. Deferred
Compensation Plan, effective June 1, 1997 (Filed
on Form S-8 Registration Statement on June 9, 1997
(Reg. No. 333-28793), 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
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
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
10.57 First Amendment to the Lease Agreement by and
between Harman International Business Campus
Joint Venture and Harman Electronics, Inc. dated
October 1995 (Filed as Exhibit 10.57 to the Annual
Report on Form 10-K for the fiscal year ended
June 30, 1996 (File No. 001-09764), and hereby
incorporated by reference.).............................IBR
10.58 First Amendment to the Lease Agreement by and
between Harman International Business Campus
Joint Venture and JBL, Inc. dated October 1995
(Filed as Exhibit 10.58 to the Annual Report on
Form 10-K for the fiscal year ended June 30, 1996
(File No. 001-09764), and hereby incorporated by
reference...........................IBR
10.59 Fourth Amendment dated June 6, 1997, to the
Multi-Currency, Multi-Option Credit Agreement
dated September 30, 1994...............................49
10.60 Employment agreement between the Company
and Bernard A. Girod dated September 12, 1997....67
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
13.1 Pages 30 through back cover of Harman
International Industries, Incorporated Annual
Report to Shareholders for the fiscal year ended
June 30, 1997................................................81
21.1 Subsidiaries of the Company....................................103
23.1 Consent of Independent Auditors................................109
27.1 EDGAR Financial Data Schedule................................113
48
</TABLE>
<PAGE>
EXHIBIT 10.59
49
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
50
<PAGE>
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of June 6, 1997 (this "Amendment"),
to the MULTI-CURRENCY, MULTI-OPTION CREDIT AGREEMENT,
dated as of September 30, 1994 (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"; terms defined therein
being used herein as therein defined), among HARMAN INTERNATIONAL
INDUSTRIES, INCORPORATED (the "Company"), the Subsidiary
Borrowers and Subsidiary Guarantors parties thereto, the Lenders parties
thereto, NATIONSBANK, N.A. (formerly known as Nationsbank of North
Carolina, N.A.), as Co-Agent, CHASE SECURITIES INC. (as successor to
Chemical Securities, Inc.), as arranger and THE CHASE MANHATTAN
BANK (as successor to Chemical Bank) as administrative agent (the
"Administrative Agent").
W I T N E S E T H:
WHEREAS, the parties to this Amendment wish to amend the Credit
Agreement in the manner hereinafter set forth; and
WHEREAS, this Amendment is entered into in accordance with the
provisions of subsection 14.1 of the Credit Agreement;
NOW, THEREFORE, in consideration of the premises, the parties hereto
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Credit Agreement shall be used as so defined.
2. Amendments to Subsection 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by: (A) deleting the definition of "Guarantor"
in its entirety and replacing it with the following:
"'Guarantor': the Company in its capacity as the guarantor pursuant to Section
11 of this Agreement.";
(B) deleting the definition of "Subordinated Debt" in its entirety and
replacing it with the following:
"'Subordinated Debt': any unsecured Indebtedness of the Company (other
than Indebtedness outstanding on the date hereof and described on Schedule
10.2) no part of the principal of which is required to be paid (whether by way
of mandatory sinking fund, mandatory redemption or mandatory prepayment
or otherwise) prior to the Termination Date, and the payment of the principal
of and interest on which and any other obligations of the Company in respect
thereof is subordinated to the prior payment in full of the
51
<PAGE>
2
principal of and interest (including post-petition interest) on the Loans and
all other Obligations hereunder on terms and conditions that are (i) no less
favorable to the Lenders (as reasonably determined by the Majority Lenders)
than those contained in the Company's 12% Senior Subordinated Notes Due
August 1, 2002, or (ii) otherwise reasonably acceptable to the Majority
Lenders."; and
(C) deleting the definition of "Termination Date" in its entirety and
replacing it with the following:
"'Termination Date': September 30, 2002."
3. Amendment to Subsection 6.6. Subsection 6.6(a) is hereby amended
by replacing each and every reference to the words "lending office" contained
therein, with the words "Funding Office".
4. Amendments to Sections 10 and 11. Sections 10 and 11 are hereby
deleted in their entirety and replaced by the following:
"SECTION 10. NEGATIVE COVENANTS
The Company hereby agrees that, so long as the Commitments remain in
effect or any amount is owing to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Company shall not, directly
or indirectly:
10.1 Financial Condition Covenants.
(a) Consolidated Total Debt to Consolidated Capitalization. Permit the
ratio of Consolidated Total Debt to Consolidated Capitalization at any time to
be greater than 68%.
(b) EBITDA Ratio. Permit the EBITDA Ratio for any period of four
consecutive fiscal quarters to be less than 2.25 to 1.0.
10.2 Limitation on Indebtedness of Restricted Subsidiaries. Permit any
Restricted Subsidiary (other than any Restricted Subsidiary that is a Domestic
Subsidiary Borrower) to create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness under this Agreement;
(b) Indebtedness listed on Schedule 10.2 (a portion of which Indebted-
ness will be repaid at the time set forth in Part II of such Schedule);
(c) Indebtedness of a corporation which becomes a Restricted Subsidiary
after the date hereof, provided that (i) such indebtedness existed at
52
<PAGE>
3
the time such corporation became a Subsidiary and was not created in
anticipation thereof and (ii) immediately after giving effect to the
acquisition of such corporation by the Company no Default or Event of
Default shall have occurred and be continuing;
(d) Indebtedness secured by any Lien permitted by subsection 10.3(g);
(e) Indebtedness of the Company's Subsidiary or Subsidiaries in Denmark
in an aggregate principal amount not exceeding $2,000,000 (or its equivalent
in Danish Kroner) at any time outstanding;
(f) additional Indebtedness not exceeding $50,000,000 in aggregate
principal amount at any one time outstanding (as to all such Restricted
Subsidiaries);
(g) additional Indebtedness that is subordinate in right of payment to
the terms hereof; and
(h) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Indebtedness referred
to in the foregoing clauses (b), (c) and (d) (other than such Indebtedness
described in Part II of Schedule 10.2); provided that no such extension,
renewal or replacement shall result in an increase in such Indebtedness.
10.3 Limitation on Liens. Create, incur, assume or suffer to exist, or
permit any Restricted Subsidiary to create, incur, assume or suffer to exist,
any Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
thereto are maintained on the books of the Company or its Restricted
Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of
Foreign Subsidiaries, generally accepted accounting principles in effect from
time to time in their respective jurisdictions of incorporation);
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than 60 days or which are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
53
<PAGE>
4
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or such Restricted Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule 10.2,
provided that no such Lien is spread to cover any additional property after
the Closing Date and that the amount of Indebtedness secured thereby is not
increased;
(g) Liens securing Indebtedness of the Company or such Restricted
Subsidiaries incurred to finance the acquisition of fixed or capital assets,
provided that (i) such Liens shall be created substantially simultaneously
with the acquisition of such fixed or capital assets, (ii) such Liens do not at
any time encumber any property other than the property financed by such
Indebtedness, (iii) the amount of Indebtedness secured thereby is not
increased and (iv) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed the fair value (as determined in good faith by
the board of directors of the Company) of such property at the time it was
acquired;
(h) Liens on the property or assets of a corporation which becomes a
Restricted Subsidiary after the date hereof securing Indebtedness in existence
at the time such corporation became a Subsidiary, provided that (i) such Liens
existed at the time such corporation became a Subsidiary and were not created
in anticipation thereof, (ii) any such Lien is not spread to cover any property
or assets of such corporation after the time such corporation becomes a
Subsidiary, and (iii) the amount of Indebtedness secured thereby is not
increased;
(i) Liens on the property or assets of a corporation existing at the time
such corporation is merged or consolidated with or into the Company or a
Restricted Subsidiary or at the time of a sale of the properties and assets of
such corporation as an entirety or substantially as an entirety to the Company
or a Restricted Subsidiary, and Liens on property or assets first acquired by
the Company or a Restricted Subsidiary after the date of this Agreement,
provided that (A) no such Lien shall extend to or cover any property other
than the property initially subject thereto and improvements thereto, and (B)
the Indebtedness secured by each such Lien is then permitted by this
Agreement;
54
<PAGE>
5
(j) Liens on inventory acquired by the Company or a Restricted Subsidiary
in the ordinary course of business securing the payment to the seller of such
inventory of the purchase price thereof, provided, that such Liens encumber
only the inventory to which such purchase price relates and such purchase
price is payable in accordance with customary trade terms;
(k) Liens arising in connection with trade letters of credit issued for
the account of the Company or a Restricted Subsidiary securing the
reimbursement obligations in respect of such letters of credit, provided, that
such Liens encumber only the property being acquired through payments
made under such letters of credit or the documents of title and shipping and
insurance documents relating to such property;
(l) Liens on intellectual property acquired by the Company or a
Restricted Subsidiary (such as software) securing the obligation of the
Company or such Restricted Subsidiary to make royalty or similar payments
to the seller of such intellectual property, provided, that such Liens encumber
only the intellectual property to which such payments relate;
(m) Liens (not otherwise permitted hereunder) which secure obligations
not exceeding (as to the Company and all Restricted Subsidiaries)
$25,000,000;
(n) Liens on the Studer Assets securing the reimbursement and related
obligations of Studer in respect of the Studer Letter of Credit; and
(o) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to in
the foregoing clauses (f) through (n), inclusive; provided that (i) no such
extension, renewal or replacement shall result in an increase in the
liabilities secured thereby and (ii) such extension, renewal or replacement
Lien shall be limited to all or a part of the same property that secured the
Lien so extended, renewed or replaced (plus additions, accessions,
replacements and improvements to such property).
10.4 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign,
transfer or otherwise dispose of, all or substantially all of its property,
business or assets, or make any material change in its present method of
conducting business, or permit any Restricted Subsidiary to do any of the
foregoing, except:
(a) any Restricted Subsidiary of the Company may be merged or
consolidated with or into the Company (provided that the Company shall be
the continuing or surviving corporation) or with or into any one or more
wholly owned Restricted Subsidiaries of the Company (provided that the
wholly owned
55
<PAGE>
6
Restricted Subsidiary or Restricted Subsidiaries shall be the continuing or
surviving corporation);
(b) any Restricted Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise)
to the Company or any other wholly owned Restricted Subsidiary of the
Company; and
(c) the Company and its Restricted Subsidiaries may consummate the
transactions permitted by subsection 10.5.
10.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer
or otherwise dispose of, or permit any Restricted Subsidiary to convey, sell,
lease, assign, transfer or otherwise dispose of, any of its respective
property, business or assets (including, without limitation, receivables and
leasehold interests), whether now owned or hereafter acquired, or permit any
Restricted Subsidiary to issue or sell any shares of such Restricted
Subsidiary's Capital Stock to any Person other than the Company or any
wholly owned Restricted Subsidiary, except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business;
(b) the sale of inventory in the ordinary course of business;
c) the sale or discount without recourse of accounts receivable arising
in the ordinary course of business in connection with the compromise or
collection thereof;
(d) the sale or other disposition of any other property in the ordinary
course of business, provided that (i) the aggregate book value of all assets
so sold or disposed of in any period of twelve consecutive months shall not
exceed 15% of Consolidated Total Assets as at the beginning of such twelve-
month period and (ii) the aggregate book value of all assets so sold or
disposed of between July 1, 1994 and the date of any determination thereof
shall not exceed 25% of Consolidated Total Assets as at the end of the fiscal
year of the Company most recently ended prior to such date of determination;
(e) the Company or any Restricted Subsidiary may sell or otherwise
dispose of any Subsidiary other than a Restricted Subsidiary;
(f) any Restricted Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or otherwise)
to the Company or any other wholly owned Restricted Subsidiary of the
Company;
56
<PAGE>
7
(g) the sale or discount of accounts receivable (as to the Company and
all Restricted Subsidiaries) in an outstanding principal amount not exceeding
$50,000,000 at any time; and
(h) the issuance or series of issuances of Capital Stock of any
Restricted Subsidiary with a value, in the aggregate for all such issuances by
all Restricted Subsidiaries, not exceeding 10% of Consolidated Total Assets.
10.6 Limitation on Dividends. Declare or pay any dividend (other than
dividends payable solely in common stock of the Company) on, or make any
payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other
acquisition of, any shares of any class of Capital Stock of the Company or any
warrants or options to purchase any such Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Company or any Subsidiary, except that, so long as no Event of Default has
occurred and is continuing, or would be continuing after giving effect
thereto, the Company may pay dividends on its Capital Stock and purchase or
repurchase shares of its Capital Stock, provided, that the sum of the total
cash amount of all such dividends paid and such shares of its Capital Stock
purchased or repurchased between July 1, 1994 and the date of any
determination thereof does not exceed (i) $2,500,000 plus (ii) 25% of the
proceeds received by the Company after September 30, 1994 from the
issuance and sale by the Company of its Capital Stock, plus (iii) 25% of
Consolidated Net Income for the period from July 1, 1994 through the end of
the fiscal quarter of the Company most recently ended prior to the date of
such determination.
10.7 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, or permit any
Restricted Subsidiary to do any of the foregoing, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) Permitted Business Acquisitions;
(d) loans and advances to employees of the Company or its Subsidiaries
for travel, entertainment and relocation expenses in the ordinary course of
business in an aggregate amount for the Company and its Subsidiaries not to
exceed $1,000,000 at any one time outstanding;
57
<PAGE>
8
(e) investments by the Company in its Restricted Subsidiaries and
investments by Restricted Subsidiaries in the Company and in other
Restricted Subsidiaries; and
(f) investments by the Company or any Restricted Subsidiary in any
Subsidiary other than a Restricted Subsidiary so long as after giving effect
thereto there is no violation of subsection 10.13.
10.8 Limitation on Optional Payments of Subordinated Debt and
Modifications of Subordination Provisions. At any time when the Company
is not considered Investment Grade (a) agree to any amendment or other
modification to any Subordinated Debt that would shorten the maturity
thereof, (b) amend the subordination provisions of any Subordinated Debt or
(c) make any optional payment or prepayment on or redemption or purchase
of any Subordinated Debt unless, after giving effect to such payment,
prepayment, redemption or purchase, the ratio of Consolidated Senior Debt to
Consolidated Capitalization is not greater than 35%.
10.9 Limitation on Transactions with Affiliates. Enter into, or permit
any Restricted Subsidiary to enter into, any transaction, including, without
limitation, any purchase, sale, lease or exchange of property or the rendering
of any service, with any Affiliate (other than the Company or another
Restricted Subsidiary), unless such transaction is (a) otherwise permitted
under this Agreement, (b) in the ordinary course of the Company's or such
Restricted Subsidiary's business and (c) upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary, as the case may
be, than it would obtain in a comparable arm's length transaction with a
Person which is not an Affiliate.
10.10 Limitation on Sales and Leasebacks. Enter into, or permit any
Restricted Subsidiary to enter into, any arrangement with any Person (other
than the Company or another Restricted Subsidiary) providing for the leasing
by the Company or such Restricted Subsidiary of real or personal property
which is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person to whom funds have been or
are to be advanced by such Person on the security of such property or rental
obligations of the Company or such Restricted Subsidiary (a 'Sale and Lease-
Back Transaction'), except for (i) Sale and Lease- Back Transactions having
an aggregate Value not exceeding $25,000,000 (ii) Sale and Lease-Back
Transactions in respect of assets acquired by the Company or a Restricted
Subsidiary after July 1, 1994, provided, that such Sale and Lease-Back
Transaction is consummated within 180 days after the acquisition by the
Company or a Restricted Subsidiary of the asset subject thereto or (iii) Sale
and Lease-Back Transactions between the Company and any Restricted
Subsidiary or between Restricted Subsidiaries.
10.11 Limitation on Changes in Fiscal Year. Permit the fiscal year of
the Company to end on a day other than June 30.
58
<PAGE>
9
10.12 Limitation on Guarantee Obligations in respect of Indebtedness of
Subsidiaries other than Restricted Subsidiaries. Create, incur or permit to
exist, or permit any Restricted Subsidiary to create, incur or permit to exist,
any material Guarantee Obligation in respect of any Indebtedness of any
Subsidiary other than a Restricted Subsidiary.
10.13 Limitation on Subsidiaries other than Restricted Subsidiaries.
Permit at any time more than 10% of consolidated assets of the Company and
its Subsidiaries to be held by any Person other than the Company and the
Restricted Subsidiaries, or permit for any fiscal year more than the greater of
(a) $10,000,000 and (b) 15% of Consolidated Net Income, to be attributable to
the earnings of any Person other than the Company and the Restricted
Subsidiaries.
10.14 Limitation on Guarantee Obligations. Permit the aggregate
outstanding amount of Guarantee Obligations of the Company and its
Subsidiaries, determined on a consolidated basis (other than Guarantee
Obligations permitted pursuant to subsection 10.12), to exceed, at any time,
$25,000,000.
SECTION 11 GUARANTEES
11.1 Guarantees. (a) In order to induce the Administrative Agent, the
Co-Agent and the Lenders to execute and deliver this Agreement and to make
the Extensions of Credit hereunder, and in consideration thereof the Company
hereby unconditionally and irrevocably guarantees to the Administrative
Agent and each Lender and their respective successors and assigns, the
prompt and complete payment when due (whether at the stated maturity, by
acceleration or otherwise) of the Subsidiary Obligations, and the Company
further agrees to pay any and all reasonable expenses which may be paid or
incurred by the Administrative Agent or any Lender in collecting any or all of
the Subsidiary Obligations and/or enforcing any rights under this Section 11
or under Subsidiary Obligations.
(b) No payment or payments made by any Borrower, the Guarantor, any
other guarantor or any other Person or received or collected by the
Administrative Agent or any Lender from any Borrower, the Guarantor, any
other guarantor or any other Person by virtue of any action or proceeding or
any set-off or appropriation or application at any time or from time to time in
reduction of or in payment of the Subsidiary Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantor
hereunder which shall, notwithstanding any such payment or payments other
than payments made by the Guarantor in respect of the Subsidiary Obligations
or payments received or collected from the Guarantor in respect of the
Subsidiary Obligations, remain liable for the Subsidiary Obligations until the
Subsidiary Obligations are paid in full and the Commitments are terminated.
11.2 No Subrogation. Notwithstanding any payment or payments made
by the Company hereunder, or any set-off or application of funds of the
Company by
59
<PAGE>
10
the Administrative Agent or any Lender, the Company shall not be entitled to
be subrogated to any of the rights of the Administrative Agent or any Lender
against the Subsidiary Borrowers or against any collateral security or
guarantee or right of offset held by the Administrative Agent or any Lender
for the payment of the Subsidiary Obligations, nor shall the Company seek or
be entitled to seek any contribution or reimbursement from the Subsidiary
Borrowers in respect of payments made by the Company hereunder, until all
amounts owing to the Administrative Agent by the Subsidiary Borrowers on
account of the Subsidiary Obligations are paid in full and the Commitments
are terminated. If any amount shall be paid to the Company on account of
such subrogation rights at any time when all of the Subsidiary Obligations
shall not have been paid in full, such amount shall be held by the Company in
trust for the Administrative Agent and the Lenders, segregated from other
funds of the Company, and shall, forthwith upon receipt by the Company, be
turned over to the Administrative Agent in the exact form received by the
Company (duly indorsed by the Company to the Administrative Agent, if
required), to be applied against the Subsidiary Obligations, whether matured
or unmatured, in such order as Administrative Agent may determine. The
provisions of this paragraph shall continue to be effective after the
termination of this Agreement, the payment in full of the Subsidiary
Obligations and the termination of the Commitments.
11.3 Modification of Subsidiary Obligations. The Guarantor hereby
consents that, without the necessity of any reservation of rights against it
and without notice to or further assent by it, any demand made by the
Administrative Agent or any Lender for payment of any of the Subsidiary
Obligations may be rescinded by the Administrative Agent or such Lender
and any of the Subsidiary Obligations continued, and the Subsidiary
Obligations, or the liability of any other party upon or for any part thereof,
or any collateral security or guarantee therefor or right of offset with
respect thereto, may, from time to time, in whole or in part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered
or released by the Administrative Agent or such Lender and this Agreement
(other than the obligations specifically incurred by the Guarantor as a
Borrower or account party hereunder or as a Guarantor under this Section 11),
any Application, any Letter of Credit, any collateral security document or
other guarantee or document in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the
Administrative Agent or such Lender may deem advisable from time to time,
and any collateral security or guarantee or right of offset at any time held by
the Administrative Agent or any Lender for the payment of the Subsidiary
Obligations may be sold, exchanged, waived, surrendered or released, all
without the necessity of any reservations of rights against the Guarantor and
without notice to or further assent by the Guarantor (in respect of its
guarantee hereunder) which will remain bound hereunder notwithstanding any
such renewal, extension, supplement, termination, sale, exchange, waiver,
surrender or release. Neither the Administrative Agent nor any Lender shall
have any obligation to protect, secure, perfect or insure any collateral
security document or property subject thereto at any time held as security for
the Subsidiary Obligations. When making any demand hereunder against the
Guarantor or a Borrower, the Administrative Agent or any Lender may, but
shall be under no
60
<PAGE>
11
obligation to, make a similar demand on any other Borrower, and any failure
by the Administrative Agent or such Lender to make any such demand or to
collect any payments from any other Borrower or any such other guarantor or
any release of any other Borrower or other guarantor shall not relieve the
Guarantor or the Company of its obligations and liabilities hereunder, and
shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Administrative Agent or any Lender against the
Guarantor or any Borrower. For purposes of this subsection 11.3, the term
"demand" shall include the commencement and continuance of any legal
proceedings.
11.4 Waiver. The Guarantor hereby waives any and all notice of the
creation, renewal, extension or accrual of any of the Subsidiary Obligations
and notice of or proof of reliance by the Administrative Agent or any Lender
upon the guarantee contained in this Section 11 or acceptance of the guarantee
contained in this Section 11, and the Subsidiary Obligations, and any of them,
shall conclusively be deemed to have been created, contracted or incurred in
reliance upon the guarantee contained in this Section 11, and all dealings
between the Borrowers and the Guarantor and the Lenders shall likewise be
conclusively presumed to have been had or consummated in reliance upon the
guarantee contained in this Section 11. The Guarantor hereby waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment and all other notices to or upon the Guarantor with respect to the
Subsidiary Obligations. This Section 11 shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to the
validity, regularity or enforceability of this Agreement, any Application, any
Letter of Credit, any of the Subsidiary Obligations, or any collateral security
or guarantee therefor or right of offset with respect thereto at any time or
from time to time held by the Administrative Agent or any Lender and
without regard to any defense, set-off or counterclaim which may at any time
be available to or be asserted by the Guarantor or any Subsidiary Borrower
against the Administrative Agent or any Lender, or by any other circumstance
whatsoever (with or without notice to or knowledge of the Guarantor or any
Subsidiary Borrower) (other than payment in full of the Subsidiary
Obligations) which constitutes, or might be construed to constitute, an
equitable or legal discharge of any Borrower for the Subsidiary Obligations,
or of the Guarantor under the guarantee contained in this Section 11 in
bankruptcy or in any other instance, and the obligations and liabilities of the
Guarantor and the Borrowers hereunder shall not be conditioned or contingent
upon the pursuit by the Administrative Agent or any Lender at any time of
any right or remedy against any Borrower, the Guarantor or any other Person
which may be or become liable in respect of all or any part of the Subsidiary
Obligations or against any collateral security or guarantee therefor or right
of offset with respect thereto. The guarantee contained in this Section 11
shall remain in full force and effect and be binding in accordance with and to
the extent of their terms upon the Guarantor (and any successors and assigns
of either thereof) and shall inure to the benefit of the Administrative Agent
and the Lenders and their respective successors and assigns, until (subject to
subsection 11.5) all the Subsidiary Obligations and the obligations of the
Guarantor under this Section 11 shall have been satisfied by
61
<PAGE>
12
payment in full, notwithstanding that from time to time during the term of this
Agreement the Borrowers may be free from any Subsidiary Obligations.
11.5 Reinstatement. The guarantee contained in this Section 11 shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the Subsidiary Obligations is rescinded
or must otherwise be restored or returned by the Administrative Agent or any
Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Borrower, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Borrower or any substantial part of its property, all as though such payments
had not been made.
11.6 Payment of Subsidiary Obligations. The Guarantor hereby
guarantees that the Subsidiary Obligations guaranteed by it hereunder will be
paid to the Person entitled thereto pursuant to the terms of this Agreement at
the applicable Payment Office without set-off or counterclaim."
5. Amendment of Subsection 14.1(b)(i). Subsection 14.1(b)(i) is hereby
deleted in its entirety and replaced by the following:
"(i) Schedule II will be amended to add Subsidiaries of the Company as
additional Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers,
as the case may be, upon (A) execution and delivery by the Company, such
additional Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers,
as the case may be, and the Administrative Agent and, in the case of any such
amendment adding a Subsidiary as a Subsidiary Borrower only, the Majority
Lenders, of a Joinder Agreement providing for such to become Domestic
Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case may be,
and (B) delivery to the Administrative Agent of (1) corporate resolutions and
other corporate documents, (2) legal opinions substantially equivalent to
comparable documents delivered on the Closing Date in respect of the
Domestic Subsidiary Borrowers or Foreign Subsidiary Borrowers, as the case
may be, party to this Agreement on the Closing Date (provided, that (i) each
Domestic Subsidiary Borrower shall deliver a legal opinion which legal
opinion may be delivered by the Company's General Counsel and (ii) any
Foreign Subsidiary Borrower who fails to deliver a legal opinion shall be able
to borrow no more than US$10,000,000 under the Credit Agreement) and (3)
such other documents with respect thereto as the Administrative Agent shall
reasonably request. Each such Subsidiary so added shall automatically
become a Restricted Subsidiary."
6. Release of Subsidiaries' Section 11 Subsidiary Obligations. (A) The
Lenders hereby release each (i) Domestic Subsidiary Borrower, (ii) Subsidiary
Guarantor and (iii) Foreign Subsidiary Borrower from any and all guarantee
obligations to the Lenders pursuant to, and solely pursuant to, Section 11 of
the Credit Agreement.
62
<PAGE>
13
(B) The Lenders hereby acknowledge that the Company as of the
Effective Date will be the sole Guarantor of the Subsidiary Obligations.
7. Representations and Warranties. The Company hereby represents and
warrants that, after giving effect to the amendments effected hereby, the
representations and warranties made by it contained in Section 7 of the Credit
Agreement are true and correct on the date hereof provided that references to
the Credit Agreement therein shall be deemed to be references to this
Amendment and to the Credit Agreement as affected by this Amendment.
8. Conditions to Effectiveness. This Amendment shall become effective
upon the receipt by the Administrative Agent (which effectiveness shall be
confirmed to the other parties hereto by the Administrative Agent's delivery to
such parties of notice of such effectiveness) of: (i) counterparts of this
Amendment, duly executed and delivered by the Company and each of the
Lenders and (ii) a written legal opinion of Jones, Day, Reavis & Pogue,
counsel to the Company and the Domestic Subsidiary Borrowers, addressed to
the Administrative Agent and the Lenders, to the effect that (a) this
Amendment has been duly authorized, executed and delivered by the
Company and (b) this Amendment, and the Credit Agreement as amended
hereby, constitute the valid, binding and enforceable obligations of the
Company and the Domestic Subsidiaries parties thereto (which opinion may
contain exceptions and assumptions similar to those contained in opinions
delivered on the Closing Date).
9. Amendment Fee. The Company agrees to pay to the Administrative
Agent, for the Account of each Lender, on the Effective Date, a one-time fee
of .050% of each Lender's Commitment.
10. Miscellaneous. Except as expressly amended herein, the Credit
Agreement shall continue to be, and shall remain, in full force and effect in
accordance with its terms. This Amendment may be executed by the parties
hereto in any number of separate counterparts and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
The Company agrees to pay or reimburse the Administrative Agent for all its
reasonable out-of-pocket costs and expenses incurred in connection with the
development, preparation and execution of this Amendment including,
without limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
11. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
63
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be duly executed and delivered by its proper and duly
authorized officer(s) as of the day and year first above written.
HARMAN INTERNATIONAL INDUSTRIES,
INCORPORATED
By: /s/ B. Girod
Name: B. Girod
Title: President and Chief Operating Officer
ACKNOWLEDGED AND AGREED TO:
THE CHASE MANHATTAN BANK,
as Administrative Agent and Lender
By: /s/ James Maron
Title: Vice President
BANK OF MONTREAL
By:
Title:
THE BANK OF NOVA SCOTIA
By: /s/ JR Trimble
Title: Senior Relationship Manager
BANK OF TOKYO-MITSUBISHI TRUST CO.
By: /s/ JA Don
Title: VP & Mgr
64
<PAGE>
CITIBANK, N.A.
By: /s/ Marjorie Futornick
Title: Vice President
COMMERZBANK AG, LOS ANGELES BRANCH
By: /s/ Christian Jagenberg
Title: SVP and Manager
By: /s/ Werner Schmidbauer
Title: Vice President
GIROCREDIT BANK
By: /s/ R. Stone
Title: Vice President
By:
Title:
MIDLAND BANK PLC, NEW YORK BRANCH
By: /s/ Rochelle Forster
Title: Authorized Signatory
NATIONSBANK, N.A.
By: /s/ Elizabeth S. Duff
Title: Vice President
65
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Amy T. Petersen
Title: Vice President
SOCIETE GENERALE
By: /s/ Gordon Saint-Denis
Title: Vice President
66
<PAGE>
EXHIBIT 10.60
67
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
68
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), dated as of
November 25, 1996, is made by and between Harman International Industries,
Incorporated, a Delaware corporation ("Employer"), and Bernard A. Girod
("Employee").
WHEREAS, Employer desires to secure the continued services of Employee
as President and Chief Operating Officer of Employer;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants, and agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and subject to the terms and conditions set forth
below, Employer and Employee hereby agree as follows:
Section 1. Definitions
Section 1.1. Effective Date. "Effective Date" is November 25, 1996.
Section 1.2. Employment. "Employment" means Employee's employment
by the Employer, both hereunder and prior to the Effective Date.
Section 1.3. Expiration Date. "Expiration Date" means December 31,
1999.
Section 1.4. Services. "Services" mean Employee's responsibilities and
duties during the Term, as set forth in Section 0 including any extension
hereof.
Section 1.5. Term. "Term" means the term of this Agreement,
commencing on the Effective Date and ending on the earlier to occur of (a)
the Expiration Date or (b) the termination of this Agreement pursuant to
Section 7.
Section 2. Term of Employment. Employer shall employ Employee and
Employee shall serve Employer during the Term. Upon the expiration of the
Term, this Agreement may be extended upon such terms as shall then be
mutually agreed upon by Employer and Employee.
Section 3. Position, Duties, Location, Responsibilities
Section 3.1. Position, Duties and Location. During the Term, Employee
shall serve as President and Chief Operating Officer of Employer, subject to
the terms of this Agreement, and shall report to the Board of Directors of
Employer and the Chief Executive Officer, and shall assume and perform
such reasonable executive and managerial responsibilities and duties as are
consistent with his position as a President and Chief Operating Officer of
Employer.
Section 3.2. Devotion of Efforts to Business. During Employee's Employ-
ment, Employee shall devote his best efforts, and full business time and
attention to the Services.
69
<PAGE>
Employee shall not promote the business, products or services of any other
company or engage in any outside business activity during his Employment.
Employee shall perform the Services in accordance with such reasonable
procedures and policies as Employer may adopt from time to time.
Section 3.3. Protection of Employer's Name. Employee shall at all times
during the Term promote and protect the good name of Employer as well as
that of its officers, directors, employees, agents, products and services and
shall not, during and after the Term, defame or disparage Employer's
business, products, services, officers, employees or other representatives or
otherwise willfully detract from or reflect adversely upon their reputation,
nor shall Employee willfully engage in any unfair trade practices with respect
to Employer.
Section 4. Compensation During the Term
Section 4.1. Salary and Bonus. Except as otherwise provided in
Section 7 hereof, as compensation for his Services during the Term,
Employee shall receive an annual salary of Four Hundred Fifty Thousand
Dollars ($450,000) (such amount and any increment thereof made pursuant
hereto, the "Salary") during the period beginning on the Effective Date and
ending on the Expiration Date. Employee's Salary shall be payable at the
same intervals as salaries are paid to other salaried employees of Employer.
Employee's Salary shall be reviewed at each July meeting of the
Compensation and Option Committee of the Board of Directors during the
Term and may be increased (but shall not be decreased) at such time on the
basis of merit and performance. Employee shall be entitled to such bonus as
the Compensation and Option Committee of the Board of Directors may
approve on the basis of merit and performance (the "Bonus").
Section 4.2. Options. Except as otherwise provided in Section 7 hereof
by reference to the terms of such agreements, notwithstanding anything to the
contrary contained in agreements executed between Employee and Employer
(the "Stock Option Agreements") relating to options to purchase the common
stock of Employer ("Stock Options"), Stock Options granted prior to or after
the Effective Date, shall exist, accrue, vest and be exercisable by their terms
during the period ending on the Expiration Date, all determined as if
Employee had continued to be a full-time executive officer of Employer until
the Expiration Date.
Section 4.3. Benefits. Except as otherwise provided in Section 7 hereof,
rights and benefits under the Employer's Executive Deferred Compensation
Plan, the Retirement Savings Plan (including both matching and profit sharing
contributions) and employee health, life and other similar plans, in each case
as such plans shall have been or be amended (collectively, the "Benefits"),
shall exist, accrue and vest during the period ending on the Expiration Date,
all determined as if Employee had continued to be a full-time executive
officer of Employer until the Expiration Date. Except as otherwise provided
hereby, such participation shall be subject to the normal eligibility
requirements of such plans.
2
70
<PAGE>
Section 4.4. Retirement Benefits. Except as otherwise provided in
Section 7 hereof by reference to the terms of such plan, retirement benefits
(the "Retirement Benefits") existing at the Effective Date or accruing during
the Term under the Employer's Supplemental Executive Retirement Plan, as
amended (the "SERP"), shall continue to exist, accrue and vest during the
period ending on the Expiration Date, all determined as if Employee had
continued to be a full-time executive officer of Employer until the Expiration
Date. Except as otherwise provided hereby, such participation shall be
subject to the normal eligibility requirements of the SERP.
Section 5. Treatment of Information
Section 5.1. Definition of Confidential Information. Employee
acknowledges that in the course of his Employment, he may have access to
and become informed of proprietary, non-public information relating to
Employer and its affiliated companies (each of such companies including
Employer, an "Employer-Related Company"), and their business and
products. The term "Confidential Information" means all information
disclosed to Employee, including:
(i) service specifications, schematics, designs, procedures, practices,
testing methods, concepts for new or improved services and other service
data; (ii) product specifications, schematics, designs, procedures, practices,
testing methods, concepts for new or improved products and other product
data; (iii) sources of supply, and potential sources of supply, for capital
equipment, components, raw materials and products; (iv) all technical
information relating to the invention, patenting, technological advancement,
formulation, development, design, specifications, testing, manufacture and
use of products, services, methods, processes, machinery and equipment; (v)
customer and prospective customer information, such as lists of such
customers, purchasing and servicing habits and credit information; (vi) cost
and pricing information; (vii) selling and marketing information, such as
selling methods, strategies, catalogues, order books and instructional and
promotional materials; (viii) training and recruiting methods and materials;
(ix) business techniques, (x) corporate planning data; and (xi) financial
results and business conditions;
provided that such information:
(a) has not been made generally available to the public; and
(b) is useful or of value to Employer's current or anticipated business,
research or development activities or those of any customer or supplier of
Employer.
Confidential Information does not include Employee's general skills and
experience as defined by law.
3
71
<PAGE>
Section 5.2. Employee's Obligation of Confidentiality. During the Term
and for a period of five (5) years thereafter, Employee agrees to maintain in
strict confidence and not, directly or indirectly, divulge or use the
Confidential Information in any manner, without Employer's prior consent,
other than in the performance of Services for Employer; provided, that,
Employee shall not be so obligated, if such Confidential Information:
(a) is in or hereafter enters the public domain through no fault of
Employee; or
(b) is required to be disclosed pursuant to a court order or government
action and Employee has made reasonable efforts to provide Employer with
prior notice of such required disclosure.
Section 5.3. Inventions, Copyrights
(a) Assignment. Employee hereby assigns and agrees to assign to
Employer or its successors, assigns or nominees, all of his rights to any
discoveries, inventions and improvements, whether patentable or not, made,
conceived or suggested, either solely or jointly with others, by Employee in
connection with the Business during the Term. Upon request by Employer
with respect to any such discoveries, inventions or improvements, Employee
shall execute and deliver to Employer, at Employer's sole expense, but
without further or additional consideration, all appropriate documents for use
in applying for, obtaining and maintaining such domestic and foreign patents
in the name of Employer as Employer may desire and all proper assignments
therefor.
(b) Statutory Notice. Consistent with the laws of certain states,
Employer acknowledges that no provision of this Agreement is intended to
require assignment of any of Employee's rights in an invention if no
equipment, supplies, facilities, trade secret, or Confidential Information of
Employer was used, and the invention was developed entirely on the
Employee's own time, unless the invention relates to the to the Employer's
actual or demonstrably anticipated research or development, or the invention
results from any work performed by the Employee for the Employer.
c) Ownership of Materials. Employee acknowledges that to the extent
permitted by law, all work papers, reports, computer files, documentation,
drawings, photographs, negatives, tapes and masters therefor, prototypes and
other materials (hereinafter in this paragraph, collectively, "items"),
generated by Employee during the Term, shall be considered as "work made
for hire" and that ownership of any and all copyrights in any and all such
items shall belong to Employer.
Section 5.4. Return of Property. Upon termination of Employee's
employment with Employer whether pursuant to the terms hereof or following
extension of such employment for an additional period of time, Employee
shall return to Employer, in good condition, all property of the Employer-
Related Companies, including the originals and all copies of any materials
which contain, reflect, summarize, describe, analyze or refer or relate to
Proprietary Information. If any property is not so returned, Employer will
4
72
<PAGE>
have the right to charge Employee for all reasonable damages, costs,
attorneys' fees and other expenses incurred in searching for, taking, removing
or recovering such property in a commercially reasonable manner.
Section 6. Remedies
Section 6.1. Remedies. In the event of any breach by Employee of the
provisions of Section 0, the parties hereby recognize and acknowledge that a
remedy at law may be inadequate, and an Employer-Related Company may
suffer irreparable injury. Accordingly, Employee consents to Employer's
instituting a proceeding seeking injunctive and other appropriate equitable
relief in order to protect its rights under Section 5. Such relief shall be in
addition to any other relief to which the Employer-Related Company may be
entitled at law or in equity. Resort to any remedy provided for under this
Section 6 or provided for by law shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies, or
preclude the recovery by the Employer-Related Company of monetary
damages.
Section 6.2. Jurisdiction; Venue; Process. Any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the
[State of California, County of Los Angeles, or in the United States District
Court for the Southern District of California], and each party consents to the
jurisdiction of such courts in any such action or proceeding and waives any
objection to venue laid therein. Process in any action or proceeding referred
to in the preceding sentence may be served on any party anywhere in the
world.
Section 7. Termination
Section 7.1. Termination Upon Death or Disability. To the extent
consistent with federal and state law, this Agreement and Employee's
Employment shall terminate automatically upon the death or a final
determination of disability (as defined below) of Employee and in such event
Employer shall have no further obligation to Employee hereunder or
otherwise except (a) to pay Employee or his estate the unpaid portion, if any,
of the Salary, Bonus and Benefits payable to Employee, in each case, for the
period ending on the termination date, (b) provide Employee with the Salary
and Benefits to which Employee would have been entitled pursuant to
Sections 4.1 and 4.3 during the period from the date of termination until the
Expiration Date as if Employee had continued to be a full-time executive
officer of Employer until the Expiration Date, (c) pay Employee the
Retirement Benefits payable in accordance with the terms of the SERP, and
(d) permit Employee or his estate to exercise the Stock Options until the
Expiration Date as if Employee had continued to be a full-time executive
officer of Employer until the Expiration. For purposes hereof, "disability"
shall mean an illness or incapacity (mental or physical or both) of a
character,
5
73
<PAGE>
nature, degree or effect that has rendered Employee incapable, with
reasonable accommodation and in accordance with federal and state laws, of
performing the essential functions of his position hereunder for a period of
more than 120 consecutive days or 150 days in any 180-day period. The
determination of "disability" shall be made by physicians acceptable to
Employer, and Employee hereby consents to examination by such physicians
and to the disclosure by any physicians of any and all diagnoses, test results,
opinions and other information obtained by such physicians during or as a
result of the examinations to which Employee hereby consents.
Section 7.2. Retirement.
(a) This Agreement and Employee's Employment shall terminate
automatically if Employee is eligible to and elects to retire in accordance
with the Employer's retirement plan (or any successor plan) as then in effect
with respect to the Employee.
(b) Upon such termination prior to December 31, 1997 and except as
otherwise provided under such plan or required by law, Employer shall have
no further obligation to Employee hereunder or otherwise except to (i) pay
Employee the unpaid portion, if any, of the Salary, Bonus and Benefits
payable to Employee, in each case, for the period ending on the date of
termination, (ii) pay Employee the Retirement Benefits payable in accordance
with the terms of the SERP, and (iii) permit Employee to exercise the Stock
Options in accordance with the terms of the Stock Option Agreements.
c) Upon such termination after December 31, 1997 and except as
otherwise provided under such plan or required by law, Employer shall have
no further obligation to Employee hereunder or otherwise except to (i) pay
Employee the unpaid portion, if any, of the Salary, Bonus and Benefits
payable to Employee, in each case, for the period ending on the date of
termination, (ii) provide Employee with the Salary and Benefits to which
Employee would have been entitled pursuant to Sections 4.1 and 4.3 during
the period from the date of termination until the Expiration Date as if
Employee had continued to be a full-time executive officer of Employer until
the Expiration Date, (iii) pay to Employee the Retirement Benefits payable in
accordance with the terms of the SERP beginning on the date of termination,
as if Employee had continued to be a full-time executive officer of Employer
until the Expiration Date, and (iv) permit Employee to exercise the Stock
Options until the Expiration Date as if Employee had continued to be a full-
time executive officer of Employer until the Expiration Date.
Section 7.3. Termination by Either Party. Either party may terminate
this Agreement at any time and for any reason.
(a) Termination by Employee Other than Retirement.
(i) If Employee terminates his Employment prior to December 31, 1997,
for any reason (not including termination by reason of his retirement in
accordance with Section 7.2) by voluntarily resigning all of his positions with
the Employer, Employer shall have no further obligation to Employee
6
74
<PAGE>
hereunder or otherwise except to (A) pay Employee the unpaid portion, if
any, of the Salary, Bonus and Benefits payable to Employee, in each case, for
the period ending on the date of termination, (B) pay Employee the
Retirement Benefits payable in accordance with the terms of the SERP, and
(C) permit Employee to exercise the Stock Options in accordance with the
terms of the Stock Option Agreements.
(ii) If Employee terminates his Employment after December 31, 1997 for
any reason (not including termination by reason of his retirement in
accordance with Section 7.2) by voluntarily resigning all of his positions with
the Employer, Employer shall have no further obligation to Employee
hereunder or otherwise except to (A) pay Employee the unpaid portion, if any,
of the Salary, Bonus and Benefits payable to Employee, in each case, for the
period ending on the date of termination, (B) provide Employee with the
Salary and Benefits to which Employee would have been entitled pursuant to
Sections 4.1 and 4.3 during the period from the date of termination until the
Expiration Date as if Employee had continued to be a full-time executive
officer of Employer until the Expiration Date, (C) pay to Employee the
Retirement Benefits payable in accordance with the terms of the SERP
beginning on the date of termination, as if Employee had continued to be a
full-time executive officer of Employer until the Expiration Date, and (D)
permit Employee to exercise the Stock Options until the Expiration Date as if
Employee had continued to be a full-time executive officer of Employer until
the Expiration Date.
(b) Termination by Employer for Cause
(i) In the event that Employer terminates this Agreement and Employee's
Employment for "cause" (as defined below) at any time by delivering notice
of termination to Employee, Employer shall have no further obligation to
Employee hereunder or otherwise except to (A) pay Employee the unpaid
portion, if any, of the Salary, Bonus and Benefits payable to Employee, in
each case, for the period ending on the date of termination, (B) pay Employee
the Retirement Benefits payable in accordance with the terms of the SERP,
and (C) permit Employee to exercise the Stock Options in accordance with the
terms of the Stock Option Agreements.
(ii) For purposes hereof, "cause" shall mean (A) misappropriation of
corporate funds, (B) conviction of a felony, (C) willful misconduct by
Employee resulting in material harm to Employer, or (D) the breach by
Employee of any of his covenants contained in Sections 3 or 5.
c) Termination by Employer Other Than for Cause. In the event that
Employer terminates this Agreement and Employee's Employment without
"cause," Employer shall have no further obligation to Employee hereunder or
otherwise, except to (i) pay Employee the unpaid portion, if any, of the
Salary, Bonus and Benefits payable to Employee, in each case, for the period
ending on the date of termination, (ii) provide Employee with the Salary and
Benefits to which Employee would have been entitled pursuant to Sections
4.1 and 4.3 during the period from the date of termination until the Expiration
7
75
<PAGE>
Date as if Employee had continued to be a full-time executive officer of
Employer until the Expiration Date, (iii) pay to Employee the Retirement
Benefits payable in accordance with the terms of the SERP beginning on the
date of termination, as if Employee had continued to be a full-time executive
officer of Employer until the Expiration Date, and (iv) permit Employee or his
estate to exercise the Stock Options until the Expiration Date as if Employee
had continued to be a full-time executive officer of Employer until the
Expiration Date.
Section 7.4. Continuance of Covenants. Notwithstanding any other
provision hereof to the contrary, if this Agreement is terminated for any
reason, Sections 3, 0 and 0 shall survive and continue to bind Employee.
Section 8. Miscellaneous
Section 8.1. Amendment. This Agreement may be amended only by a
writing executed by each party hereto.
Section 8.2. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior understandings,
agreements or representations by or between the parties, written or oral, to
the extent they have related in any way to the subject matter hereof.
Section 8.3. Notices. Any notice, request, consent and other communica-
tion required or permitted hereunder shall be in writing and shall be deemed
to have been duly given (i) when received if personally delivered, (ii) within
one day after being sent by recognized overnight delivery service, or
(iii) within five days after being sent by registered or certified mail, return
receipt requested, postage prepaid, to the parties (and to the persons to whom
copies shall be sent) at their respective addresses set forth below.
(a) If to any Employer-Related Company:
Harman International Industries, Incorporated
1101 Pennsylvania Avenue, N.W.
Suite 1010
Washington, D.C. 20004
Attention: Dr. Sidney Harman
With a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
32nd Floor
New York, New York 10022
Attention: David F. Clossey, Esq.
(b) If to Employee:
2923 Ocean Front Walk
Venice, California 90291
With a copy to:
8
76
<PAGE>
Any party may change the address or the persons to whom notice shall be
directed by notifying the other parties as provided in this Section 8.3.
Section 8.4 Assignability. This Agreement shall be assignable by
Employer to any affiliate of Employer, with the consent of Employee, which
consent shall not be unreasonably withheld. Employee may not assign,
pledge or encumber any interest in this Agreement or any part thereof (this
Agreement being personal to Employee).
Section 8.5. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the internal, substantive laws of
the State of California, without regard to that State's principles governing
conflicts of laws.
Section 8.6. Waivers. Any waiver by any party or any violation of,
breach of or default under any provision hereof by the other party shall not
be construed as, or constitute, a continuing waiver of such provision, or
waiver of any other violation of, breach of or default under any other
provision hereof.
Section 8.7. Headings. The headings herein are solely for convenience
and shall not be given any effect in the construction or interpretation hereof.
Section 8.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 8.9. Third Parties. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give to any person or entity
other than the Employer-Related Companies, Employee, and any permitted
assignees, any rights or remedies under, or by reason of, this Agreement.
Section 8.10. Withholding of Taxes. Employer may withhold from any
amounts payable hereunder all federal, state, city or other taxes as shall be
required to be withheld pursuant to any law or government regulation or
ruling.
Section 8.11. Survival of Certain Obligations. Employer's and Employee's
obligations which by their terms extend beyond or survive the termination of
Employee's Employment shall not be affected or diminished in any way by
the termination hereof.
Section 8.12. Construction
(a) To the extent that the terms of this Agreement are inconsistent with
or vary from the terms of (i) any plan of the Company pursuant to which
benefits are payable to Employee or (ii) any other agreement between
Employee and Employer (including the Stock Option Agreements) or any
plan related thereto, then in any such case this Agreement shall supersede,
amend and modify the terms of such plan or agreement.
9
77
<PAGE>
(b) Each section and subsection hereof constitutes a separate and
distinct provision. The parties hereto intend that the provisions hereof be
enforced to the fullest extent permissible under the laws and public policies
applicable in each jurisdiction in which enforcement is sought. Accordingly,
if any provision is adjudicated to be invalid, ineffective or unenforceable,
the remaining provisions shall not be affected thereby. The invalid,
ineffective or unenforceable provision shall, without further action by the
parties, be automatically amended to effect the original purpose and intent of
such provision to the fullest extent legally permissible, provided, that such
amendment shall apply only with respect to the operation of such provision in
the particular jurisdiction with respect to which such adjudication is made.
c) In this Agreement, unless otherwise indicated or required by the
context:
(i) use of the singular form includes the plural and conversely;
(ii) "or" is not exclusive;
(iii) forms of the verb "include" are not limiting;
(iv) "hereof," "herein," "hereunder," and words of similar
construction refer to this Agreement as a whole and not to any particular part;
and
(v) a reference to a section or other part of a document is to such
part hereof.
(d) The parties hereto have each been represented by their own counsel
and have participated jointly in the negotiation and drafting of this
Agreement. If any ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party
by virtue of the authorship of any provision hereof.
(e) EMPLOYEE REPRESENTS THAT, PRIOR TO SIGNING THIS
AGREEMENT, HE READ IT IN ITS ENTIRETY; THAT HE FULLY
UNDERSTANDS AND VOLUNTARILY AGREES TO THE ABOVE
TERMS AND CONDITIONS; THAT HE WAS NOT COERCED TO SIGN
THIS AGREEMENT; THAT HE WAS NOT UNDER DURESS AT THE
TIME HE SIGNED THIS AGREEMENT; THAT HE WILL NOT, BY
SIGNING THIS AGREEMENT, VIOLATE THE TERMS OF ANY OTHER
AGREEMENT PREVIOUSLY ENTERED INTO BY HIM; AND THAT,
PRIOR TO SIGNING THIS AGREEMENT, HE HAD ADEQUATE TIME
TO CONSIDER ENTERING INTO THIS AGREEMENT, INCLUDING THE
OPPORTUNITY TO DISCUSS ITS TERMS AND CONDITIONS AS WELL
AS ITS LEGAL CONSEQUENCES, WITH AN ATTORNEY OF HIS
CHOICE.
Section 8.13. Execution and Delivery. Any party may execute and deliver
this Agreement by signing the signature page and electronically transmitting a
facsimile thereof.
10
78
<PAGE>
IN WITNESS WHEREOF, Employer has caused this Agreement to be duly
executed and delivered by its duly authorized officer, and Employee has duly
executed and delivered this Agreement, as of the date first written above.
/s/ Bernard A. Girod
- ---------------------------
Bernard A. Girod
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
By: /s/ Sidney Harman
------------------------------
Name: Dr. Sidney Harman
Title: Chairman of the Board of Directors and
Chief Executive Officer
11
79
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
80
<PAGE>
EXHIBIT 13.1
81
<PAGE>
Financial Information Table of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations 31
Statement of Management Responsibility 35
Independent Auditor's Report 35
Consolidated Financial Statements
Balance Sheets 36
Statements of Operations 37
Statements of Cash Flows 38
Statements of Shareholders' Equity 39
Notes to Consolidated Financial Statements 40
Shareholder Information 48
Officers and Directors inside back cover
Annual Meeting inside back cover
Except for 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, currency
exchange rates, competitive products and other risks detailed herein and
in the Company's other filings with the Securities and Exchange
Commission.
30
82
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales for fiscal 1997 increased by 8 percent to $1.474 billion from
$1.362 billion in fiscal 1996 and in fiscal 1996 increased by 16 percent
from fiscal 1995 sales of $1.170 billion. Exclusive of currency effects,
fiscal 1997 sales increased 12 percent over the prior year. The sales
increases for both fiscal 1997 and fiscal 1996 result from the growth of
the Consumer Group, the Professional Group and the OEM Group.
The Consumer Group had good sales growth in a difficult market
environment. JBL, Infinity and Harman Kardon reported record sales
for the year driven by gains in Europe and North America. Sales for the
year include shipments of JBL branded loudspeakers for Compaq's
Presario line of personal computers.
The Professional Group reported modestly higher sales for the year.
Vigorous cinema installation activity contributed to a 20 percent sales
increase for JBL Professional, our largest professional audio company.
Harman Music Group and Lexicon also reported record sales. Studer
and AKG sales were off from prior year levels, primarily due to
currency effects.
The OEM Group produced good results. Shipments of high fidelity
systems to the automakers increased over the prior year, reflecting the
addition of new models, including the Toyota Camry, two new
Mitsubishi platforms and European production models of the Jeep
Grand Cherokee and the Chrysler Minivan. Becker reported good sales
to its major automotive customers: Mercedes, BMW and Porsche. Sales
to BMW and Porsche increased 80 percent and 65 percent, respectively,
over the prior year. OEM Group sales in the fourth quarter of fiscal
1997 were negatively affected by the strike at Chrysler's Mound Road
engine plant.
The Company discontinued Ford's exclusive use of the JBL brand name
and made it available to Toyota and others from whom commitments
have been received beginning in model year 1998. The JBL program for
the Ford Explorer concluded with model year 1997 and the Lincoln/JBL
program is scheduled to conclude with model year 1998.
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 1997 was 28.5 percent, compared
to 30.0 percent in fiscal 1996 and 31.1 percent in fiscal 1995. The
decrease in fiscal 1997 primarily resulted from an increase in Consumer
Group sales as a percent of total sales and pricing pressures on the
Consumer Group in a difficult market environment. The decrease in
fiscal 1996 was due to aggressive pricing in consumer markets to build
market share combined with the inclusion of Becker for a full year.
Selling, general and administrative expenses as a percentage of sales
were 21.6 percent in fiscal 1997, compared with 22.2 percent in fiscal
1996 and 23.6 percent in fiscal 1995. The decrease in fiscal 1997
selling, general and administrative expenses as a percentage of sales
primarily resulted from a reduction in general and administrative costs
at Becker due to reorganization programs and lower corporate general
and administrative expenses. The decrease in fiscal 1996 selling, general
and administrative expenses as a percentage of sales was due to
reorganization programs at Studer and Becker.
31
83
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations continued
Operating income as a percentage of net sales was 6.9 percent for fiscal
1997, compared with 7.7 percent for fiscal 1996 and 7.5 percent for
fiscal 1995. The fiscal 1997 decrease resulted from the lower gross
profit margin percentage discussed above. The increase for fiscal 1996
was driven by lower selling, general and administrative expenses,
partially offset by the decrease in gross profit percentage.
Interest expense in fiscal 1997 was $23.6 million, compared with $27.5
million in fiscal 1996 and $25.3 million in fiscal 1995. Interest expense
decreased in fiscal 1997 due to lower average borrowings and lower
average interest rates. Fiscal 1997 average borrowings were $317.9
million, compared with $348.3 million in fiscal 1996 and $276.6
million in fiscal 1995. Fiscal 1997 average borrowings decreased due to
the May 1996 secondary stock offering, partially offset by increased
working capital requirements, capital expenditures and the January 1997
retirement of 220,000 shares of common stock.
The weighted average interest rate in fiscal 1997 was 7.4 percent,
compared with 7.9 percent in fiscal 1996 and 9.1 percent in fiscal 1995.
The decrease in average interest rates in fiscal 1997 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 LIBOR plus 0.30 percent
to LIBOR plus 0.25 percent due to the Company's achievement of
certain financial performance criteria.
In fiscal 1997 the Company reported income before income taxes,
minority interest and extraordinary item of $77.9 million, compared
with $75.0 million in fiscal 1996 and $61.2 million in fiscal 1995.
In fiscal 1997 the Company reported income tax expense of $23.0
million, reflecting an effective tax rate of 29.5 percent. This compares
with an income tax expense of $23.8 million and an effective tax rate of
31.7 percent in fiscal 1996. Fiscal 1995 tax expense was $19.6 million
with an effective tax rate of 32.1 percent. The effective tax rates for
fiscal years 1997, 1996, and 1995 were 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 reported no extraordinary charges in fiscal 1997 and
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.
Net income for fiscal 1997 was $54.8 million, compared with $52.0
million for fiscal 1996 and $41.2 million for fiscal 1995.
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, 1997, the Company had outstanding indebtedness under the
revolving credit facility of $151.1 million, outstanding letters of credit
of $2.9 million and unused
32
84
<PAGE>
credit thereunder of $121.0 million. The indebtedness at June 30, 1997,
consists of committed rate loans, which bear interest at LIBOR plus
0.25 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. In June
1997, the maturity date was extended by two years to September 30,
2002, and certain financial covenants were amended or deleted.
At June 30, 1997, certain international subsidiaries of the Company
maintained unsecured short-term lines of credit of $16.6 million and had
outstanding indebtedness thereunder of approximately $7.6 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.
Capital expenditures were $68.4 million in fiscal 1997, compared with
$80.6 million in fiscal 1996 and $54.7 million in fiscal 1995.
Expenditures in fiscal 1997 and fiscal 1996 were primarily for new
product tooling and machinery and equipment required to increase
manufacturing capacity and efficiency.
The Company anticipates capital expenditures of approximately $85.0
million during the next fiscal year. Firm commitments of approximately
$11.0 million existed as of June 30, 1997, for capital expenditures
during fiscal 1998. The Company anticipates that a portion of these
capital expenditures will be financed through lease financing
arrangements.
Net working capital at June 30, 1997 was $428.1 million, compared
with $377.3 million at June 30, 1996. The increase in working capital
primarily results from higher inventory and receivable levels associated
with increased sales volumes and lower accounts payable and accrued
liabilities.
Excess of cost over fair value of assets acquired decreased to $109.6
million at June 30, 1997, from $129.9 million at June 30, 1996. The
decrease reflects the annual amortization, translation effects on certain
foreign currency denominated balances, realization of unrecorded
deferred tax assets at Becker and the write-off of balances associated
with businesses disposed of during fiscal 1997.
Shareholders' equity was $466.8 million at June 30, 1997, compared
with $436.5 million at June 30, 1996, and $289.5 million at June 30,
1995. The increase in fiscal 1997 primarily results from fiscal 1997
earnings partially offset by the retirement of 220,000 shares of Common
Stock and negative adjustments from foreign currency translation. 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 $11.3 million in fiscal 1997 due to the
strengthening of the U.S. dollar against most other major currencies
during the year. A negative adjustment of $11.1 million was recorded in
fiscal 1996 and a positive adjustment of $5.8 million was recorded in
fiscal 1995.
On July 1, 1997, the Company issued $150.0 million of 7.32% Senior
Notes, due July 1, 2007. The proceeds were used to call the remaining
$63.75 million 12.0% Senior Subordinated Notes on August 1, 1997, at
a premium of 6% ($3.825 million) and to repay certain other debt,
including borrowings under the revolving credit facility.
33
85
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations continued
The Company's cash generated by operations, as well as the unused
credit under the revolving credit facility and the 7.32% Senior Notes
discussed above, should provide sufficient available funds to meet the
Company's working capital, capital expenditure, dividend and debt
service requirements for the foreseeable future.
Effects of Inflation and Currency Exchange Rates
The Company maintains significant assets and operations in Germany,
the United Kingdom, Denmark, Austria, Switzerland, France 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 to
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.
Recent Accounting Pronouncements
New accounting pronouncements SFAS No. 128, "Earnings Per Share,"
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No.
131, "Disclosure about Segments of an Enterprise and Related
Information," are discussed in footnote 1 to the consolidated financial
statements, "Summary of Significant Accounting Policies."
34
86
<PAGE>
Statement of Management Responsibility
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
the 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 /s/ Frank Meredith
Bernard A. Girod Frank Meredith
President and Chief Vice President - Finance &
Operating Officer Administration and Chief
Financial Officer
- ---------------------------------------------------------------------
Independent Auditor's Report
The Board of Directors and Shareholders of Harman International
Industries, Incorporated:
We have audited the accompanying consolidated balance sheets of
Harman International Industries, Incorporated and subsidiaries as of
June 30, 1997 and 1996 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, 1997. 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,
1997 and 1996 and the results of their operations and their cash flows
for each of the years in the three-year period ended June 30, 1997 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 20, 1997
35
87
<PAGE>
Consolidated Balance Sheets
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
June 30, 1997 and 1996
($000s omitted except share amounts)
Assets 1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents
Current assets
Cash and cash equivalents $ 4,230 303
Receivables (less allowance for
doubtful accounts of $9,116 in 1997
and $9,962 in 1996) 306,230 298,110
Inventories (note 2) 320,102 308,051
Other current assets 48,737 45,506
----------- -----------
Total current assets 679,299 651,970
----------- -----------
Property, plant and equipment,
net (notes 3, 5 and 6) 207,947 200,958
Excess of cost over fair value of assets
acquired (less accumulated amortization
of $16,085 in 1997 and $12,930 in 1996) 109,606 129,940
Other assets 17,402 13,341
----------- -----------
Total assets $1,014,254 996,209
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings (notes 4 and 5) $ 15,808 26,367
Current portion of long-term debt (note 5) 23,949 6,423
Accounts payable 104,121 109,565
Accrued liabilities 93,554 115,168
Income taxes payable 13,816 17,136
----------- -----------
Total current liabilities 251,248 274,659
----------- -----------
Borrowings under revolving credit facility
(note 5) 142,873 107,986
Senior long-term debt (note 5) 14,770 37,125
Subordinated long-term debt (note 5) 108,750 109,500
Other non-current liabilities 29,057 29,603
Minority interest 794 859
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 18,456,583 shares in
1997 and 18,618,064 shares in 1996 185 186
Additional paid-in capital 284,490 293,993
Equity adjustment from foreign currency
translation (16,240) (4,906)
Retained earnings 198,327 147,204
----------- -----------
Total shareholders' equity 466,762 436,477
----------- -----------
Commitments and contingencies
(notes 6, 11 and 12)
Total liabilities and shareholders' equity $1,014,254 996,209
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
36
88
<PAGE>
Consolidated Statements of Operations
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1997, 1996, 1995
($000s omitted except share and per share amounts)
1997 1996 1995
-------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 1,474,094 1,361,595 1,170,224
Cost of sales 1,053,614 953,470 806,143
-------------- ------------- -------------
Gross profit 420,480 408,125 364,081
Selling, general and
administrative expenses 318,507 302,747 276,632
-------------- ------------- -------------
Operating income 101,973 105,378 87,449
Other expenses
Interest expense 23,640 27,510 25,284
Miscellaneous, net 432 2,844 1,008
-------------- ------------- -------------
Income before income
taxes, minority interest
and extraordinary item 77,901 75,024 61,157
Income tax expense (note 8)
Federal 14,391 14,401 12,012
Foreign and state 8,571 9,349 7,630
-------------- ------------- -------------
Total income tax expense 22,962 23,750 19,642
Minority interest 107 (768) 80
-------------- ------------- -------------
Income before
extraordinary item 54,832 52,042 41,435
Extraordinary item, net of
income tax effect of $182
in 1995 --- --- (274)
-------------- ------------- -------------
Net income $ 54,832 52,042 41,161
-------------- ------------- -------------
Income per common share
before extraordinary item $ 2.96 3.16 2.60
Extraordinary item, net of tax --- --- (0.02)
-------------- ------------- -------------
Net income per common
share $ 2.96 3.16 2.58
-------------- ------------- -------------
Weighted average number
of common shares
outstanding 18,552,299 16,473,673 15,980,154
-------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
37
89
<PAGE>
Consolidated Statements of Cash Flows
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1997, 1996, 1995
($000s omitted)
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 54,832 52,042 41,161
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation 47,172 46,594 40,772
Amortization of intangible assets 5,921 5,418 4,972
Amortization of deferred income --- (1,078) (1,294)
Deferred income taxes 10,449 7,394 642
Change in working capital, net of
acquisition/disposition effects:
Decrease (increase) in:
Receivables (8,898) (31,044) (38,053)
Inventories (14,746) (67,646) 23,837
Other current assets (3,231) (2,466) (5,150)
Increase (decrease) in:
Accounts payable (4,460) 17,960 (18,340)
Accrued liabilities and income
taxes payable (24,255) (47,564) (11,010)
--------------- ------------- -------------
Net cash provided by (used in)
operating activities $ 62,784 (20,390) 37,537
--------------- ------------- -------------
Cash flows from investing
activities:
Payment for purchase of
companies, net of cash
acquired $ --- (18,650) (9,457)
Proceeds from asset
dispositions 3,666 16,670 1,257
Capital expenditures for
property, plant and equipment (68,378) (80,554) (54,654)
Other items, net 11,041 8,689 (1,011)
--------------- ------------- -------------
Net cash used in investing
activities $ (53,671) (73,845) (63,865)
--------------- ------------- -------------
Cash flows from financing
activities:
Net repayments of lines
of credit $ (10,559) (936) (80,598)
Proceeds from issuance of
long-term debt 35,982 5,083 114,991
Repayments of long-term debt (6,062) (19,236) (11,482)
Proceeds from issuance of
common stock --- 109,069 ---
Dividends paid to shareholders (3,709) (3,210) (2,571)
Effect of stock option program 1,496 3,579 1,751
Stock retirement (11,000) --- ---
Net change, foreign currency
translation (11,334) (11,063) 5,765
--------------- ------------- -------------
Net cash flow provided by
(used in) financing activities $ (5,186) 83,286 27,856
--------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents 3,927 (10,949) 1,528
Cash and cash equivalents at
beginning of year 303 11,252 9,724
--------------- ------------- -------------
Cash and cash equivalents
at end of year $ 4,230 303 11,252
--------------- ------------- -------------
Supplemental schedule of
non-cash investing activities:
Fair value of assets acquired $ --- 14,650 153,071
Cash paid for the capital stock --- 11,757 10,610
--------------- ------------- -------------
Liabilities assumed $ --- 2,893 142,461
--------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
38
90
<PAGE>
Consolidated Statements of Shareholders' Equity
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1997, 1996 and 1995
($000s omitted)
Equity
Common Additional adjustment from Net
Stock $.0 paid-in foreign currency Retained shareholders'
par value capital translation earnings equity
------------- -------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Balance,
June 30, 1994 $ 151 143,144 392 88,334 232,021
Exercise of
stock option 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
------------- -------------- ------------------ ----------- --------------
Exercise of
stock options 1 973 --- --- 974
Tax benefit
attributable
to stock
option plan --- 522 --- --- 522
Foreign currency
equity
adjustment --- --- (11,334) --- (11,334)
Common stock
retirement (2) (10,998) --- --- (11,000)
Dividends ($.20
per share) --- --- --- (3,709) (3,709)
Net income --- --- --- 54,832 54,832
------------- -------------- ------------------ ----------- --------------
Balance,
June 30, 1997 $ 185 284,490 (16,240) 198,327 466,762
------------- -------------- ------------------ ----------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
39
91
<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 1997 consolidated financial statement presentation.
Cash Equivalents. Cash equivalents of $0.2 million and $0.4 million
with maturities less than three months were included in cash and cash
equivalents at June 30, 1997 and 1996, respectively.
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.
Long-Lived Assets. The Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets to Be Disposed Of," on July 1,
1996, with no material effect on the consolidated financial statements.
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 as required.
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
from 3 to 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.
Software Development Costs. The Company defers certain software
costs for products which demonstrate technological feasibility and
whose deferred cost is considered recoverable by management. The
deferred costs are amortized over the products' estimated economic
lives, usually three years. Amounts recorded under this policy are not
material.
Research and Development. Research and development costs are
expensed as incurred. The Company's expenditures for research and
development were $66,451,000, $59,171,00 and $40,257,000 for the
fiscal years ending June 30, 1997, 1996 and 1995, respectively.
40
92
<PAGE>
Stock Option Plan. Pursuant to SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company elected in the fourth quarter of
fiscal 1997 to continue to apply the provisions of APB Opinion No. 25
for stock-based compensation accounting and reporting. The Company
provides disclosure of pro forma net income and pro forma earnings per
share for grants made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied.
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 February 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings Per
Share." SFAS No. 128 specifies new standards designed to improve the
earnings per share (EPS) information provided in financial statements
by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data
on an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS
and replacing it with basic EPS, for which common stock equivalents
are not considered, (b) eliminating the modified treasury stock method
and the three percent materiality provision and (c) revising the
contingent share provision and the supplemental EPS data requirements.
SFAS No. 128 also makes a number of changes to existing disclosure
statements issued for periods ending after December 15, 1997, including
interim periods. The Company has not determined the impact of the
implementation of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a
full set of general-purpose financial statements. SFAS No. 130 is
effective for financial statements issued for periods beginning after
December 15, 1997. The Company has not determined the impact of
SFAS No. 130 on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 establishes standards for the reporting of
operating segment information in annual financial statements and in
interim financial reports issued to shareholders. SFAS No. 131 is
effective for financial statements issued for periods beginning after
December 15, 1997. The Company has not determined the impact of
SFAS No. 131 on its consolidated financial statements.
2. Inventories
Inventories consist of the following:
June 30 ($000s omitted) 1997 1996
------------ -----------
Raw materials and supplies $ 98,786 82,638
Work in process 26,753 25,029
Finished goods and inventory
purchased for resale 194,563 200,384
------------ -----------
Total $ 320,102 308,051
------------ -----------
3. Property, Plant and Equipment
Property, plant and equipment are composed of the following:
June 30 ($000s omitted) 1997 1996
------------ -----------
Land $ 2,361 3,282
Buildings and improvements 79,505 79,025
Machinery and equipment 310,278 279,125
Furniture and fixtures 33,722 32,716
------------ -----------
425,866 394,148
Less accumulated depreciation
and amortization (217,919) (193,190)
------------ -----------
Property, plant and
equipment, net $ 207,947 200,958
------------ -----------
41
93
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
4. Short-Term Borrowings
At June 30, 1997, the Company had unsecured short-term lines of credit
for certain international subsidiaries aggregating $16.6 million with
outstanding borrowings of approximately $7.6 million. Interest rates
based on various indices ranged from 3.75 percent to 8.0 percent. 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 and interest
rates ranging from 4.0 percent to 19.8 percent.
The Company utilizes the swing line feature of the revolving credit
facility to meet its short-term borrowing requirements. At June 30,
1997, the Company had $8.2 million drawn on its swing lines at base
rates in the local countries where the funds were drawn, ranging from
3.0 percent in Switzerland to 7.0 percent in the United Kingdom. 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.
In June 1997 the maturity was extended two years to September 30,
2002 and certain financial covenants were amended or deleted. At June,
30, 1997, the Company had borrowings of $151.1 million on the
revolving credit facility (including swing line, competitive advance and
revolving credit borrowings) and outstanding letters of credit of $2.9
million. The unused credit under the revolving credit facility at June 30,
1997, was $121.0 million. Interest rates, based on the London Interbank
Offered Rate of the lending bank plus 0.25 percent, ranged from 0.8
percent in Japan to 6.9 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. The
Company was in compliance with such covenants at June 30, 1997 and
1996.
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 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 agreement. The
Company was in compliance with the terms of its long-term debt
agreements at June 30, 1997 and 1996. Under the most restrictive
provisions, limited amounts of dividends may be paid as of June 30,
1997.
Interest paid for both short- and long-term borrowings was $24,579,00,
$26,675,000, and $23,148,000 during the fiscal years ended June 30,
1997, 1996 and 1995, respectively.
42
94
<PAGE>
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
June 30 ($000s omitted) 1997 1996
-------------- --------------
<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% 63,750 64,500
Borrowings under revolving
credit facility, due September
30, 2002, with rates ranging
from 0.8% to 6.9% at
June 30, 1997 142,873 107,986
Obligations under
capital leases (note 6) 12,251 9,739
Other unsubordinated loans
due in installments through
2012, some of which vary with
the prime rate, bearing interest
at an average effective rate of
7.8% at June 30, 1997 8,968 16,309
-------------- --------------
Total 290,342 261,034
Less current installments (23,949) (6,423)
-------------- --------------
Long-term debt $ 266,393 254,611
-------------- --------------
</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.
Long-term debt, including obligations under capital leases, maturing in
each of the next five fiscal years (000's omitted) is as follows:
- -------------------------------------------------
1998 $ 23,949
1999 50,603
2000 3,781
2001 1,670
2002 891
Thereafter 209,448
- --------------------------------------------------
6. Leases
The following analysis represents property under capital leases:
June 30 ($000s omitted) 1997 1996
-------------- --------------
Capital lease assets $ 22,116 14,848
Less accumulated
amortization (8,247) (5,021)
-------------- --------------
Net $ 13,869 9,827
-------------- --------------
At June 30, 1997, the Company is liable for the following minimum
lease commitments under terms of noncancelable lease agreements:
<TABLE>
<CAPTION>
Capital Operating
($000s omitted) Leases Leases
-------------- --------------
<S> <C> <C>
1998 $ 4,788 $ 28,639
1999 3,987 27,014
2000 2,777 25,960
2001 1,062 23,615
2002 561 20,270
Thereafter 1,534 95,826
-------------- --------------
Total minimum lease payments 14,709 $ 221,324
-------------- --------------
less interest (2,458)
--------------
Present value of minimum
lease payments $ 12,251
--------------
</TABLE>
Operating lease expense, net of deferred income amortization
($1,078,000 and $1,294,000 for the years ended June 30, 1996 and
1995, respectively) and subrental income under operating leases having
noncancelable terms of greater than one year for the years ended June
30, 1997, 1996 and 1995 was $30,154,000, $25,871,000, and
$21,849,000, 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
43
95
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
to such non-officer directors each year in which the Company achieves
a specified level of return on consolidated equity.
The 1992 Plan supplements the Company's 1987 Plan (the 1987 Plan)
and adds an automatic grant feature for non-officer directors. The 1987
Plan has been terminated; however, options previously granted pursuant
to this Plan remain outstanding and will be exercisable in accordance
with the terms of the Plan. Automatic awards to non-officer directors
are only made under the 1992 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, 1997. 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.
For purposes of the following disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," the fair value of each
option granted has been estimated on the date of grant using the Black-
Scholes option-pricing model, with the following assumptions for grants
in fiscal 1997 and fiscal 1996: annual dividends consistent with the
Company's current dividend policy, which resulted in payments of
$0.20 per share in fiscal 1997 and fiscal 1996; expected volatility of 33
percent; risk free interest rate of 5.9 percent in fiscal 1997 and 6.1
percent in fiscal 1996; and expected life of 2.3 years from the vesting
date. The weighted average fair value of options granted was $16.43 in
fiscal 1997 and $15.02 in fiscal 1996. Pro forma compensation cost for
fiscal 1997 and fiscal 1996 awards under the stock option program,
recognized in accordance with SFAS No. 123, would reduce the
Company's net income from $54.8 million ($2.96 per share) to $52.9
million ($2.85 per share) in fiscal 1997, and from $52.0 million ($3.16
per share) to $51.5 million ($3.12 per share) in fiscal 1996. Pro forma
net income reflects only options granted in fiscal 1997 and fiscal 1996.
Because the pro forma compensation cost for the stock option program
is recognized over the five year vesting period, the foregoing pro forma
reductions in the Company's net income are not representative of
anticipated amounts in future years.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
-------------- -----------------
<S> <C> <C>
Balance at June 30, 1994 910,750 $ 19.52
Granted 464,250 33.71
Canceled (30,260) 17.35
Exercised (93,970) 12.71
--------------
Balance at June 30, 1995 1,250,770 25.35
--------------
Stock dividend 62,550 ---
Granted 95,500 48.32
Canceled (78,859) 29.64
Exercised (185,878) 15.06
--------------
Balance at June 30, 1996 1,144,083 27.26
--------------
Granted 410,100 43.64
Canceled (39,151) 31.62
Exercised (66,596) 20.14
--------------
Balance at June 30, 1997 1,448,436 32.11
--------------
</TABLE>
44
96
<PAGE>
The following tables summarize information about stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding
Weighted Weighted
Range of average average
exercise Number of remaining life exercise
prices options in years price
- ----------------- ------------- ---------------- --------------
<S> <C> <C> <C>
$ 6.31-7.38 98,385 3.86 $ 7.24
$ 10.12-15.00 28,245 4.07 12.67
$ 16.07-23.93 285,058 6.16 21.80
$ 24.40-34.40 551,878 7.20 31.89
$ 36.75-52.50 484,870 9.21 44.58
- ----------------- -------------
$ 6.31-52.50 1,448,436 7.38 32.11
- ----------------- -------------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
Weighted
Range of average
exercise Number of exercise
prices options price
- ----------------- ------------- ----------------
<S> <C> <C>
$ 6.31-7.38 98,385 $ 7.24
$ 10.12-15.00 22,470 12.75
$ 16.07-23.93 223,009 22.39
$ 24.40-34.40 389,424 30.92
$ 36.75-52.50 111,230 47.14
- ----------------- -------------
$ 6.31-52.50 844,518 27.56
- ----------------- -------------
</TABLE>
At June 30, 1997, a total of 1,158,705 shares of Common Stock were
reserved for issuance under the 1992 Plan.
8. Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended June 30 1997 1996 1995
------------- ----------- ----------
($000s omitted)
<S> <C> <C> <C>
Current:
Federal $ 11,513 14,281 8,566
State 609 585 923
Foreign 7,345 8,796 6,501
------------- ----------- ----------
19,467 23,662 15,990
------------- ----------- ----------
Deferred:
Federal 2,878 120 3,446
State 617 (32) 206
------------- ----------- ----------
3,495 88 3,652
------------- ----------- ----------
Total $ 22,962 23,750 19,642
------------- ----------- ----------
</TABLE>
The tax provisions and analysis of effective income tax rates are
comprised of the following items:
<TABLE>
<CAPTION>
Years ended June 30 1997 1996 1995
-------------- ----------- ----------
($000s omitted)
<S> <C> <C> <C>
Provision for Federal
income taxes
before credits at
statutory rate $ 27,265 26,258 21,405
State income taxes 1,226 553 1,126
Difference between
Federal statutory
rate and foreign
effective rate (409) (4,947) (999)
Permanent differences
between financial and
tax accounting income (475) 141 354
Tax exempt foreign sales
corporation earnings (1,427) (1,089) (883)
Change in valuation
allowance (2,809) --- 4,204
Losses without (with)
income tax benefit 1,582 1,164 (4,944)
Federal income
tax credits (950) (858) (514)
Other (1,041) 2,528 (107)
-------------- ----------- ----------
Total $ 22,962 23,750 19,642
-------------- ----------- ----------
</TABLE>
Deferred taxes are recorded based upon differences between the
financial statement and tax basis of assets and liabilities and available
tax loss carry-forwards.
The following deferred taxes are recorded:
<TABLE>
<CAPTION>
Assets/(liabilities)
June 30 ($000s omitted) 1997 1996
--------------- ------------
<S> <C> <C>
Inventory costing differences $ 5,547 6,284
Valuations and other allowances 12,824 15,503
--------------- ------------
Total gross deferred tax asset $ 18,371 21,787
Less valuation allowance (6,609) (9,418)
--------------- ------------
Deferred tax asset $ 11,762 12,369
Total gross deferred tax liability
from fixed asset depreciation (11,093) (7,624)
--------------- ------------
Net deferred tax asset $ 669 4,745
--------------- ------------
</TABLE>
45
97
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
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 and AKG of approximately 100 million German marks and 250
million Austrian schillings. Current law in both countries allows
indefinite carryforwards, although the AKG carryforwards cannot be
utilized until fiscal year 1999. Certain other foreign entities also have
tax loss carryforwards that could reduce future tax liabilities. An asset
has not been booked to reflect the potential benefit of these
carryforwards. Goodwill reduction resulting from tax loss carryforward
utilization was 8.1 million German marks for Becker in fiscal 1997 and
4.7 million German marks for Becker and 1.2 million Swiss francs for
Studer in fiscal 1996. In fiscal 1995, 0.7 million Swiss francs of
goodwill reduction was recorded for Studer.
Cash paid for Federal, state and foreign income taxes was $15,597,000,
$15,637,000, and $12,422,000, during fiscal years ended June 30, 1997,
1996 and 1995, respectively.
9. Business Segment Data
The Company's predominant business is the design, manufacture and
distribution of high fidelity audio products. In the domestic and
international segments, one customer accounted for approximately
9.9%, 10.4% and 9.5% of consolidated net sales for the years ended
June 30, 1997, 1996 and 1995.
The following table shows net sales, operating income and identifiable
assets by geographic segments for the years ended June 30, 1997, 1996
and 1995. The net sales shown below for the United States include
export sales of $299.6 million, $259.1 million and $209.5 million for
the fiscal years ended June 30, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Geographic Segmentation
Years ended June 30 1997 1996 1995
---------------- ------------- -------------
<S> <C> <C> <C>
($000s omitted)
Net sales:
U.S. $ 1,044,306 908,111 784,989
International 635,228 635,452 502,809
Intercompany/
Interregion (205,440) (181,968) (117,574)
---------------- ------------- -------------
Total $ 1,474,094 1,361,595 1,170,224
---------------- ------------- -------------
Operating income:
U.S. $ 75,314 78,710 81,901
International 25,873 40,695 20,871
Unallocated
operating expenses 786 (14,027) (15,323)
---------------- ------------- -------------
Total $ 101,973 105,378 87,449
---------------- ------------- -------------
Identifiable assets:
U.S. $ 548,417 519,422 427,777
International 452,080 463,466 438,435
Corporate 13,757 13,321 20,660
---------------- ------------- -------------
Total $ 1,014,254 996,209 886,872
---------------- ------------- -------------
</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, 1997, 1996
and 1995 totaled $2,516,000, $4,338,000, and $4,152,000, respectively.
46
98
<PAGE>
The Company also has a Supplemental Executive Retirement Plan
(SERP) that provides normal retirement, preretirement and termination
benefits, as defined, to certain key executives designated by the Board
of Directors. Expenses related to the SERP for the years ended June 30,
1997, 1996 and 1995 were $683,000, $214,000, and $875,000,
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. At June 30, 1997, the Company had
contracts maturing through December 1997 to purchase and sell the
equivalent of approximately $34.6 million of various currencies. 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, 1997.
Long-Term Debt. Fair values of long-term debt are based on market
prices where 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 $239.1 million, respectively, at June 30,
1997.
12. 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 will not have a material adverse effect on the
Company's financial position or results of operations.
13. 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.
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.
14. Subsequent Event
On July 1, 1997, the Company issued $150.0 million of 7.32% Senior
Notes, due July 1, 2007. The proceeds were used to call the remaining
$63.75 million 12.0% Senior Subordinated Notes on August 1, 1997, at
a premium of 6% ($3.825 million) and to repay certain other debt,
including borrowings under the revolving credit facility.
47
99
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
15. Quarterly Summary of Operations (Unaudited)
The following is a summary of operations by quarter for fiscal 1997 and
1996:
<TABLE>
<CAPTION>
Three months ended: ($000s omitted except per share amounts)
Fiscal 1997 SEPT 30 DEC 31 MAR 31 JUN 30
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 338,003 401,319 358,140 376,632
Gross profit $ 94,794 117,594 103,542 104,550
Net income $ 7,569 19,556 10,324 17,383
Net income per
common share $ .41 1.05 .56 .94
Fiscal 1996
Net sales $ 300,474 348,669 339,339 373,113
Gross profit $ 89,486 107,915 103,430 107,294
Net income $ 5,904 15,462 13,887 16,789
Net income per
common share* $ .36 .95 .86 .97
</TABLE>
*Quarters do not add to full year for fiscal 1996 due to differences in number
of shares outstanding in the quarters.
Shareholder Information
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
-------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Market Price High Low High Low High Low
First quarter
ended September 30 $50.625 40.25 $49.75 35.596 $33.334 24.048
Second quarter
ended December 31 55.875 48.00 48.875 39.75 36.191 30.477
Third quarter
ended March 31 56.125 33.25 41.25 32.00 40.001 34.048
Fourth quarter
ended June 30 43.25 33.25 56.50 37.375 39.048 32.382
</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, 1997, the Company's
Common Stock was held by approximately 205 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,
1997, 1996, and 1995.
The Company paid dividends during fiscal 1997 and fiscal 1996 of $.20
per share, with a dividend of $.05 paid in each of the four quarters.
Dividends of $.17 per share were paid in fiscal 1995. In August 1995, a
special 5 percent stock dividend was paid.
48
100
<PAGE>
Corporate Officers
Sidney Harman
Chairman & Chief Executive Officer
Bernard A. Girod
President & Chief Operating Officer
Frank Meredith
Vice President - Finance & Administration
& Chief Financial Officer
Jerome H. Feingold
Vice President - Quality
William S. Palin
Vice President - Controller
Sandra B. Robinson
Vice President - Financial Operations
Paul Shave
Vice President - Worldwide Sourcing
Floyd E. Toole
Vice President - Engineering
Group Presidents
Philip Hart
Professional Group
Thomas Jacoby
Consumer Group
Gregory Stapleton
OEM Group
Independent Auditor
KPMG Peat Marwick LLP
725 South Figueroa Street
Los Angeles, CA 90017
(213) 972-4000
Directors
Bernard A. Girod
Sidney Harman
Shirley Mount Hufstedler
Ann McLaughlin
Edward H. Meyer
Gregory Stapleton*
Stanley A. Weiss*
*effective November 10, 1997
Annual Meeting
The annual meeting of shareholders will be held on November 10, 1997,
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 17, 1997, at which time proxies for the meeting
were requested.
Registrar and Transfer Agent
ChaseMellon Shareholder Services
400 South Hope Street, 4th Floor
Los Angeles, CA 90071
(213) 553-9720
Securities Traded
New York Stock Exchange
Symbol: HAR
Corporate Headquarters
1101 Pennsylvania Avenue, NW
Suite 1010
Washington, D.C. 20004
(202) 393-1101
Except for 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, currency exchange rates, competitive products and other risks
detailed herein and in the Company's other filings with the Securities
and Exchange Commission.
49
101
<PAGE>
(Logo Here)
Harman International Industries, Incorporated
1101 Pennsylvania Avenue NW, Suite 1010, Washington, DC 20004
(202) 393-1101
102
<PAGE>
EXHIBIT 21.1
103
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
104
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
AKG Akustische GmbH Republic of Austria
Allen & Heath Limited United Kingdom
Audax Industries, SNC France
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
Harman Audio Outlet, Inc. Delaware
Harman Belgium NV Kingdom of Belgium
Harman Consumer Europe A/S Denmark
Harman Consumer France SNC France
Harman Consumer Manufacturing -
El Paso, Inc. Delaware
Harman Consumer Netherlands BV Netherlands
</TABLE>
105
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
Harman Deutschland GmbH Germany
Harman Enterprises, Inc. Delaware
Harman Holding Europe A/S Denmark
Harman International
Foreign Sales Corporation Guam
Harman International
Industries Limited United Kingdom
Harman International Japan Co., Limited Japan
Harman Investment Company, Inc. Delaware
Harman-Kardon, Incorporated Delaware
Harman Marketing Europe A/S Denmark
Harman-Motive, Inc. Delaware
Harman Motive Limited United Kingdom
Harman Music Group Incorporated Utah
Harman Pro France SNC France
Harman Pro GmbH Germany
Harman Pro North America, Inc. Delaware
Harman UK Limited United Kingdom
</TABLE>
106
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
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
Revel Corp. Delaware
Soundcraft Electronics, Limited United Kingdom
Spirit by Soundcraft, Inc. Delaware
Studer Canada Limited Canada
Studer Digitec S.A. France
Studer Japan Ltd. Japan
Studer Professional Audio AG Switzerland
Studer U.K. Limited United Kingdom
Turbosound Ltd. United Kingdom
</TABLE>
107
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
108
<PAGE>
EXHIBIT 23.1
109
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
110
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
------------------------------
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,
333-02917, 333-28793 and 333-32673 on Form S-8 and 333-21021 on
Form S-3 of Harman International Industries, Incorporated of our report
dated August 20, 1997, relating to the consolidated balance sheets of
Harman International Industries, Incorporated and subsidiaries as of June
30, 1997 and 1996, 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, 1997, which report appears
in the June 30, 1997 annual report on Form 10-K of Harman International
Industries, Incorporated.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
September 15, 1997
111
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
112
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 4079
<SECURITIES> 151
<RECEIVABLES> 315346
<ALLOWANCES> 9116
<INVENTORY> 320102
<CURRENT-ASSETS> 679299
<PP&E> 425866
<DEPRECIATION> 217919
<TOTAL-ASSETS> 1014254
<CURRENT-LIABILITIES> 251248
<BONDS> 266393
<COMMON> 185
0
0
<OTHER-SE> 466577
<TOTAL-LIABILITY-AND-EQUITY> 1014254
<SALES> 1474094
<TOTAL-REVENUES> 1474094
<CGS> 845869
<TOTAL-COSTS> 1053614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1977
<INTEREST-EXPENSE> 23640
<INCOME-PRETAX> 77901
<INCOME-TAX> 22962
<INCOME-CONTINUING> 54832
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54832
<EPS-PRIMARY> 2.96
<EPS-DILUTED> 2.96
</TABLE>
