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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 1998
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, 1998, was $623,278,749.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 18,644,660 shares
of Common Stock, par value $.01 per share, as of August 31, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended June 30, 1998, 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
1998 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. ____
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TABLE OF CONTENTS
Page
PART I
Item 1. Business............................... 5
Item 2. Properties............................. 26
Item 3. Legal Proceedings...................... 27
Item 4. Submission of Matters to a Vote of
Security Holders................... 27
Executive Officers of the Registrant.. 27
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters............................ 30
Item 6. Selected Financial Data................ 30
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations.............. 31
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk.... 31
Item 8. Consolidated Financial Statements
and Supplementary Data............. 32
Item 9. Disagreements on Accounting and
Financial Disclosure.............. 32
PART III
Item 10. Directors and Executive Officers of
the Registrant................... 32
Item 11. Executive Compensation................. 32
Item 12. Security Ownership of Certain
Beneficial Owners and Management... 32
Item 13. Certain Relationships and Related
Transactions..................... 32
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
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PART I
ITEM 1. BUSINESS
General Business
Harman International Industries, Incorporated (together with its
subsidiaries, "Harman" or the "Company"), a Delaware corporation
formed in 1980, is a worldwide leader in the design, manufacture and
marketing of high-quality high-fidelity audio products targeted primarily
at the consumer, professional and original equipment manufacturer
("OEM") markets. For almost 50 years, the Company and its
predecessors have been leaders and innovators in creating 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.
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. The objective
of the Company's development efforts has been to secure engineering,
manufacturing and marketing leadership in its three major markets and to
strengthen the Company's ability to provide total audio system solutions
to its customers.
Harman serves three major audio markets: consumer, professional and
original equipment manufacturer (OEM). In the consumer audio market,
the Company's range of product offerings has grown from the traditional
base of two-channel stereo loudspeakers and electronics to include multi-
channel, surround-sound electronics and loudspeaker systems, powered
loudspeakers, mini-systems and audio systems for computers, and its
customer base has been expanded to include large retailers such as Circuit
City in the U.S. and MediaMarkt in Europe. In the professional audio
market, the Company offers a complete range of audio products for the
sound reinforcement, broadcast and recording, and music instrument
segments. In the OEM audio market, the Company offers branded and
non-branded audio systems for installation as original equipment in
automobiles and computers and the customer base has grown to include
Chrysler, Mercedes, Jeep, BMW, Toyota, Mitsubishi, Ford, Volkswagen,
Volvo, Fiat, Porsche, Saab, Range Rover, Jaguar, Compaq, IBM and Dell.
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The manufacturing capabilities of the Company include North
American and European operations. Primary manufacturing sites are
located in California, Indiana, Germany, the United Kingdom, Denmark,
Mexico, France and Austria.
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.
The Company's operations are organized into three primary Groups:
the Consumer Group, the Professional Group and the OEM Group. The
Company has completed a number of strategic acquisitions to strengthen
each Group's competitive position in terms of market, product and
technology. During fiscal 1998, the Company acquired Oxford
International, Ltd. ("Oxford"), a manufacturer of automotive OEM
loudspeakers with facilities in the United States and Mexico and Audio
Electronic Systems ("AES"), formerly a division of Nokia, a
manufacturer of automotive OEM loudspeakers with facilities in
Germany, Sweden and Hungary.
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. Harman Kardon audio/video receivers, JBL and
Infinity surround sound loudspeaker systems and multi-channel amplifiers
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and digital signal processing components from Citation and Proceed are
offered in the home theater market. Integrated mini-systems, including
the JBL ESC550 Simply Cinema System and the Harman Kardon
Festival line capitalize on the Company's strong brand names in this
significant segment of the consumer audio market.
The Company believes the maturation and broadened acceptance of
the digital versatile disc (DVD) and the forthcoming digital television
technology will provide growth opportunities for its consumer brands.
The Company plans to introduce DVD players bearing the Harman
Kardon, Mark Levinson, Citation and Proceed brands in fiscal 1999. The
Company also expects DVD and digital television to stimulate
loudspeaker sales due to increased customer traffic in audio/video dealers'
stores and the improved audio quality potential of DVD and digital
television compared to the current analog audio/video and digital audio
technologies. 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, and
through high-fidelity audio specialists. The Company believes its brands
have attained market leadership positions in its principal international
markets. Therefore, a number of its wholly-owned international
distribution companies were divested in fiscal 1998 to reduce investment
in working capital and allow the Company to focus its resources on the
critical disciplines of engineering, manufacturing and marketing.
The Consumer Group licenses its brands for use by manufacturers of
personal computers, including a line of JBL-branded audio systems for
Compaq Computer Corporation's Presario line of personal computers.
New licensing and sourcing arrangements with two other major computer
manufacturers will begin in fiscal 1999. These audio systems provide
high-quality sound and thus enhance the appeal and capability of the
personal computer as an entertainment device.
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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, Orban, AMEK, 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 JBL
loudspeakers, JBL and BSS amplifiers, AKG microphones, Lexicon,
DOD and dbx signal processing equipment, and Soundcraft, AMEK 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.
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.
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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 per-vehicle content through the provision of complete systems,
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, Ford, Volkswagen, Fiat and Volvo.
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 a
material 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 right to use the JBL
brand name for automotive audio and made the brand name available to
other automakers. The JBL program for the Ford Explorer ended with
model year 1997 and for the Lincoln line ended with model year 1998.
The Company has begun sourcing JBL branded audio systems for a
large part of Toyota's broad range of vehicles, including vehicles
produced by Toyota for sale in Asia. In fiscal year 1998, the OEM Group
added the BMW 5-Series (Becker radio), the Toyota Aristo (JBL audio
system), the Peugeot 406 (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
navigation sytems and digital electronics networking systems.
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ORGANIZATION
The Company is organized in three core groups - Consumer,
Professional and OEM - with each group incorporating all related
engineering, manufacturing and marketing operations. The Consumer
Group contributed approximately 32% of fiscal 1998 total net sales, the
Professional Group accounted for approximately 30% of net sales, and the
OEM Group generated approximately 38% of net sales.
Financial Information about Geographic Segments
Financial information about geographic segments required to be
included hereunder is incorporated by reference to Note 9 of Notes to
Consolidated Financial Statements contained in the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1998.
Description of Business
The Company's business is conducted through its wholly owned
subsidiaries which include:
<TABLE>
<CAPTION>
Name Principal products
- ---------------------------------- --------------------------------------
<S> <C>
Audio Electronics Systems GmbH Automotive OEM loudspeakers
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 France, S.N.C. Consumer home and automotive
audio products
Harman International Industries, Automotive OEM loudspeakers and
Limited electronics and professional
audio products
</TABLE>
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<TABLE>
<CAPTION>
Name Principal products
- ---------------------------------- --------------------------------------
<S> <C>
Harman-Kardon, Incorporated Consumer home and automotive
electronics
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
Oxford International Automotive OEM loudspeakers
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 grown in recent years. In 1997 and
1998, 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.
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In the consumer audio market, the Company believes that maturation
and broadened acceptance of DVD, the new multi-channel audio
technologies and digital television should provide growth opportunities.
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, guitar amplifiers 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, increasing per-vehicle content through the
provision of complete systems, expanding the number of automobile
models offering its systems and adding new OEM customers. Becker's
radio and navigation system products complement the Company's JBL,
Infinity and Harman Kardon automotive audio programs and enable the
Company to offer fully-integrated audio systems to the automobile
manufacturers. The acquisitions of Oxford and AES have added
manufacturing capacity and vertical integration, as well as enlarging our
relationship with current customers Chrysler, BMW and Mercedes Benz.
AES adds Volkswagen, Fiat and Volvo to our customer base.
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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 Consumer Group accounted for approximately 32% of the
Company's fiscal 1998 sales, of which 76% was attributable to home
loudspeaker and automotive aftermarket systems, 21% was from home
electronic components and 3% was from audio systems for computer
manufacturers. The Professional Group contributed approximately 30% of
fiscal 1998 sales, of which 45% was attributable to sound reinforcement,
25% was from broadcast and recording and 30% was from musical
instrument support. OEM Group sales to the automakers produced
approximately 38% of fiscal 1998 sales.
CONSUMER PRODUCTS. The Company designs, manufactures and
markets loudspeakers principally under the JBL and Infinity brand names
for the consumer market. JBL and Infinity offer diverse product lines
which give customers a wide range of speaker choices: floorstanding,
bookshelf, built-in, wireless, outdoor, and wall or ceiling mountable
loudspeakers, in styles and finishes ranging from high gloss piano lacquer
to genuine wood veneers. JBL also offers easily installed and operated
home theater loudspeaker systems and complete home theater mini-
systems. 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 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. The Company's Harman
Kardon electronics line includes 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.
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Madrigal designs and manufactures 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.
The Citation and AudioAccess product lines are also part of the
Madrigal Group. Citation designs and manufactures high-end surround
sound processors, amplifiers and loudspeakers for home theater
applications. 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.
The Company's JBL brand has been licensed for use in audio systems
for Compaq's Presario line of personal computers. New licensing and
sourcing arrangements with two other major computer manufacturers will
begin in fiscal 1999. 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, AMEK, Studer and UREI. Professional
installations of Harman products include stadiums, opera houses, concert
halls, recording studios, broadcast studios, theaters, houses of worship,
cinemas and touring performing artists.
Sound systems incorporating components manufactured by JBL,
Lexicon, AKG, 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
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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 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, AMEK, AKG, BSS, dbx,
Orban, Studer, Audio Logic, and UREI, and are often sold in conjunction
with the Company's professional loudspeakers.
The AMEK and Soundcraft lines of high-quality sound mixing
consoles extend from automated multi-track consoles for master recording
studios to compact professional mixers for personal recording and home
studios. Soundcraft and AMEK 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.
Lexicon is a leader in the design, manufacture and marketing of high-
quality digital audio signal processing equipment for professional use in
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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.
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,
Harman Kardon systems sold to BMW, Jaguar, Saab and Land Rover
(Range Rover) and JBL systems sold to Toyota. 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.
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The Company discontinued Ford's exclusive automotive OEM right to
use of the JBL brand name and made it available to Toyota, Peugeot and
others from whom new commitments were received beginning in model
year 1998. The JBL program for the Ford Explorer concluded with model
year 1997 and the JBL program for the Lincoln line is scheduled to
conclude with model year 1998.
The Company now supplies JBL branded sound systems to Toyota for
its cars and light trucks. JBL branded sound systems are also offered in
the Peugeot 406 and the Korean Hyundai Grandeur.
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 loudspeaker manufacturing capabilities 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 utility of engineering, design and development investment.
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.
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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. Cabinet production
was begun in the United Kingdom during fiscal 1997 at the Company's
new factory in Cornwall 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, Germany, Sweden and Hungary, 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 and personal
computer 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
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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.
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
and personal computer manufacturers. Automotive OEM customers
include Chrysler, Mercedes Benz, Toyota, BMW, Ford, Mitsubishi,
Volkswagen, Volvo, Jaguar, Porsche, Range Rover and Saab in the
automotive segment. Personal computer OEM customers include
Compaq, IBM and Dell.
Suppliers
Products designed by Harman Kardon in the United States are
manufactured by several suppliers. Harman Kardon's largest supplier,
based in Korea, experienced difficulties during fiscal 1998 associated with
the crisis in Asia. Production delays negatively affected Harman
Kardon's results. Harman Kardon has terminated its relationship with this
supplier and other sources have been secured to manufacture Harman
Kardon products. The loss of any of Harman Kardon's primary suppliers
would not have a material impact on the earnings of the Company.
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 not have
a material impact on the earnings of the Company.
19
<PAGE>
Trademarks and Patents
The Company markets its products under numerous trademarks and
logos, including: JBL, Infinity, Harman Kardon, Citation, Concord,
Audax, Becker, AMEK, Soundcraft, Spirit, DOD, Audio Logic,
DigiTech, Lexicon, AKG, Studer, Numisys, BSS, Orban, Precision
Devices, dbx, Allen & Heath, AudioAccess, Mark Levinson, Proceed,
Revel, VMAx, EON, Harman, Control, Compositions, Optimod, C-
Audio, Auto Azimuth and Dynamic Midi. These trademarks and logos
are registered or otherwise protected in substantially all major
industrialized countries.
The Company's registrations cover use of its trademarks and logos in
connection with various applicable products, such as loudspeakers,
speaker systems, speaker system components and other electrical and
electronic devices. As of June 30, 1998, the Company held
approximately 302 United States and foreign patents covering various
products, product designs and circuits, and had approximately 166 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 1998 accounted for 14.3% 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.
20
<PAGE>
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 $15.9 million at June 30, 1998.
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
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.
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, JBL professional
loudspeakers are compatible with and marketed with BSS professional
amplifiers and loudspeaker management systems. However, JBL and
21
<PAGE>
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
addition of our new high-end loudspeaker brand, Revel, extends our
loudspeaker market position and complements our Mark Levinson and
Proceed high-end electronics lines. 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,
Celestion, Paradigm, Acoustic Research, Cambridge SoundWorks and
Polk Audio. Principal competitors in the consumer automotive
aftermarket area include Alpine, Kenwood, Bose, Nakamichi, Clarion,
Rockford-Fosgate and Blaupunkt. Principal competitors in the high-end
loudspeaker market include Wilson Audio, Snell, Thiel, and Bowers &
Wilkins.
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 for Harman Kardon
include: Sony, Denon, Onkyo, Nakamichi, Pioneer, Kenwood and
Yamaha. The Company competes in the high-end consumer electronics
market with the Mark Levinson, Citation and Proceed brands. Principal
competitors include: Krell, McIntosh, Audio Research, Meridian, Linn
and Accuphase.
22
<PAGE>
In the personal computer audio market, the Company's JBL brand
name is licensed for audio systems packaged with Compaq's Presario line
of personal computers. Licensing and sourcing arrangements with Dell
and IBM will begin in fiscal 1999 utilizing the Infinity and Harman
Kardon brands. 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, AKG, Soundcraft, AMEK and BSS.
Principal competitors in sound reinforcement include Electro Voice, Inc.,
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, AMEK, Lexicon and Orban brands. Principal recording and
broadcast competitors include: Sony, Neve, Sennheiser, Denon, SSL,
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, Tannoy and Bose.
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, Panasonic and Mannesman 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 Toyota,
BMW, Jaguar, Rover, Saab and Peugeot. The Company also supplies
non-branded loudspeaker systems to Chrysler, Mercedes Benz,
Volkswagen, Volvo and Fiat. The Company is a primary supplier of
radio head units to Mercedes-Benz, BMW and Porsche. The Company
23
<PAGE>
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
remediation process has proceeded in accordance with the plan, and the
Company believes that the future cost to complete remediation will not
exceed $100,000.
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.
24
<PAGE>
Research, Development and Engineering
The Company's expenditures for research, development and
engineering were $65,926,000, $66,451,000, and $59,171,000 for the
fiscal years ending June 30, 1998, 1997 and 1996, respectively.
Number of Employees
As of June 30, 1998, the Company had 10,010 full-time employees,
including 4,188 domestic employees and 5,822 international employees,
compared to 8,384 employees at June 30, 1997.
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 38 and 26,
respectively, in the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1998.
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.
25
<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% Consumer, Pro-
fessional, OEM
Ontario, California 212,600 Leased 100% Consumer,
Professional
Martinsville, Indiana 182,664 Owned 100% OEM
20,000 Leased 100%
Straubing, Germany 195,000 Owned 95% OEM
Ringkobing, Denmark 145,119 Owned 100% Consumer
25,920 Leased 80%
Ittersbach, Germany 169,465 Owned 80% OEM
Potters Bar, UK 160,000 Leased 100% Professional
Juarez, Mexico 139,000 Leased 89% OEM
Vienna, Austria 128,593 Leased 100% Professional
Bridgend, UK 126,000 Leased 100% OEM
Sandy, Utah 122,000 Leased 100% Professional
Worth-Schaitt, Germany 89,640 Owned 75% OEM
Regensdorf, Switzerland 86,111 Leased 100% Professional
</TABLE>
The company considers its properties to be suitable and adequate for
its present needs.
26
<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, 1998 Position
- ---------------------- -------------- ----------------------------------------
<S> <C> <C>
Sidney Harman 79 Chairman of the Board of Directors
and Chief Executive Officer
Bernard A. Girod 56 President, Chief Operating Officer,
Secretary and Director of the
Company
Gregory P. Stapleton 51 President - OEM Group and Director
of the Company
Frank Meredith 41 Vice President - Finance &
Administration and Chief
Financial Officer
Philip J. Hart 53 President - Harman Professional Group
Thomas Jacoby 44 Chief Marketing Officer
William S. Palin 55 Vice President - Controller
Sandra B. Robinson 39 Vice President - Financial Operations
Edwin S. Summers 51 Vice President and General Counsel
Floyd E. Toole 52 Vice President - Engineering
</TABLE>
27
<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.
Gregory P. Stapleton has been President of the OEM Group since
October 1987 and a Director of the Company since November 1997.
Prior to his association with the Company, Mr. Stapleton was Senior Vice
President of General Electric Venture Capital Corporation from January
1986 to September 1987, and was General Manager, Industrial Products
Section, Factory Automation Products Division, of General Electric
Corporation from October 1982 through December 1985.
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 from 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 from Harman's 1988 acquisition.
28
<PAGE>
Thomas Jacoby was appointed Chief Marketing Officer in June 1998.
Prior to that time, Mr. Jacoby served as President of the Harman
Consumer Group from February 1993. Prior to that time, Mr. Jacoby
served as President of JBL Consumer from August 1990. From July
1988 to August 1990, Mr. Jacoby served as Executive Vice President of
Harman Kardon.
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.
Edwin S. Summers has been Vice President and General Counsel of
the Company since July 1998. Prior to that time, Mr. Summers was Vice
President, General Counsel and Secretary of First Alliance Corporation
from 1996. From 1991 to 1995, Mr. Summers was Senior Vice President,
General Counsel and Secretary of Transamerica Finance Group.
Floyd E. Toole, Ph.D., joined the Company as Vice President -
Acoustics 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.
29
<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, 1998 (Shareholder Information on page 40).
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary
(in thousands, except per share data,
for the fiscal years ended June 30)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales $1,513,255 $1,474,094 $1,361,595 $1,170,224 $ 862,147
Operating income 100,325 101,973 105,378 87,449 66,332
Income before taxes 75,707 77,901 75,024 61,157 42,686
Income before
extraordinaty items 53,826 54,832 52,042 41,435 26,412
Net income 50,243 54,832 52,042 41,161 25,664
Basic EPS before
extraordinary items 2.90 2.96 3.16 2.60 1.88
Basic EPS 2.71 2.96 3.16 2.58 1.83
Diluted EPS 2.67 2.90 3.09 2.53 1.79
Total assets 1,130,684 1,014,254 996,209 886,872 680,691
Long-term debt 259,609 266,393 254,611 266,021 156,577
Shareholders' equity 511,899 466,762 436,477 289,490 232,021
Dividends per share 0.20 0.20 0.20 0.17 --
</TABLE>
30
<PAGE>
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, 1998 (Management's Discussion and Analysis of
Financial Condition and Results of Operations on pages 23 through 26).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Securities and Exchange Commission requires that registrants
include information about potential effects of changes in interest rates and
currency exchange rates in their financial statements. The qualititative
information required by Part II, Item 7A is incorporated by reference to
pages 26 and 39 of the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1998 (Effects of Inflation and Currency
Exchange Rates and Footnote 12, Fair Value of Financial Instruments,
respectively).
The Company's exposure to interest rate changes is primarily related
to its variable rate debt. To asses exposure to interest rate changes, the
Company has performed a sensitivity analysis assuming a hypothetical
100 basis point increase in interest rates across all maturities. This
analysis indicates that such market movements would reduce fiscal 1999
net income, based on June 1998 positions, by approximately $0.8 million.
The Company's net unhedged exposure in assets and liabilities
denominated in other than their relevant functional currency as of June 30,
1998 was not material.
Actual gains and losses in the future may differ materially from the
hypothetical gains and losses discussed above based on changes in the
timing and amount of interest rate and foreign currency exchange rate
movements and the Company's actual exposure and hedges.
31
<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, 1998 (Consolidated Financial Statements on pages 22
and 28 through 40).
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
1998 Annual Meeting of Stockholders.
32
<PAGE>
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
Form 8-K, dated June 16, 1998, filed on June 30,
1998, containing the following items:
Item 5. Announcement of fourth quarter fiscal
1998 outlook and fiscal 1999 outlook and
announcement of stock repurchase program.
33
<PAGE>
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34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
(Registrant): HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
By: (Signature and Title) /s/ Sidney Harman
---------------------------------
Sidney Harman, Chairman of the Board
and Chief Executive Officer
Date: September 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, 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 14, 1998
- ---------------------------- Chief Executive Officer ------------------
Sidney Harman and Director
/s/ Bernard A. Girod President, Chief Operating September 14, 1998
- ---------------------------- Officer, Secretary ------------------
Bernard A. Girod and Director
/s/ Gregory P. Stapleton President - OEM Group September 14, 1998
- ---------------------------- and Director ------------------
Gregory P. Stapleton
/s/ Frank Meredith Vice President - Finance & September 14, 1998
- ---------------------------- Administration and Chief ------------------
Frank Meredith Financial Officer (Principal
Accounting Officer)
/s/ Shirley M. Hufstedler Director September 14, 1998
- ---------------------------- ------------------
Shirley M. Hufstedler
/s/ Ann McLaughlin Director September 14, 1998
- ---------------------------- ------------------
Ann McLaughlin
/s/ Edward H. Meyer Director September 14, 1998
- ---------------------------- ------------------
Edward H. Meyer
/s/ Stanley A. Weiss Director September 14, 1998
- ---------------------------- ------------------
Stanley A. Weiss
</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 22 and
28 through 40 of the 1998 Annual Report
to Shareholders herein incorporated
by reference as Exhibit 13.1):
Financial Table of Contents . . . . . . . . . . . . . . . .. . . . . . . . . . . 22
Independent Auditor's Report . . . . . . . . . . . . .39 . . . . . . . . . . . . 27
Consolidated Balance Sheets as of
June 30, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of
Operations for the years ended
June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Cash
Flows for the years ended
June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Shareholders'
Equity for the years ended June 30,
1998, 1997and 1996 . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 31
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 32
Schedules for the years ended June 30,
1998, 1997 and 1996:
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, 1998
($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, 1996
Allowance for
doubtful
accounts $12,313 $ 3,103 $ (1,405) (1) $ 4,049 (2) $ 9,962
Year Ended June 30, 1997
Allowance for
doubtful
accounts $ 9,962 $ 1,977 $ (781) (3) $ 2,042 (2) $ 9,116
Year Ended June 30, 1998
Allowance for
doubtful
accounts $ 9,116 $ 4,904 $ 152 (4) $ 4,100 (2) $ 10,072
</TABLE>
(1) Deductions due to account reclassifications, foreign currency translation,
and dispositions.
(2) Deductions for accounts receivable written off net of recoveries.
(3) Deductions due to foreign currency translation and dispositions.
(4) Additions due to acquisitions. Deductions due to dispositions.
38
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE
- -----------------------------------------------------------------------
The Board of Directors
Harman International Industries, Incorporated
Under date of August 12, 1998, we reported on the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1998 and 1997, 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, 1998, as contained in the 1998
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, 1998. 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 12, 1998
39
<PAGE>
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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
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
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
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
43
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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,
1996 as approved by shareholders at the November
1996 Annual Meeting of Shareholders (File No.
001-09764) and hereby incorporated by reference.).....................IBR
</TABLE>
44
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
45
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
46
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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 (Filed as Exhibit 10.59
to the Annual Report on Form 10-K for the fiscal
year ended June 30, 1997 (File No. 001-09764),
and hereby incorporated by reference.)................................IBR
10.60 Employment agreement between the Company
and Bernard A. Girod dated September 12, 1997
(Filed as Exhibit 10.60 to the Annual Report on
Form 10-K for the fiscal year ended June 30, 1998
(File No. 001-09764), and hereby incorporated by
reference.)...........................................................IBR
</TABLE>
47
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
10.61 Credit agreement dated December 12, 1997, among
Harman International Industries, Incorporated,
Becker Holding GmbH, The Several Lenders From
Time to Time Party Thereto and Commerzbank
Aktiengesellschaft (Filed as Exhibit 10.61 to the
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997 (File No. 001-09764), and
hereby incorporated by reference.)....................................IBR
10.62 Chief Executive Officer Plan effective July 1, 1997
(Filed as Exhibit A to the Definitive Statement of
Proxy for the Annual Meeting of Shareholders on
November 10, 1997, as approved by a majority vote
of shareholders (File No. 001-09764), and hereby
incorporated by reference.)...........................................IBR
13.1 Pages 22 through back cover of Harman
International Industries, Incorporated Annual
Report to Shareholders for the fiscal year ended
June 30, 1998..........................................................49
21.1 Subsidiaries of the Company............................................71
23.1 Consent of Independent Auditors........................................77
27.1 EDGAR Financial Data Schedule..........................................81
27.96 EDGAR Financial Data Schedule (F96) ...................................82
27.95 EDGAR Financial Data Schedule (F95) ...................................83
</TABLE>
48
<PAGE>
EXHIBIT 13.1
49
<PAGE>
Financial Information Table of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations 23
Statement of Management Responsibility 27
Independent Auditor's Report 27
Consolidated Financial Statements
Balance Sheets 28
Statements of Operations 29
Statements of Cash Flows 30
Statements of Shareholders' Equity 31
Notes to Consolidated Financial Statements 32
Shareholder Information 40
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.
22
50
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales for fiscal 1998 increased by 3 percent to $1.513 billion from
$1.474 billion in fiscal 1997 and in fiscal 1997 increased by 8 percent
from fiscal 1996 sales of $1.362 billion. Exclusive of currency effects,
fiscal 1998 sales rose 7 percent, and fiscal 1997 sales increased 12
percent. The sales increase in fiscal 1998 was primarily driven by
growth in the OEM Group, partially offset by lower Consumer Group
and Professional Group sales resulting from the weakness in Asia and
soft markets for audio products elsewhere. Fiscal 1997 sales growth
was driven by higher sales from the Consumer Group, the Professional
Group and the OEM Group.
The OEM Group had an excellent year. Sales increased as a result of
the Oxford and Audio Electronic Systems (AES) acquisitions. Oxford
and AES bring added capacity and vertical integration. They enlarge
our relationship with current customers Chrysler, BMW and Mercedes
Benz. AES adds Volkswagen, Fiat and Volvo to our customer base. In
North America, the success of the Dodge truck line, including the new
Durango, and our increasing involvement at Toyota have driven growth
in shipments of high fidelity audio systems to the automakers. During
the year, Becker introduced its GPS-centered TrafficStar navigation
system as an aftermarket offering through Mercedes and Porsche dealers
in Germany.
Professional Group results were affected by the Asian difficulties and
related currency effects. Our professional products are primarily
manufactured in the United States and Europe. Our Asian competitors
were able to offer competing brands at lower prices. Professional
Group sales to Asia were down significantly compared to last year,
reflecting lower Asian sales volume at all of our professional units.
Higher sales in North America and a strong second half at AKG helped
to offset pricing pressures and sales decreases in Asia. Restructuring
programs began at a number of Professional Group units to align
overhead structure with lower sales levels due to the weakness in Asia.
The Consumer Group had a difficult year. Consumer Group sales to
Asia were down significantly compared to last year. Each of our core
brands - Harman Kardon, JBL and Infinity - reported lower sales.
Audio for Computers, while reporting lower sales, enjoyed improved
operating results through a new licensing arrangement with Compaq.
Restructuring programs began at a number of Consumer Group units to
align overhead structure with lower sales levels due to the weakness in
Asia and to address operational difficulties.
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 was 26.8 percent in fiscal 1998, compared
to 28.5 percent in fiscal 1997 and 30.0 percent in fiscal 1996. The
decrease in fiscal 1998 was due to lower Consumer Group and
Professional Group factory leverage caused by the Asian sales
shortfalls, pricing pressures in the consumer and professional audio
markets associated with currency effects and unstable market
conditions, and the divestiture of the Company's distribution operations
in Germany, the United Kingdom, France and Japan, whose final
margin on sales of the Company's products contributed to gross margin
in prior years. 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.
23
51
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations continued
Selling, general and administrative expenses as a percentage of sales
were 20.2 percent in fiscal 1998, compared with 21.6 percent in fiscal
1997 and 22.2 percent in fiscal 1996. The decrease in fiscal 1998
selling, general and administrative expenses as a percentage of sales
resulted from the elimination of distribution company overhead
associated with the divestitures discussed above and the contribution of
$8.9 million of income recorded on the sale of the Company's German
and Japanese distribution operations. These favorable effects were
partially offset by restructuring costs incurred by the Consumer Group
and the Professional Group to reduce overhead. 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.
Operating income as a percentage of net sales was 6.6 percent for fiscal
1998, compared with 6.9 percent for fiscal 1997 and 7.7 percent for
fiscal 1996. The fiscal 1998 and fiscal 1997 decreases resulted from
lower gross profit margins as discussed above.
Interest expense in fiscal 1998 was $24.9 million, compared with $23.6
million in fiscal 1997 and $27.5 million in fiscal 1996. Interest expense
increased in fiscal 1998 due to higher average borrowings. Fiscal 1998
average borrowings were $382.4 million, compared with $317.9 million
in fiscal 1997 and $348.3 million in fiscal 1996. Fiscal 1998 average
borrowings increased due to the acquisitions of Oxford and Audio
Electronic Systems and higher average working capital requirements,
partially offset by the distribution company divestitures, the largest of
which were completed in the second half of the fiscal year.
The weighted average interest rate in fiscal 1998 was 6.5 percent,
compared with 7.4 percent in fiscal 1997 and 7.9 percent in fiscal 1996.
The decrease in average interest rates in fiscal 1998 was due in part to
the retirement of $64 million of 12.0% notes, which was funded with
proceeds from the issuance of ten-year senior notes bearing interest at
7.32%.
As a result, in fiscal 1998 the Company reported income before income
taxes, minority interest and extraordinary item of $75.7 million,
compared with $77.9 million in fiscal 1997 and $75.0 million in fiscal
1996.
In fiscal 1998, the Company reported income tax expense of $21.9
million, reflecting an effective tax rate of 28.9 percent. This compares
with an income tax expense of $23.0 million and an effective tax rate of
29.5 percent in fiscal 1997. Fiscal 1996 tax expense was $23.8 million
with an effective tax rate of 31.7 percent. The effective tax rates for
fiscal years 1998, 1997, and 1996 were below the U.S. statutory rate due
to utilization of tax credits, realization of certain tax benefits for United
States exports and the utilization of tax loss carryforwards at certain
foreign subsidiaries.
The Company reported an extraordinary charge, net of related tax
benefits, of $3.6 million in fiscal 1998 due to the early extinguishment
of $64 million of 12.0 percent notes, due August 1, 2002. The debt
retirement was funded with proceeds from the issuance of ten-year
senior notes bearing interest at 7.32 percent. The Company reported no
extraordinary charges in fiscal 1997 or 1996.
As a result, net income for fiscal 1998 was $50.2 million, compared
with $54.8 million in fiscal 1997 and $52.0 million in fiscal 1996.
24
52
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Harman International primarily finances its working capital
requirements through cash generated by operations, a revolving credit
facility and normal trade credit.
The Company and certain subsidiaries have a five-year, multi-currency
revolving credit facility with a group of eleven banks committing $275
million to the Company for cash borrowings and letters of credit
through September 30, 2002. At June 30, 1998, the Company had
outstanding indebtedness under the revolving credit facility of $8.4
million, outstanding letters of credit of $7.7 million and unused credit
thereunder of $258.9 million. The indebtedness at June 30, 1998,
consists of committed rate loans, which bear interest at LIBOR plus
0.20 percent, and swing line borrowings, which bear interest at base
rates.
At June 30, 1998, certain international subsidiaries of the Company
maintained unsecured short-term lines of credit of $19.8 million and had
outstanding indebtedness thereunder of approximately $16.5 million.
In May 1996, the Company issued 2,300,000 shares of Common Stock,
using the net proceeds of $109.1 million to repay short-term and long-
term debt.
Capital expenditures, net of capital lease financing, were $57.5 million
in fiscal 1998, compared with $62.4 million in fiscal 1997 and $80.5
million in fiscal 1996. Expenditures in fiscal 1998 and 1997 were
primarily for product tooling and equipment required to increase
manufacturing capacity and efficiency.
The Company anticipates capital expenditures of approximately $75
million during the next fiscal year. Firm commitments of approximately
$9.7 million existed as of June 30, 1998, for capital expenditures during
fiscal 1999. The Company anticipates that a portion of these capital
expenditures will be financed through lease financing arrangements.
Net working capital at June 30, 1998 was $367.9 million, compared
with $428.1 million at June 30, 1997. The decrease primarily results
from the sale of the Company's distribution operations in Germany, the
United Kingdom, Japan and France.
Excess of cost over fair value of assets acquired increased to $161.7
million at June 30, 1998, from $109.6 million at June 30, 1997. The
increase primarily reflects the acquisitions of Oxford and AES, partially
offset by amortization, realization of unrecorded deferred tax assets at
Becker and reductions due to businesses disposed of during fiscal 1998.
Shareholders' equity was $511.9 million at June 30, 1998, compared
with $466.8 million at June 30, 1997, and $436.5 million at June 30,
1996. The increase in fiscal 1998 primarily resulted from net income.
The increase in fiscal 1997 was due to net income partially offset by the
retirement of 220,000 shares of Common Stock and negative
adjustments from foreign currency translation. Foreign currency
translation produced a negative adjustment of $5.2 million in fiscal
1998 due to the strengthening of the U.S. dollar against most other
major currencies during the year. A negative adjustment of $11.3
million was recorded in fiscal 1997 and a negative adjustment of $11.1
million was recorded in fiscal 1996.
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 $63.75
million, 12.0% Senior Subordinated Notes on August 1, 1997, at a 6%
premium ($3.825 million) and to repay other debt.
In June 1998, Harman's Board of Directors authorized the repurchase of
up to 1.5 million shares of Company common stock in the open market.
The repurchases are expected to be funded through operating cash flow.
Cash generated by operations and the unused credit available under the
revolving credit facility should provide sufficient funds to meet the
Company's working capital, capital expenditure, dividend, debt service
and share repurchase requirements.
25
53
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations continued
YEAR 2000
Certain computer systems and microcontrollers may only use two digits
to identify a year. Therefore, computer applications could fail or create
erroneous results if not corrected to properly recognize a year which
begins with "20" rather than "19."
The Company is evaluating and addressing Year 2000 issues associated
with its computer systems and microcontrollers. Many of the
Company's critical computer systems and microcontrollers are currently
Year 2000 compliant. Other computer systems and microcontrollers
which have been identified as non-compliant are planned to be replaced
or upgraded. Certain computer-controlled machines in Harman's
factories have not yet been fully evaluated for Year 2000 compliance.
The Company anticipates that remediation will be substantially
complete not later than June 1999 at a cost not material to the
consolidated financial statements.
The Company may be affected by customer or supplier Year 2000
issues. The Company has initiated programs to identify and address
these issues. Programs involving major automotive customers, such as
Chrysler, Mercedes Benz and BMW, are substantially complete.
Management believes that Year 2000 issues will not materially impact
the Company's results of operations, liquidity or financial condition.
The most reasonably likely worst case would be minor delays in
production or product shipments. The Company has not developed
contingency plans, and management believes that large-scale
contingency planning is not warranted given current progress on Year
2000 compliance and the relatively low level of risk identified.
Effects of Inflation and Currency Exchange Rates
The Company maintains significant assets and operations in Germany,
the United Kingdom, Denmark, France, Austria, Switzerland and
Mexico. As a result, exposure to foreign currency gains and losses
exists. A portion of foreign currency exposure is hedged by incurring
liabilities, including bank debt, denominated in the local currency where
subsidiaries are located.
The subsidiaries of the Company purchase products and parts in various
currencies. As a result, 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. Also, foreign currency positions
are partially offsetting and are netted against one another to reduce
exposure.
Some products made in the U.S. are sold abroad. As a result, sales of
such products are affected by the value of the U.S. dollar relative to
other currencies. Any long-term strengthening of the U.S. dollar could
depress these sales.
Competitive conditions in the Company's markets may limit its ability
to increase product pricing 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
Recent accounting pronouncements SFAS No. 130, "Reporting
Comprehensive Income," SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," and SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," are
discussed in footnote 1 to the consolidated financial statements,
"Summary of Significant Accounting Policies."
26
54
<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, 1998 and 1997 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, 1998. 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,
1998 and 1997 and the results of their operations and their cash flows
for each of the years in the three-year period ended June 30, 1998 in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
August 12, 1998
27
55
<PAGE>
Consolidated Balance Sheets
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
June 30, 1998 and 1997
($000s omitted except share amounts)
Assets 1998 1997
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 16,204 4,230
Receivables (less allowance for
doubtful accounts of $10,072 in 1998
and $9,116 in 1997) 299,881 306,230
Inventories (note 2) 307,189 320,102
Other current assets 71,929 48,737
----------- -----------
Total current assets 695,203 679,299
----------- -----------
Property, plant and equipment,
net (notes 3, 5 and 6) 248,368 207,947
Excess of cost over fair value of assets
acquired (less accumulated amortization
of $20,963 in 1998 and $16,085 in 1997)
(note 14) 161,712 109,606
Other assets 25,401 17,402
----------- -----------
Total assets $1,130,684 1,014,254
----------- -----------
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings (notes 4 and 5) $ 18,333 15,808
Current portion of long-term debt (note 5) 55,698 23,949
Accounts payable 113,367 104,121
Accrued liabilities 139,890 107,370
----------- -----------
Total current liabilities 327,288 251,248
----------- -----------
Borrowings under revolving credit facility
(note 5) 6,554 142,873
Senior long-term debt (note 5) 253,055 14,770
Subordinated long-term debt (note 5) -- 108,750
Other non-current liabilities 31,253 29,057
Minority interest 635 794
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 18,633,322 shares in
1998 and 18,456,583 shares in 1997 186 185
Additional paid-in capital 288,336 284,490
Equity adjustment from foreign currency
translation (21,478) (16,240)
Retained earnings 244,855 198,327
----------- -----------
Total shareholders' equity 511,899 466,762
----------- -----------
Commitments and contingencies
(notes 6, 11 and 12)
Total liabilities and shareholders' equity $1,130,684 1,014,254
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
28
56
<PAGE>
Consolidated Statements of Operations
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998, 1997, 1996
($000s omitted except per share amounts)
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $ 1,513,255 1,474,094 1,361,595
Cost of sales 1,107,229 1,053,614 953,470
-------------- -------------- --------------
Gross profit 406,026 420,480 408,125
Selling, general and
administrative expenses 305,701 318,507 302,747
-------------- -------------- --------------
Operating income 100,325 101,973 105,378
Other expenses
Interest expense 24,885 23,640 27,510
Miscellaneous, net (267) 432 2,844
-------------- -------------- --------------
Income before income
taxes, minority interest
and extraordinary item 75,707 77,901 75,024
Income tax expense (note 8)
Federal 8,781 14,391 14,401
Foreign and state 13,070 8,571 9,349
-------------- -------------- --------------
Total income tax expense 21,851 22,962 23,750
Minority interest 30 107 (768)
-------------- -------------- --------------
Income before
extraordinary item 53,826 54,832 52,042
Extraordinary item, net of
income tax effect
of $1,610 (3,583) -- --
-------------- -------------- --------------
Net income $ 50,243 54,832 52,042
-------------- -------------- --------------
Basic EPS before extraor-
dinary item (note 13) $ 2.90 2.96 3.16
Extraordinary item (note 13) (0.19) -- --
-------------- -------------- --------------
Basic EPS (note 13) $ 2.71 2.96 3.16
-------------- -------------- --------------
Diluted EPS before extraor-
dinary item (note 13) $ 2.86 2.90 3.09
Extraordinary item (note 13) (0.19) -- --
-------------- -------------- --------------
Diluted EPS (note 13) $ 2.67 2.90 3.09
-------------- -------------- --------------
Weighted average shares
outstanding - basic
(note 13) 18,574 18,552 16,474
Weighted average shares
outstanding - diluted
(note 13) 18,884 18,894 16,865
</TABLE>
See accompanying notes to consolidated financial statements.
29
57
<PAGE>
Consolidated Statements of Cash Flows
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998, 1997, 1996
($000s omitted)
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 50,243 54,832 52,042
Adjustments to reconcile net
income to net cash provided
by (used in) operating activities:
Depreciation 54,801 48,265 46,594
Amortization of intangible assets 7,713 5,921 5,418
Amortization of deferred income -- -- (1,078)
Tax benefit attributable to
stock options 172 522 1,110
Deferred income taxes 15,530 10,449 7,394
Change in working capital, net of
acquisition/disposition effects:
Decrease (increase) in:
Receivables 7,280 (8,898) (31,044)
Inventories (20,644) (14,746) (67,646)
Other current assets (12,900) (3,231) (2,466)
Increase (decrease) in:
Accounts payable (1,855) (4,460) 17,960
Accrued liabilities and income
taxes payable (10,191) (24,255) (47,564)
(Gain) loss on disposition
of assets (6,454) 226 505
-------------- -------------- --------------
Net cash provided by (used in)
operating activities $ 83,695 64,625 (18,775)
-------------- -------------- --------------
Cash flows from investing
activities:
Payment for purchase of
companies, net of cash
acquired $ (98,210) -- (18,650)
Proceeds from asset
dispositions 66,529 3,666 16,670
Capital expenditures for
property, plant and equipment (57,528) (62,417) (80,528)
Other items, net (4,486) (305) (2,879)
-------------- ------------- --------------
Net cash used in investing
activities $ (93,695) (59,056) (85,387)
-------------- ------------- --------------
Cash flows from financing
activities:
Net repayments of lines
of credit $ 2,264 (10,559) (936)
Proceeds from issuance of
long-term debt 236,640 28,714 5,057
Repayments of long-term debt (216,890) (6,062) (19,236)
Proceeds from issuance of
common stock -- -- 109,069
Dividends paid to shareholders (3,715) (3,709) (3,210)
Exercise of stock options 3,675 974 2,469
Stock retirement -- (11,000) --
-------------- -------------- --------------
Net cash flow provided by
(used in) financing activities $ 21,974 (1,642) 93,213
-------------- -------------- --------------
Net increase (decrease) in cash
and cash equivalents $ 11,974 3,927 (10,949)
Cash and cash equivalents at
beginning of year 4,230 303 11,252
-------------- -------------- --------------
Cash and cash equivalents
at end of year $ 16,204 4,230 303
-------------- -------------- --------------
Supplemental schedule of
non-cash investing activities:
Fair value of assets acquired $ 160,164 -- 14,650
Cash paid for the capital stock 98,210 -- 11,757
-------------- -------------- --------------
Liabilities assumed $ 61,954 -- 2,893
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
30
58
<PAGE>
Consolidated Statements of Shareholders' Equity
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1998, 1997 and 1996
($000s omitted)
Equity
Common Additional adjustment from Net
Stock $.01 paid-in foreign currency Retained shareholders'
par value capital translation earnings equity
------------- -------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
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
------------- -------------- --------------- ------------ --------------
Exercise of
stock options 1 3,674 -- -- 3,675
Tax benefit
attributable
to stock
option plan -- 172 -- -- 172
Foreign currency
equity
adjustment -- -- (5,238) -- (5,238)
Dividends ($.20
per share) -- -- -- (3,715) (3,715)
Net income -- -- -- 50,243 50,243
------------- -------------- --------------- ------------ --------------
Balance,
June 30, 1998 $ 186 288,336 (21,478) 244,855 511,899
------------- -------------- --------------- ------------ --------------
</TABLE>
See accompanying notes to consolidated financial statements.
31
59
<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 1998 consolidated financial statement presentation.
Cash Equivalents. Cash equivalents of $13.3 million and $0.2 million
with maturities less than three months were included in cash and cash
equivalents at June 30, 1998 and 1997, 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.
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.
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. Deferred costs at June 30, 1998, totaled $6.3
million, net of accumulated amortization of $0.4 million.
Research and Development. Research and development costs are
expensed as incurred. The Company's expenditures for research and
development were $65,926,000, $66,451,00 and $59,171,000 for the
fiscal years ending June 30, 1998, 1997 and 1996, respectively.
Stock Option Plan. Pursuant to SFAS No. 123, "Accounting for Stock-
Based Compensation," the Company elected 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
32
60
<PAGE>
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 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 supplemental presentation
commencing July 1, 1998.
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. Adoption will result only in additional disclosure.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. For a derivative designated as a hedge, gain or
loss is netted against the offsetting loss or gain on the hedged item.
SFAS No. 133 is effective for financial statements issued for periods
beginning after June 15, 1999. Adoption of SFAS No. 133 should not
have a material effect on the Company's results of operations, liquidity
or financial condition.
2. INVENTORIES
Inventories consist of the following:
June 30 ($000s omitted) 1998 1997
---------- ----------
Raw materials and supplies $ 120,905 98,786
Work in process 28,816 26,753
Finished goods and inventory
purchased for resale 157,468 194,563
---------- ----------
Total $ 307,189 320,102
---------- ----------
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are composed of the following:
June 30 ($000s omitted) 1998 1997
----------- -----------
Land $ 3,966 2,361
Buildings and improvements 89,965 79,505
Machinery and equipment 312,806 310,278
Furniture and fixtures 35,684 33,722
----------- -----------
442,421 425,866
Less accumulated depreciation
and amortization (194,053) (217,919)
----------- -----------
Property, plant and
equipment, net $ 248,368 207,947
----------- -----------
4. SHORT-TERM BORROWINGS
At June 30, 1998, the Company had unsecured short-term lines of credit
for certain international subsidiaries aggregating $19.8 million with
outstanding borrowings of approximately $16.5 million. Interest rates
based on various indices ranged from 1.9 percent to 8.6 percent. At June
30, 1997, the Company had outstanding borrowings of approximately
$7.6 million and interest rates ranging from 3.75 percent to 8.0 percent.
33
61
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
The Company utilizes the swing line feature of the revolving credit
facility to meet its short-term borrowing requirements. At June 30,
1998, the Company had $1.8 million drawn on its swing lines at base
rates in the local countries where the funds were drawn, ranging from
3.7 percent in France to 8.0 percent in the United Kingdom. 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.
5. LONG-TERM DEBT
The Company and certain subsidiaries have a five-year multi-currency
revolving credit facility with a group of eleven banks committing $275
million to the Company for cash borrowings and letters of credit
through September 30, 2002. At June 30, 1998, the Company had
borrowings of $8.4 million on the revolving credit facility (including
swing line, competitive advance and revolving credit borrowings) and
outstanding letters of credit of $7.7 million. The unused credit under the
revolving credit facility at June 30, 1998, was $258.9 million. Interest
rates, at LIBOR plus 0.20 percent, ranged from 0.7 percent in Japan to
5.0 percent in Denmark. 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, 1998 and 1997.
The Company's other 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 and restrict the Company's ability to issue
capital stock of its subsidiaries. The Company was in compliance with
the terms of its long-term debt agreements at June 30, 1998 and 1997.
Under the most restrictive provisions, limited amounts of dividends may
be paid as of June 30, 1998.
Interest paid for both short- and long-term borrowings was $27,576,000,
$24,579,000, and $26,675,000 during the fiscal years ended June 30,
1998, 1997 and 1996, respectively.
Long-term debt is composed of the following:
<TABLE>
<CAPTION>
June 30 ($000s omitted) 1998 1997
-------------- --------------
<S> <C> <C>
Senior notes, unsecured,
due September 30, 1997,
interest due semiannually
at 10.4% $ -- 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 due
semiannually at 12.0% -- 63,750
Borrowings under revolving
credit facility, due September
30, 2002, with variable rates
ranging from 0.7% to 5.0%
at June 30, 1998 6,554 142,873
Senior notes, unsecured,
due July 1, 2007, interest
due semiannually at 7.3% 150,000 --
Borrowings under Deutschmark
Facility, due August 30, 2002;
variable rate was 3.9% at
June 30, 1998 82,935 --
Obligations under
capital leases (note 6) 24,349 12,251
Other unsubordinated loans
due in installments through
2012, some of which vary with
the prime rate, bearing interest
at an average effective rate of
7.6% at June 30, 1998 6,469 8,968
-------------- --------------
Total 315,307 290,342
Less current installments (55,698) (23,949)
-------------- --------------
Long-term debt $ 259,609 266,393
-------------- --------------
</TABLE>
34
62
<PAGE>
Long-term debt, including obligations under capital leases, maturing in
each of the next five fiscal years (000's omitted) is as follows:
- -------------------------------------------------
1999 $ 55,698
2000 10,796
2001 6,071
2002 924
2003 90,092
Thereafter 151,726
- -------------------------------------------------
6. LEASES
The following analysis represents property under capital leases:
June 30 ($000s omitted) 1998 1997
-------------- --------------
Capital lease assets $ 35,022 22,116
Less accumulated
amortization (7,919) (8,247)
-------------- --------------
Net $ 27,103 13,869
-------------- --------------
Capital lease obligations of $12.9 million and $7.3 million were
incurred to fund equipment additions during the fiscal years ended June
30, 1998 and 1997, respectively. Fiscal 1996 activity was not material.
At June 30, 1998, 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>
1999 $ 10,280 $ 34,372
2000 9,388 32,020
2001 8,092 28,528
2002 590 23,419
2003 526 20,107
Thereafter 564 98,618
----------- --------------
Total minimum lease payments 29,440 $ 237,064
--------------
less interest (5,091)
-----------
Present value of minimum
lease payments $ 24,349
-----------
</TABLE>
Operating lease expense net of subrental income under operating leases
having noncancelable terms of greater than one year for the years ended
June 30, 1998, 1997 and 1996 was $33,288,000, $30,154,000, and
$25,871,000, respectively.
7. STOCK OPTION PLAN
The 1992 Incentive Plan (the 1992 Plan) provides for the grant of stock
options, stock appreciation rights in tandem with options, restricted
stock and performance units to officers, key employees and consultants
of the Company and its subsidiaries. In addition, the 1992 Plan provides
for the automatic annual grant of options to the non-officer directors of
the Company and for a further automatic grant to such non-officer
directors each year in which the Company achieves a specified level of
return on consolidated equity.
The 1992 Plan replaces the Company's 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.
35
63
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
No stock appreciation rights or performance units were outstanding at
June 30, 1998. 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 1998 and fiscal 1997: annual dividends consistent with the
Company's current dividend policy, which resulted in payments of
$0.20 per share in fiscal 1998 and fiscal 1997; expected volatility of 34
percent in fiscal 1998 and 33 percent in fiscal 1997; risk free interest
rate of 5.2 percent in fiscal 1998 and 5.9 percent in fiscal 1997; and
expected life of 2.3 years from the vesting date. The weighted average
fair value of options granted was $16.56 in fiscal 1998 and $16.43 in
fiscal 1997. Pro forma compensation cost for fiscal 1998 and fiscal
1997 awards under the stock option program, recognized in accordance
with SFAS No. 123, would reduce the Company's net income from
$50.2 million (basic EPS of $2.71 and diluted EPS of $2.67) to $47.9
million (basic EPS of $2.58 and diluted EPS of $2.54) in fiscal 1998,
and from $54.8 million (basic EPS of $2.96 and diluted EPS of $2.90)
to $52.9 million (basic EPS of $2.85 and diluted EPS of $2.80) in fiscal
1997. Pro forma net income reflects only options granted from fiscal
1996 through fiscal 1998. 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.
At June 30, 1998, a total of 2,129,107 shares of Common Stock were
reserved for issuance under the 1992 Plan.
Stock Option Activity Summary: years ended June 30
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
----------- --------------
<S> <C> <C>
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
-----------
Granted 313,550 $41.98
Canceled (96,708) $39.71
Exercised (190,945) $22.37
-----------
Balance at June 30, 1998 1,474,333 $34.97
-----------
</TABLE>
Options Outstanding at June 30, 1998
<TABLE>
<CAPTION>
Weighted Weighted
Range of average average
exercise Number of remaining life exercise
prices options in years price
- ----------------- ------------ ---------------- --------------
<S> <C> <C> <C>
$ 7.38-7.38 79,800 3.37 $ 7.38
$10.12-12.02 13,304 3.60 $ 11.50
$13.10-16.07 7,875 4.58 $ 14.07
$16.43-19.76 76,056 4.68 $ 19.49
$21.55-25.95 131,682 5.37 $ 24.67
$28.01-34.40 442,596 6.25 $ 32.59
$36.75-54.63 723,020 8.57 $ 43.64
- ----------------- ------------
$ 7.38-54.63 1,474,333 7.04 $ 34.97
- ----------------- ------------
</TABLE>
Options Exercisable at June 30, 1998
<TABLE>
<CAPTION>
Weighted
Range of average
exercise Number of exercise
prices options price
- ----------------- ------------- --------------
<S> <C> <C>
$ 7.38-7.38 79,800 $ 7.38
$10.12-12.02 13,304 $ 11.50
$13.10-16.07 7,875 $ 14.07
$16.43-19.76 50,186 $ 19.34
$21.55-25.95 129,898 $ 24.69
$28.01-34.40 346,978 $ 32.09
$36.75-54.63 173,210 $ 45.90
- ----------------- -------------
$ 7.38-54.63 801,251 $ 30.10
- ----------------- -------------
</TABLE>
36
64
<PAGE>
8. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Years ended June 30 1998 1997 1996
--------------- ------------ -----------
($000s omitted)
<S> <C> <C> <C>
Current:
Federal $ 12,860 11,513 14,281
State 1,864 609 585
Foreign 10,556 7,345 8,796
--------------- ------------ -----------
25,280 19,467 23,662
--------------- ------------ -----------
Deferred:
Federal (4,079) 2,878 120
State 650 617 (32)
--------------- ------------ -----------
(3,429) 3,495 88
--------------- ------------ -----------
Total $ 21,851 22,962 23,750
--------------- ------------ -----------
</TABLE>
The tax provisions and analysis of effective income tax rates are
comprised of the following items:
<TABLE>
<CAPTION>
Years ended June 30 1998 1997 1996
--------------- ------------ ------------
($000s omitted)
<S> <C> <C> <C>
Provision for Federal
income taxes
before credits at
statutory rate $ 26,497 27,265 26,258
State income taxes 1,878 1,226 553
Difference between
Federal statutory
rate and foreign
effective rate (8,335) (409) (4,947)
Permanent differences
between financial and
tax accounting income 831 (475) 141
Tax exempt foreign sales
corporation earnings (1,575) (1,427) (1,089)
Change in valuation
allowance (6,609) (2,809) --
Change in other
tax liabilities 5,919 -- --
Losses without (with)
income tax benefit 3,984 1,582 1,164
Federal income
tax credits (1,500) (950) (858)
Other 761 (1,041) 2,528
--------------- ------------ -----------
Total $ 21,851 22,962 23,750
--------------- ------------ -----------
</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) 1998 1997
--------------- ------------
<S> <C> <C>
Inventory costing differences $ 4,515 5,547
Valuations and other allowances 7,879 12,824
--------------- ------------
Total gross deferred tax asset $ 12,394 18,371
Less valuation allowance -- (6,609)
--------------- ------------
Deferred tax asset $ 12,394 11,762
Total gross deferred tax liability
from fixed asset depreciation (12,118) (11,093)
--------------- ------------
Net deferred tax asset $ 276 669
--------------- ------------
</TABLE>
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 28.1 million German marks for Becker in fiscal 1998,
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.
Cash paid for Federal, state and foreign income taxes was $17,299,000,
$15,597,000, and $15,637,000, during fiscal years ended June 30, 1998,
1997 and 1996, respectively.
37
65
<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
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
14.3%, 9.9% and 10.4% of consolidated net sales for the years ended
June 30, 1998, 1997 and 1996.
The following table shows net sales, operating income and identifiable
assets by geographic segments for the years ended June 30, 1998, 1997
and 1996. The net sales shown below for the United States include
export sales of $306.2 million, $299.6 million and $259.1 million for
the fiscal years ended June 30, 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
Geographic Segmentation
Years ended June 30 1998 1997 1996
---------------- ------------- -------------
<S> <C> <C> <C>
($000s omitted)
Net sales:
U.S. $ 1,035,084 1,044,306 908,111
International 672,176 635,228 635,452
Intercompany/
Interregion (194,005) (205,440) (181,968)
---------------- ------------- -------------
Total $ 1,513,255 1,474,094 1,361,595
---------------- ------------- -------------
Operating income:
U.S. $ 74,093 75,314 78,710
International 29,299 25,873 40,695
Unallocated
operating expenses (3,067) 786 (14,027)
---------------- ------------- -------------
Total $ 100,325 101,973 105,378
---------------- ------------- -------------
Identifiable assets:
U.S. $ 588,417 548,417 519,422
International 492,966 452,080 463,466
Corporate 49,301 13,757 13,321
---------------- ------------- -------------
Total $ 1,130,684 1,014,254 996,209
---------------- ------------- -------------
</TABLE>
10. EMPLOYEE BENEFIT PLANS
Under the Retirement Savings Plan, domestic employees may contribute
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, 1998, 1997
and 1996 totaled $5,448,000, $2,516,000 and $4,338,000, respectively.
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,
1998, 1997 and 1996 were $668,000, $683,000 and $214,000,
respectively.
Additionally, certain non-domestic subsidiaries maintain defined benefit
pension plans. These plans are not material to the accompanying
consolidated financial statements.
11. COMMITMENTS AND CONTINGENCIES
The Company and its subsidiaries are involved in several legal actions.
The outcome 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.
In June 1998, Harman's Board of Directors authorized the repurchase of
up to 1.5 million shares of Company common stock in the open market.
The repurchases are expected to be funded through operating cash flow.
38
66
<PAGE>
12. 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, 1998, the Company had
contracts maturing through June 1999, to purchase and sell the
equivalent of approximately $124 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, 1998.
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 $284.5 million and $286.7 million, respectively, at June 30,
1998.
13. EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
Years ended June 30
($000s omitted except
per share amounts) 1998 1997 1996
----------------------- ----------------------- -----------------------
Basic Diluted Basic Diluted Basic Diluted
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income before
extraordinary item $ 53,826 53,826 54,832 54,832 52,042 52,042
Extraordinary item,
net of taxes (3,583) (3,583) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income $ 50,243 50,243 54,832 54,832 52,042 52,042
---------- ---------- ---------- ---------- ---------- ----------
Shares of Harman
common stock
outstanding 18,574 18,574 18,552 18,552 16,474 16,474
Employee stock
options -- 270 -- 342 -- 391
---------- ---------- ---------- ---------- ---------- ----------
Total average
equivalent shares 18,574 18,844 18,552 18,894 16,474 16,865
---------- ---------- ---------- ---------- ---------- ----------
Earnings per share
before
extraordinary item $ 2.90 2.86 2.96 2.90 3.16 3.09
Extraordinary item,
net of taxes (0.19) (0.19) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Earnings per share $ 2.71 2.67 2.96 2.90 3.16 3.09
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
14. ACQUISITIONS
In August 1997, the Company acquired Oxford, a manufacturer of
automotive OEM loudspeakers for Chrysler with facilities in the United
States and Mexico.
In December 1997, the Company acquired Audio Electronic Systems
(AES), a manufacturer of automotive OEM loudspeakers with facilities
in Germany, Sweden and Hungary. AES supplies loudspeakers on an
OEM basis to European automakers including BMW, Mercedes, Volvo,
Volkswagen and Fiat.
The acquisitions of Oxford and AES are not material to the consolidated
financial statements.
39
67
<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 1998 and
1997:
<TABLE>
<CAPTION>
Three months ended: ($000s omitted except per share amounts)
Fiscal 1998 SEPT 30 DEC 31 MAR 31 JUN 30
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 329,269 402,964 391,917 389,105
Gross profit $ 89,006 110,759 109,936 96,325
Net income $ 4,924 15,952 15,053 14,314
EPS-basic $ .27 .86 .81 .77
EPS-diluted $ .26 .84 .80 .76
Fiscal 1997
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
EPS-basic $ .41 1.05 .56 .94
EPS-diluted $ .40 1.02 .55 .93
</TABLE>
Shareholder Information
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Market Price High Low High Low High Low
First quarter
ended September 30 $50.063 39.000 $50.625 40.250 $49.750 35.596
Second quarter
ended December 31 57.063 35.250 55.875 48.000 48.875 39.750
Third quarter
ended March 31 46.813 38.250 56.125 33.250 41.250 32.000
Fourth quarter
ended June 30 46.438 36.750 43.250 33.250 56.500 37.375
</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, 1998, the Company's
Common Stock was held by approximately 202 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,
1998, 1997, and 1996.
The Company paid dividends during fiscal 1998, 1997 and fiscal 1996
of $.20 per share, with a dividend of $.05 paid in each of the four
quarters. In August 1995, a special 5 percent stock dividend was paid.
40
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<PAGE>
CORPORATE OFFICERS
Sidney Harman
Chairman and Chief Executive Officer
Bernard A. Girod
President and Chief Operating Officer
Gregory Stapleton
President - OEM Group
Frank Meredith
Vice President - Finance and Administration
and Chief Financial Officer
Erich Geiger
Chief Technical Officer
Philip Hart
President - Professional Group
Thomas Jacoby
Chief Marketing Officer
William S. Palin
Vice President - Controller
Sandra B. Robinson
Vice President - Financial Operations
Edwin Summers
Vice President and General Counsel
Floyd E. Toole
Vice President - Acoustics
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
ANNUAL MEETING
The annual meeting of shareholders will be held on November 10, 1998,
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 15, 1998, 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 the historical information contained in this Annual Report, the
matters discussed herein contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those suggested in the forward-looking statements,
including without limitation, the effect of economic conditions, product
demand, currency exchange rates, competitive products and other risks
detailed herein and in the Company's other filings with the Securities
and Exchange Commission.
69
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70
<PAGE>
EXHIBIT 21.1
71
<PAGE>
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72
<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
AudioLatina S.A. de C.V. Mexico
Becker Automotive (Pty) Ltd. South Africa
Becker GmbH Germany
Becker Holding GmbH Germany
Becker of North America, Inc. New Jersey
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 Audio Electronic Systems GmbH Germany
Harman Belgium NV Kingdom of Belgium
Harman Consumer Europe A/S Denmark
Harman Consumer France SNC France
Harman Consumer Manufacturing -
El Paso, Inc. Delaware
</TABLE>
73
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
Harman Consumer Netherlands BV Netherlands
Harman Enterprises, Inc. Delaware
Harman Holding Europe A/S Denmark
Harman International
Foreign Sales Corporation Guam
Harman International
Industries Limited United Kingdom
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 GmbH Germany
Harman Pro North America, Inc. Delaware
Harman UK Limited United Kingdom
Infinity Systems A/S Denmark
Infinity Systems, Inc. California
</TABLE>
74
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------- --------------
<S> <C>
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
Oxford International, Ltd. 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
</TABLE>
75
<PAGE>
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76
<PAGE>
EXHIBIT 23.1
77
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
78
<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 12, 1998, relating to the consolidated balance sheets of
Harman International Industries, Incorporated and subsidiaries as of June
30, 1998 and 1997, 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, 1998, which report appears
in the June 30, 1998 annual report on Form 10-K of Harman International
Industries, Incorporated.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
September 14, 1998
79
<PAGE>
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80
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 2873
<SECURITIES> 13331
<RECEIVABLES> 309953
<ALLOWANCES> 10072
<INVENTORY> 307189
<CURRENT-ASSETS> 695203
<PP&E> 442421
<DEPRECIATION> 194053
<TOTAL-ASSETS> 1130684
<CURRENT-LIABILITIES> 327288
<BONDS> 259609
<COMMON> 186
0
0
<OTHER-SE> 511713
<TOTAL-LIABILITY-AND-EQUITY> 1130684
<SALES> 1513255
<TOTAL-REVENUES> 1513255
<CGS> 869825
<TOTAL-COSTS> 1107229
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4904
<INTEREST-EXPENSE> 24885
<INCOME-PRETAX> 75707
<INCOME-TAX> 21851
<INCOME-CONTINUING> 53826
<DISCONTINUED> 0
<EXTRAORDINARY> 3583
<CHANGES> 0
<NET-INCOME> 50243
<EPS-PRIMARY> 2.71
<EPS-DILUTED> 2.67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> (74)
<SECURITIES> 377
<RECEIVABLES> 308072
<ALLOWANCES> 9962
<INVENTORY> 308051
<CURRENT-ASSETS> 651970
<PP&E> 394148
<DEPRECIATION> 193190
<TOTAL-ASSETS> 996209
<CURRENT-LIABILITIES> 274659
<BONDS> 254611
<COMMON> 186
0
0
<OTHER-SE> 436291
<TOTAL-LIABILITY-AND-EQUITY> 996209
<SALES> 1361595
<TOTAL-REVENUES> 1361595
<CGS> 772736
<TOTAL-COSTS> 953470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3103
<INTEREST-EXPENSE> 27510
<INCOME-PRETAX> 75024
<INCOME-TAX> 23750
<INCOME-CONTINUING> 52042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52042
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 9342
<SECURITIES> 1910
<RECEIVABLES> 277211
<ALLOWANCES> 12313
<INVENTORY> 236532
<CURRENT-ASSETS> 552655
<PP&E> 347403
<DEPRECIATION> 157580
<TOTAL-ASSETS> 886872
<CURRENT-LIABILITIES> 295091
<BONDS> 266021
<COMMON> 152
0
0
<OTHER-SE> 289338
<TOTAL-LIABILITY-AND-EQUITY> 886872
<SALES> 1170224
<TOTAL-REVENUES> 1170224
<CGS> 668657
<TOTAL-COSTS> 806143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4263
<INTEREST-EXPENSE> 25284
<INCOME-PRETAX> 61157
<INCOME-TAX> 19642
<INCOME-CONTINUING> 41435
<DISCONTINUED> 0
<EXTRAORDINARY> (274)
<CHANGES> 0
<NET-INCOME> 41161
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 2.53
</TABLE>
