<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: December 31, 1996
Commission File Number: 1-9764
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2534306
- ---------------------------------- --------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004
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(Address of principal executive offices) (Zip code)
(202) 393-1101
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
18,447,451 shares of Common Stock, $.01 par value, at January 31, 1997.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1996 and June 30, 1996 3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of the Results
of Operations and Financial Condition 7-9
PART II. OTHER INFORMATION 10-11
SIGNATURES 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1996
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
ASSETS 12/31/96 06/30/96
-------------- --------------
<S> <C> <C>
Current assets
Cash and short-term investments $ 8,591 303
Receivables (less allowance for doubtful
accounts of $10,005 at December 31,
1996 and $9,962 at June 30, 1996) 323,874 298,110
Inventories 329,362 308,051
Other current assets 47,151 45,506
-------------- --------------
Total current assets 708,978 651,970
-------------- --------------
Property, plant and equipment, net 205,819 200,958
Excess of cost over fair value of assets
acquired, net 127,325 129,940
Other assets 16,609 13,341
-------------- --------------
Total assets $1,058,731 996,209
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 24,029 26,367
Current portion of long-term debt 24,683 6,423
Accounts payable 100,342 109,565
Accrued liabilities 135,986 132,304
-------------- --------------
Total current liabilities 285,040 274,659
-------------- --------------
Borrowings under revolving credit
facility 152,511 107,986
Senior long-term debt 18,488 37,125
Subordinated long-term debt 108,750 109,500
Other non-current liabilities 28,771 29,603
Minority interest 747 859
Shareholders' equity
Common stock, $.01 par value 187 186
Additional paid-in capital 294,719 293,993
Equity adjustment from foreign currency
translation (2,947) (4,906)
Retained earnings 172,465 147,204
-------------- --------------
Total shareholders' equity 464,424 436,477
-------------- --------------
Total liabilities and shareholders' equity $1,058,731 996,209
-------------- --------------
See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
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HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(000s omitted except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 401,319 348,669 739,322 649,143
Cost of sales 283,725 240,754 526,934 451,742
------------- ------------- ------------- -------------
Gross profit 117,594 107,915 212,388 197,401
Selling, general and
administrative expenses 82,800 77,489 160,085 150,702
------------- ------------- ------------- -------------
Operating income 34,794 30,426 52,303 46,699
Other expenses
Interest expense 6,736 7,538 12,894 14,475
Miscellaneous, net 294 590 514 865
------------- ------------- ------------- -------------
Income before income taxes
and minority interest 27,764 22,298 38,895 31,359
Income tax expense 8,208 6,825 11,770 9,948
Minority interest -- 11 -- 45
------------- ------------- ------------- -------------
Net income $ 19,556 15,462 27,125 21,366
------------- ------------- ------------- -------------
Net income per common share$ 1.05 0.95 1.46 1.31
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Weighted average number of
common shares outstanding 18,652 16,258 18,642 16,248
------------- ------------- ------------- -------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
($000s omitted) (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 27,125 21,366
------------- -------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 24,834 24,953
Amortization of intangible assets 2,662 2,771
Amortization of deferred income -- (646)
Changes in assets and liabilities, net of effects
from purchase of companies:
Decrease (increase) in:
Receivables (26,542) (10,056)
Inventories (24,006) (40,672)
Other current assets (1,645) (2,700)
Increase (decrease) in:
Accounts payable (8,239) (1,996)
Accrued liabilities 4,361 (14,530)
------------- -------------
Total adjustments $ (28,575) (42,876)
------------- -------------
Net cash provided by (used in) operating activities $ (1,450) (21,510)
------------- -------------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ -- (11,064)
Proceeds from disposition of assets 1,631 171
Capital expenditures (32,265) (33,656)
Other items, net (2,122) 185
------------- -------------
Net cash used in investing activities $ (32,756) (44,364)
------------- -------------
Cash flows from financing activities:
Borrowings on (repayments of) lines of credit $ (2,338) (8,948)
Net proceeds from long-term debt 44,010 77,317
Dividends paid to shareholders (1,864) (1,594)
Effect of stock option program 727 702
Net change, foreign currency translation 1,959 (499)
------------- -------------
Net cash flow provided by financing activities $ 42,494 66,978
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Net increase (decrease) in cash and
short-term investments 8,288 1,104
Cash and short-term investments
at beginning of period 303 11,252
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Cash and short-term investments at end of period $ 8,591 12,356
------------- -------------
Supplemental disclosures of cash flow information:
Interest paid $ 11,501 12,629
Income taxes paid $ 5,593 7,890
Supplemental schedule of non-cash investing activities:
Fair value of assets acquired $ -- 14,650
Cash paid for the capital stock -- 11,757
------------- -------------
Liabilities assumed $ -- 2,893
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</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements for the
three months and six months ended December 31, 1996 and 1995, have
not been audited by the Company's independent auditors; however, in
the opinion of management, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
consolidated financial position of the Company and subsidiaries as of
December 31, 1996 and the results of their operations and their cash
flows for the periods presented.
The results of operations for the six months ended December 31, 1996,
are not necessarily indicative of the results to be expected for the full
year.
NOTE B - COMMON STOCK RETIREMENT
In January 1997, the Company purchased and retired 220,000 shares of
its Common Stock.
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ------------------------------------
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1996 AND 1995
Net sales for the quarter ended September 30, 1996 totaled $401.3
million, a 15.1 percent increase over the comparable period in the prior
year. Exclusive of currency effects, sales increased 17.8 percent. For
the first half of the year, sales increased 13.9 percent to $739.3 million.
Exclusive of currency effects, sales rose 16.6 percent in the first half.
The Consumer Group, including JBL, Infinity and Harman Kardon,
experienced strong sales growth despite softness in the consumer
electronics market. Each, we believe, increased market share.
The Professional Group performed well in the quarter and the first half.
JBL Professional sales benefited from vigorous cinema installation
activity in most major markets worldwide. Soundcraft and Lexicon also
reported sales growth.
The OEM Group produced excellent 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. Audio system shipments
for Chrysler's minivan models in the United States and the Dodge Ram
pickup trucks also increased over the prior year. Sales in the quarter
and the first half included our first substantial shipment to Compaq for
its Presario line.
The gross profit margin for the quarter ended December 31, 1996 was
29.3 percent ($117.6 million) compared to 31.0 percent ($107.9 million)
in the prior year. The gross profit margin for the first half of fiscal 1997
was 28.7 percent ($212.4 million) compared to 30.4 percent ($197.4
million) in the previous year. The decrease in the gross profit margin
rate reflects the impact of start-up costs associated with the Audio for
Computers unit and the effect of a larger percentage of consumer
product sales in the total sales mix.
Operating income as a percentage of sales was 8.7 percent ($34.8
million) for the quarter ended December 31, 1996, equal to 8.7 percent
7
<PAGE>
($30.4 million) for the same period in the prior year. For the first half,
operating income as a percentage of sales was 7.0 percent ($52.3
million) compared to 7.2 percent ($46.7 million) in the prior year. For
the quarter and the first half, lower gross profit margins were offset by
reduced selling, general and administrative costs. Selling, general and
administrative costs were lower due to the reduction of overhead costs
at Becker and the reduction of research and development and other costs
of discontinued operations.
Interest expense for the three months ended December 31, 1996 of $6.7
million was down from last year's $7.5 million. For the six months
ended December 31, 1996, interest expense was $12.9 million, down
from $14.5 million last year. Average borrowings outstanding were
$329.7 million for the second quarter of fiscal 1997 and $317.4 million
for the first half, down from $366.8 million and $343.1, respectively, for
the same periods in the prior year. Lower average borrowings result
from the May 1996 secondary stock offering, partially offset by
increased working capital requirements and the third quarter fiscal 1996
cash payment for final settlement of the Becker acquisition.
The average interest rate on borrowings was 8.2 percent for the second
quarter and 8.1 percent for the six months ended December 31, 1996.
The average interest rates for the comparable periods in the prior year
were 8.2 percent and 8.4 percent, respectively. The decrease in average
interest rates results from lower interest rates in Europe and a decrease
in the percentage of borrowings under the revolving credit facility
drawn in the United States, which generally carry higher interest rates
than European and Japanese borrowings. 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 achievement of
certain financial criteria in fiscal 1996. Interest expense as a percentage
of sales was 1.7 percent for the second quarter and the first half of fiscal
1997, down from 2.2 percent for the same periods in the previous year.
Income before income taxes and minority interest for the second quarter
of fiscal 1997 was $27.8 million, up from $22.3 million in the prior
year. For the six months ended December 31, 1996, income before
income taxes and minority interest was $38.9 million, compared with
$31.4 million in the prior year period.
The effective tax rate for the second quarter of fiscal 1997 was 29.6
percent compared with 30.6 percent in the same period a year ago. The
effective tax rate for the first half of fiscal 1997 was 30.3 percent
compared with 31.7 percent last year. The lower effective tax rate is
due to the restructuring of certain foreign subsidiaries to realize the
8
<PAGE>
benefit of current and prior year tax losses and the utilization of tax loss
carryforwards at certain foreign subsidiaries. The Company calculates
its effective tax rate based upon its current estimate of annual results.
Net income for the three months ended December 31, 1996 was $19.6
million, or $1.05 per share, compared with $15.5 million, or $0.95 per
share, in the previous year. Net income for the first half of fiscal 1997
was $27.1 million, or $1.46 per share, compared with $21.4 million, or
$1.31 per share, in the prior year.
FINANCIAL CONDITION
- ---------------------------------
Net working capital at December 31, 1996 was $423.9 million,
compared with $377.3 million at June 30, 1996. Working capital
increased primarily due to higher inventories ($308.1 million at June 30,
1996 and $329.4 million at December 31, 1996) and higher accounts
receivable ($298.1 million at June 30, 1996 and $323.9 million at
December 31, 1996). Inventories have increased primarily to support
new OEM customers Compaq and Toyota and to support higher sales of
JBL Professional loudspeakers. Accounts receivable balances are
higher due to increased sales in the Consumer, Professional and OEM
businesses.
Borrowings under the revolving credit facility at December 31, 1996
were $159.9 million, comprised of swing line borrowings of $7.4
million, which are included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $152.5 million.
Borrowings under the revolving credit facility at June 30, 1996 were
$120.9 million, comprised of swing line borrowings of $12.9 million
and competitive advance borrowings and revolving credit borrowings of
$108.0 million. Increased borrowings reflect the financing of higher
working capital requirements as discussed above.
Except for historical information contained herein, the matters
discussed are forward-looking statements which involve risks
and uncertainties that could cause actual results to differ
materially from those suggested in the forward-looking
statements, including, but not limited to the effect of
economic conditions, product demand, competitive products and
other risks detailed in the Company's other Securities and
Exchange Commission filings.
9
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries, but, in the opinion of
management, liabilities, if any, arising from such claims will not
have a materially adverse effect upon the consolidated financial
condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The date of the annual meeting of stockholders was
November 13, 1996.
(b) Dr. Sidney Harman was re-elected as a director of the
Company with 16,728,012 affirmative votes and 167,412
votes withholding authority. Dr. Harman will serve a three-
year term expiring at the 1999 Annual Meeting of
Stockholders.
Ms. Shirley Hufstedler was re-elected as a director of the
Company with 16,786,957 affirmative votes and 108,467
votes withholding authority. Ms. Hufstedler will serve a
three-year term expiring at the 1999 Annual Meeting of
Stockholders.
(c) The proposal to amend and restate the 1992 Incentive Plan
was approved with 13,138,101 affirmative votes,
2,762,429 negative votes and 994,994 votes withholding
authority, which includes abstensions and broker non-votes.
10
<PAGE>
Item 5. Other Information
Frank Meredith was named Vice President of Finance and
Administration and Chief Financial Officer of Harman
International Industries, Inc., on February 5, 1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Registrant)
<TABLE>
<CAPTION>
<S> <C> <C>
DATE: February 7, 1997 BY: /s/ Bernard A. Girod
-------------------------------
Bernard A. Girod
President, Chief Operating
Officer and Secretary
DATE: February 7, 1997 BY: /s/ Frank Meredith
-------------------------------
Frank Meredith
Vice President of Finance
and Administration and
Chief Financial Officer
</TABLE>
12
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 8302
<SECURITIES> 289
<RECEIVABLES> 333879
<ALLOWANCES> 10005
<INVENTORY> 329362
<CURRENT-ASSETS> 708978
<PP&E> 414032
<DEPRECIATION> 208213
<TOTAL-ASSETS> 1058731
<CURRENT-LIABILITIES> 285040
<BONDS> 279749
<COMMON> 187
0
0
<OTHER-SE> 464237
<TOTAL-LIABILITY-AND-EQUITY> 1058731
<SALES> 739322
<TOTAL-REVENUES> 739322
<CGS> 421104
<TOTAL-COSTS> 526934
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<LOSS-PROVISION> 1035
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<INCOME-PRETAX> 38895
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</TABLE>
