<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: December 31, 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
1101 PENNSYLVANIA AVENUE, NW WASHINGTON, D.C. 20004
-----------------------------------------------------
(Address of principal executive offices) (Zip code)
(202) 393-1101
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
17,703,690 shares of Common Stock, $.01 par value, at January 31, 1999.
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 31, 1998 and June 30, 1998 3
Condensed Consolidated Statements of Operations -
Three and six months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Six months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of the
Results of Operations and Financial Condition 10-15
PART II. OTHER INFORMATION 16-17
SIGNATURES 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND JUNE 30, 1998
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
ASSETS 12/31/98 06/30/98
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 7,746 16,204
Receivables (less allowance for doubtful
accounts of $12,091 at December 31,
1998 and $10,072 at June 30, 1998) 302,710 299,881
Inventories 332,136 307,189
Other current assets 76,827 71,929
----------- -----------
Total current assets 719,419 695,203
----------- -----------
Property, plant and equipment, net 245,142 248,368
Excess of cost over fair value of assets
acquired, net 165,499 161,712
Other assets 24,404 25,401
----------- -----------
Total assets $1,154,464 1,130,684
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 19,840 18,333
Current portion of long-term debt 12,552 55,698
Accounts payable 92,547 113,367
Accrued liabilities 124,481 139,890
----------- -----------
Total current liabilities 249,420 327,288
----------- -----------
Borrowings under revolving credit
facility 151,353 6,554
Senior long-term debt 258,708 253,055
Other non-current liabilities 31,917 31,253
Minority interest 690 635
Shareholders' equity
Common stock, $.01 par value 177 186
Additional paid-in capital 288,971 288,336
Other comprehensive income (loss) (13,961) (21,478)
Retained earnings 220,967 244,855
Less common stock held in treasury (33,778) --
----------- -----------
Total shareholders' equity 462,376 511,899
----------- -----------
Total liabilities and shareholders' equity $1,154,464 1,130,684
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
(000s omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 387,518 402,964 703,414 732,233
Cost of sales 303,071 292,205 535,232 532,468
----------- ----------- ------------ ------------
Gross profit 84,447 110,759 168,182 199,765
Selling, general and administrative 84,750 80,914 150,156 151,391
Plant closures and severance 17,010 -- 17,010 --
Asset impairment 20,054 -- 20,054 --
----------- ----------- ------------ ------------
Operating income (loss) (37,367) 29,845 (19,038) 48,374
Other expense:
Interest expense 6,054 6,351 11,987 12,623
Miscellaneous, net 872 385 962 304
----------- ----------- ------------ ------------
Income (loss) before income taxes
and extraordinary item (44,293) 23,109 (31,987) 35,447
Income tax expense (benefit) (13,731) 7,157 (9,916) 10,988
----------- ----------- ------------ ------------
Income (loss) before extraordinary item (30,562) 15,952 (22,071) 24,459
----------- ----------- ------------ ------------
Extraordinary item, net of income taxes -- -- -- ( 3,583)
----------- ----------- ------------ ------------
Net income (loss) $ (30,562) 15,952 $ (22,071) 20,876
----------- ----------- ------------ ------------
Basic EPS before
extraordinary item $ (1.73) 0.86 $ (1.22) 1.32
Extraordinary item -- -- -- (0.19)
----------- ----------- ------------ ------------
Basic earnings (loss) per share $ (1.73) 0.86 $ (1.22) 1.13
----------- ----------- ------------ ------------
Diluted EPS before
extraordinary item $ (1.73) 0.84 $ (1.22) 1.30
Extraordinary item -- -- -- (0.19)
----------- ----------- ------------ ------------
Diluted earnings (loss) per share $ (1.73) 0.84 $ (1.22) 1.11
----------- ----------- ------------ ------------
Weighted average shares
outstanding - basic 17,701 18,574 18,076 18,537
----------- ----------- ------------ ------------
Weighted average shares
outstanding - diluted 17,701 18,950 18,076 18,871
----------- ----------- ------------ ------------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
($000s omitted)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (22,071) 20,876
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 29,907 25,994
Amortization of intangible assets 3,567 3,971
Special charges, net of cash paid 63,318 --
Changes in working capital, net of acquisition/
disposition effects:
(Increase) decrease in:
Receivables (4,821) 10,169
Inventories (48,379) (30,827)
Other current assets (7,249) (12,178)
Increase (decrease) in:
Accounts payable (20,820) (15,136)
Accrued liabilities (38,047) (2,327)
----------- -----------
Net cash provided by (used in) operating activities $ (44,595) 542
----------- -----------
Cash flows from investing activities:
Payment for purchase of companies,
net of cash acquired $ -- (70,653)
Net proceeds from disposition of assets -- 4,489
Capital expenditures (32,433) (34,189)
Other items, net (5,274) (1,563)
----------- -----------
Net cash used in investing activities $ (37,707) (101,916)
----------- -----------
Cash flows from financing activities:
Borrowings on (repayments of) lines of credit $ 1,507 (7,167)
Net proceeds from issuance of long-term debt 107,306 127,075
Shares repurchases (33,778) --
Dividends paid to shareholders (1,817) (1,853)
Proceeds from exercise of stock options 626 3,148
----------- -----------
Net cash flow provided by financing activities $ 73,844 121,203
----------- -----------
Net increase (decrease) in cash and
cash equivalents ( 8,458) 19,829
Cash and cash equivalents
at beginning of period 16,204 4,230
----------- -----------
Cash and cash equivalents at end of period $ 7,746 24,059
----------- -----------
Supplemental disclosures of cash flow information:
Interest paid $ 13,336 11,518
Income taxes paid $ 3,712 6,192
Supplemental schedule of non-cash
investing activities:
Fair value of assets acquired $ -- 145,613
Cash paid for the assets -- 70,653
----------- -----------
Liabilities assumed $ -- 74,960
----------- -----------
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The Company's Condensed Consolidated Financial Statements as of
December 31, 1998, and for the three and six months ended December
31, 1998 and 1997, have not been audited by the Company's
independent auditors; however, in the opinion of management, the
accompanying unaudited Condensed Consolidated Financial Statements
contain all adjustments (consisting of only normal recurring accruals)
necessary to present fairly the consolidated financial position of the
Company and subsidiaries as of December 31, 1998 and the results of
their operations and their cash flows for the periods presented.
Where necessary, prior years' information has been reclassified to
conform to the current year consolidated financial statement
presentation.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto included in
the Company's Annual Report on Form 10-K for the year ended June
30, 1998.
The results of operations for the six months ended December 31, 1998,
are not necessarily indicative of the results to be expected for the full
year.
NOTE B - COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was adopted as of July 1, 1998. This
Statement requires reporting of changes in shareholders' equity that do
not result directly from transactions with share owners. Comprehensive
income and its components for the three and six months ended
December 31, 1998 and 1997 are presented below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
(Dollars in thousands) 1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $ (30,562) 15,952 (22,071) 20,876
Foreign currency
translation adjustments (1,392) (2,001) 7,517 ( 4,535)
----------- ----------- ----------- -----------
Total comprehensive income (loss) $ (31,954) 13,951 (14,554) 16,341
----------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE C - EARNINGS PER SHARE INFORMATION
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
----------------------- ------------------------
Basic Diluted Basic Diluted
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (30,562) (30,562) 15,952 15,952
---------- ---------- ---------- ----------
Shares of Harman common stock
outstanding 17,701 17,701 18,574 18,574
Employee stock options -- -- -- 376
---------- ---------- ---------- ----------
Total average equivalent shares 17,701 17,701 18,574 18,950
---------- ---------- ---------- ----------
Earnings (loss) per share $ (1.73) (1.73) .86 .84
---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended December 31,
1998 1997
-------------------------- --------------------------
Basic Diluted Basic Diluted
----------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Income (loss) before
extraordinary item $ (22,071) (22,071) 24,459 24,459
Extraordinary item, net of taxes -- -- (3,583) (3,583)
----------- ------------ ---------- -----------
Net income (loss) $ (22,071) (22,071) 20,876 20,876
----------- ------------ ---------- -----------
Shares of Harman common stock
outstanding 18,076 18,076 18,537 18,537
Employee stock options -- -- -- 334
----------- ------------ ---------- -----------
Total average equivalent shares 18,076 18,076 18,537 18,871
----------- ------------ ---------- -----------
Earnings (loss) per share before
extraordinary item $ (1.22) (1.22) 1.32 1.30
Extraordinary item, net of taxes -- -- (.19) (.19)
----------- ------------ ---------- -----------
Earnings (loss) per share $ (1.22) (1.22) 1.13 1.11
----------- ------------ ---------- -----------
</TABLE>
Employee stock options have been excluded from the net loss per share
calculation for the three and six months ended December 31, 1998,
because their effect would be anti-dilutive.
7
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE D - SPECIAL CHARGES
During the second quarter of fiscal 1999, the Company completed
planning and began implementation of a restructuring program designed
to improve the profitability of the Consumer Group and other
operations. As Company management completed its analysis and
planning for the restructuring program, the following determinations
were made: (1) a major re-alignment of the consumer audio dealer and
distribution structure was required to strengthen the positioning of our
various brands, (2) a significant number of marginally profitable
product lines should be eliminated, and (3) significant overhead
reductions were required due to product line eliminations and
weakening consumer market conditions. As a result, during the quarter,
the Company closed its El Paso manufacturing facility, closed four
other facilities located in California, Japan, Brazil and France, and
eliminated jobs at facilities in Switzerland, the United Kingdom,
California, New York and Massachusetts. Approximately 450 full-time
positions have been eliminated. The company discontinued certain
product lines and reduced its dealer base. As a result, the Company
wrote off certain assets that no longer provide economic benefit.
These actions resulted in pre-tax charges totaling $66.4 million in the
quarter. Of the $66.4 million in charges, total cash costs are projected
to be $15.3 million and non-cash costs are projected to be $51.1 million.
Through December 31, 1998, cash payments charged against the
provision totaled $3.1 million, including $1.7 million of severance
payments and $1.4 million of outlays associated with facility closures.
Annual savings resulting from these initiatives are projected to be $24
million, of which $16 million are cash savings and $8 million are non-
cash savings.
Charges totaling $17.0 million were recorded for plant shut-down and
severance activities. Severance costs totaled $5.5 million. Property,
plant and equipment write-downs for closed facilities totaled $5.4
million. The majority of the El Paso factory equipment has been placed
in service at other Company facilities. The remaining equipment has
either been scrapped or is held for disposal at fair value less cost to sell.
The property, plant and equipment at other closed facilities, primarily
consisting of leasehold improvements, furniture and office equipment,
8
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
NOTE D - SPECIAL CHARGES (continued)
has been scrapped and written off. Other exit costs accrued ($6.1
million) included lease termination costs and other expenses at closed
facilities through the shut-down period.
Charges totaling $20.0 million were recorded for asset impairments.
These charges included approximately $10 million for the scrapping and
write-off of tooling and other fixed assets associated with discontinued
product lines and $5 million for intangible asset write-offs.
Charges associated with inventories totaling $24.3 million were
recorded as cost of sales. These charges resulted from the reduction in
carrying value of consumer and professional inventories of product lines
that the Company has discontinued. The fair value of discontinued
product line inventories was determined for each product line by
Company sales personnel based upon their knowledge of current market
conditions. Charges totaling $5.1 million were recorded as selling,
general and administrative expenses to write off marketing assets, such
as point-of-sale displays, associated with product lines and distributors
that the Company has discontinued, and to accrue for other costs
associated with discontinued product lines.
The special charges totaling $66.4 million, net of $3.1 million in cash
payments through December 31, 1998, affected the Company's balance
sheet as follows: receivables were reduced by $2.0 million, inventories
were reduced by $24.3 million; other current assets were reduced by
$2.4 million; property, plant and equipment were reduced by $15.5
million; other assets were reduced by $1.7 million; and accruals were
increased by $17.4 million.
These programs were initiated in the second quarter, and the Company
expects to complete much of the work by the end of the third quarter.
9
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ------------------------------------
COMPARISON OF THE THREE AND SIX MONTH PERIODS ENDED
DECEMBER 31, 1998 AND 1997
Net sales for the second quarter ended December 31, 1998 were $387.5
million. Sales in the second quarter last year totaled $403.0 million.
For the first half of the year, sales were $703.4 million. Sales in the
same period last year totaled $732.2 million. Sales for the quarter and
the first half were negatively affected by the Asian crisis, which began
to impact the Company's sales in the second quarter of last year.
Sales to the automakers increased over the prior year, primarily due to
strong sales to Chrysler including systems for the new Jeep Grand
Cherokee, Dodge Durango and the Chrysler LHS and 300M. Becker
contributed to the growth with higher sales to BMW and Porsche. Sales
to consumer audio retailers and distributors were lower due to declines
in Asia, where sales for the first half were over 70% lower than last
year, and a generally soft consumer electronics market worldwide.
Sales in the professional audio market were lower due primarily to
declines in Asia, where sales for the first half were over 40% lower than
last year. AKG's continued sales growth partially offset that decline.
During the second quarter of fiscal 1999, the Company completed
planning and began implementation of a restructuring program designed
to improve the profitability of the Consumer Group and other
operations. As Company management completed its analysis and
planning for the restructuring program, the following determinations
were made: (1) a major re-alignment of the consumer audio dealer and
distribution structure was required to strengthen the positioning of our
various brands, (2) a significant number of marginally profitable
product lines should be eliminated, and (3) significant overhead
reductions were required due to product line eliminations and
weakening consumer market conditions. As a result, during the quarter,
the Company recorded pre-tax charges totaling $66.4 million, as
discussed in Note D to the financial statements.
10
<PAGE>
The gross profit margin for the quarter ended December 31, 1998 was
21.8 percent ($84.4 million) compared to 27.5 percent ($110.8 million)
in the prior year. The gross profit margin for the first half of fiscal 1999
was 23.9 percent ($168.2 million) compared to 27.3 percent ($199.8
million) in the previous year. The decline in the gross profit margin for
the quarter and the first half is due to special charges recorded in the
second quarter to reduce the carrying value of inventories of
discontinued product lines totaling $24.3 million. Excluding these
special charges, the gross profit margin increased to 28.1 percent
($108.7 million) for the quarter and 27.4 percent ($192.4 million) for
the first half. Higher margins at Harman Kardon and increased
automotive OEM factory leverage contributed to the improvement in
gross margins.
Selling, general and administrative costs were 21.9 percent of sales
($84.8 million) for the three months ended December 31, 1998,
compared to 20.1 percent ($80.9 million) for the same period last year.
For the six months ended December 31, 1998, selling, general and
administrative costs were 21.3 percent of sales ($150.2 million)
compared to 20.7 percent ($151.4 million) for the same period last year.
Selling, general and administrative costs for the three and six months
ended December 31, 1998, included $5.1 million in special charges to
write off marketing assets, including point-of-sale displays, associated
with product lines and distributors which the Company has determined
to discontinue and to record other costs associated with discontinued
product lines. Excluding the special charges, selling, general and
administrative costs were 20.6 percent of sales ($79.7 million) for the
second quarter and 20.6 percent ($145.0 million) for the first half,
approximating prior year levels.
Plant closing and severance costs of $17.0 million were 4.4 percent and
2.4 percent of sales for the quarter and the first half, respectively. Asset
impairment costs of $20.0 million were 5.2 percent and 2.9 percent of
sales for the quarter and the first half, respectively. The plant closing
and severance costs of $17.0 million resulted from the closure of the El
Paso, Texas, electronics plant, the closure of facilities in California,
Japan, Brazil and France, and the elimination of jobs in Switzerland, the
United Kingdom, Massachusetts, California and New York. When the
program is complete, the facility closures and the elimination of
approximately 450 full-time jobs are projected to result in annual
savings of $20 million, of which $16 million is cash savings. The asset
impairment charge of $20.0 million resulted from the write-down of
tooling, factory equipment and other assets associated with discontinued
product lines and other write-downs of assets that will no longer provide
economic benefit to the Company.
11
<PAGE>
Operating loss as a percentage of sales was 9.6 percent ($37.4 million)
for the quarter ended December 31, 1998, and 2.7 percent ($19.0
million) for the first half. Last year, operating income as a percent of
sales was 7.4 percent ($29.8 million) for the second quarter and 6.6
percent ($48.4 million) for the first half. The decreases in operating
income for the quarter and the first half are due to the special charges
totaling $66.4 million, discussed previously. Excluding the special
charges of $66.4 million, operating income as a percent of sales for the
three months ended December 31, 1998, was 7.5 percent ($29.0
million), compared to 7.4 percent ($29.8 million) in the same period last
year. For the six months ending December 31, 1998, operating income
excluding the special charges was 6.7 percent of sales ($47.4 million),
compared to 6.6 percent ($48.4 million) in the same period last year.
Operating income excluding the special charges as a percent of sales
increased in both periods due to improved gross profit margins.
Interest expense for the three months ended December 31, 1998 was
$6.1 million compared to $6.4 million in the same quarter last year. For
the six months ended December 31, 1998, interest expense was $12.0
million, down from $12.6 million last year. Average borrowings
outstanding were $435.9 million for the second quarter of fiscal 1999
and $398.7 million for the first half, compared to $402.5 million and
$375.4 million, respectively, for the same periods in the prior year.
The weighted average interest rate on borrowings was 5.6 percent for
the second quarter and 6.0 percent for the six months ended December
31, 1998. The average interest rates for the comparable periods in the
prior year were 6.3 percent and 6.7 percent, respectively. The decrease
in the weighted average interest rate was due to the August 1, 1997,
early retirement of $64 million of 12.0% notes, funded with 10-year
notes bearing interest at 7.32%, and the December 1, 1998 retirement of
$45 million of 11.2% notes, funded with revolving credit facility
borrowings at LIBOR plus 0.20%.
Loss before income taxes and extraordinary item for the second quarter
of fiscal 1999 was $44.3 million, compared to income of $23.1 million
in the prior year. For the six months ended December 31, 1998, loss
before income taxes and extraordinary item was $32.0 million,
compared with income of $35.4 million last year.
The effective tax rate for the three months and six months ended
December 31, 1998, was 31.0 percent, equal to the rate reported for the
same periods last year. The effective tax rates 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
12
<PAGE>
carryforwards at certain foreign subsidiaries. The Company calculates
its effective tax rate based upon its current estimate of annual results.
Net loss for the three months ended December 31, 1998 was $30.6
million, compared to income of $16.0 million reported for the same
period last year. Net loss for the six months ended December 31, 1998
was $22.1 million, compared to income of $24.5 million, $20.9 million
after an extraordinary charge for the early retirement of debt, in the prior
year.
Basic and diluted loss per share for the three months ended December
31, 1998 were $1.73. In the second quarter last year, basic earnings per
share were $.86, and diluted earnings per share were $.84.
Basic and diluted loss per share for the six months ended December 31,
1998 were $1.22. For the first half last year, basic earnings per share
before the extraordinary charge were $1.32 and diluted earnings per
share were $1.30. After the extraordinary charge, basic earnings per
share were $1.13 and diluted earnings per share were $1.11.
FINANCIAL CONDITION
- ---------------------------------
Net working capital at December 31, 1998 was $470.0 million,
compared with $367.9 million at June 30, 1998. The working capital
increase was primarily due to higher inventory balances, lower accounts
payable and accrued liabilities and the $45 million December 1, 1998
debt retirement discussed previously. Inventories increased due to
lower than projected second quarter sales volumes in consumer markets
and increases to meet higher next quarter sales volumes in the
automotive and personal computer OEM businesses and at AKG.
Accrued liabilities decreased due to the reduction of income taxes
payable associated with the $66.4 million pre-tax charge recorded in the
quarter ended December 31, 1998.
The special charges totaling $66.4 million, net of $3.1 million in cash
payments through December 31, 1998, affected the Company's balance
sheet as follows: receivables were reduced by $2.0 million, inventories
were reduced by $24.3 million; other current assets were reduced by
$2.4 million; property, plant and equipment were reduced by $15.5
million; other assets were reduced by $1.7 million; and accruals were
increased by $17.4 million.
The Company initiated a common stock repurchase program in July
1998. Through December 31, 1998, the company acquired and placed
13
<PAGE>
in treasury 960,400 shares of its common stock at a total cost of $33.8
million. The total authorization for the share repurchase program is 1.5
million shares.
Borrowings under the revolving credit facility at December 31, 1998
were $157.5 million, comprised of swing line borrowings of $6.1
million, which were included in notes payable, and competitive advance
borrowings and revolving credit borrowings of $151.4 million.
Borrowings under the revolving credit facility at June 30, 1998 were
$8.4 million, comprised of swing line borrowings of $1.8 million and
competitive advance borrowings and revolving credit borrowings of
$6.6 million. Borrowings under the revolving credit facility increased
primarily due to higher working capital requirements, the December 1,
1998 repayment of the $45 million of 11.2% notes, and the common
stock repurchases totaling $33.8 million.
YEAR 2000
- ---------------
The Company is evaluating and addressing risks associated with the
Year 2000 problem. Potential risks associated with computer systems,
embedded chips in machinery and equipment, suppliers and customers
are being examined. The Company and its subsidiaries have
substantially completed inventory and assessment, and are in varying
stages of remediation and testing.
As of December 31, 1998, the company and a majority of its
subsidiaries have completed inventory and assessment of computer
hardware, computer software and machinery and equipment using
embedded chips. Three of the Company's 50 reporting units have not
completed inventory and assessment, and they are now expected to
complete these phases by March 31, 1999. The results of the completed
inventories indicate that 77 percent of the hardware, software and
embedded chips in use are currently Year 2000 compliant. The
estimated remaining cost of replacement or upgrade for hardware,
software and equipment identified as non-compliant is approximately
$1.5 million. Some of these replacements and upgrades were included
in fiscal 1999 capital budgets as routine infrastructure and productivity
improvement expenditures. The target date for completion of all
hardware, software and machinery and equipment Year 2000
compliance efforts is June 1999.
Approximately 30 percent of the Company's subsidiaries have issued
Year 2000 compliance surveys to their principal suppliers. These
14
<PAGE>
subsidiaries have reported response rates between 20 percent and 100
percent, with varying degrees of compliance reported. The target date
for issuance of all supplier surveys is March 1999, and completion of
evaluation of the results is scheduled for June 1999. As these
evaluations are completed, contingency planning processes will be
considered as appropriate.
Approximately 20 percent of the Company's subsidiaries have issued
Year 2000 compliance surveys to their principal customers. The
Company is participating in Year 2000 compliance programs with its
major automotive customers, such as Daimler Chrysler, Toyota and
BMW, including formal audits. The target date for issuance of all
principal customer surveys is March 1999, and completion of evaluation
of the results is scheduled for June 1999. As these evaluations are
completed, contingency planning will be considered as appropriate.
The failure by the Company and its subsidiaries or its suppliers or its
customers to correct a Year 2000 problem could interrupt normal
business activities. Management believes that its plans provide
reasonable assurance that the Company's primary computer systems,
manufacturing processes and distribution processes will not be
materially impacted by a Year 2000 problem. The Company cannot
provide assurance that all principal customers and suppliers will
successfully complete Year 2000 compliance plans in a timely manner.
However, management believes that its plans should reduce the risk of
business interruptions due to supplier or customer difficulties.
Except for historical information contained herein, the matters discussed are
forward-looking statements which involve risks and uncertainties that could
cause actual results to differ materially from those suggested in the forward-
looking statements, including, but not limited to, the effect of economic
conditions, product demand, currency exchange rates, competitive products
and other risks detailed in the Company's other Securities and Exchange
Commission filings. In addition to the foregoing, the Company's ability to
realize the anticipated benefits resulting from the restructuring program
involves risks and uncertainties, including, but not limited to, market
conditions, the timing and effectiveness of the product line and distributor
repositioning, and effective and efficient execution by the external suppliers
of products formerly manufactured in the El Paso, Texas, facility. The
Company's ability to avoid interruptions due to Year 2000 problems involves
risks and uncertainties, including, but not limited to, suppliers', customers'
and the Company and its subsidiaries' ability to complete remediation which
could be affected by factors such as delays and increased costs.
15
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are various legal proceedings pending against the
registrant and its subsidiaries, but, in the opinion of
management, liabilities, if any, arising from such claims will not
have a materially adverse effect upon the consolidated financial
condition of the registrant.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The date of the annual meeting of stockholders was
November 10, 1998.
(b) Mr. Bernard Girod was re-elected as a director of the
Company with 16,036,425 affirmative votes and 77,789
votes withholding authority. Mr. Girod will serve a three-
year term expiring at the 2001 Annual Meeting of
Stockholders.
Ms. Ann McLaughlin was re-elected as a director of the
Company with 16,033,160 affirmative votes and 81,054
votes withholding authority. Ms. McLaughlin will serve
a three-year term expiring at the 2001 Annual Meeting of
Stockholders.
Item 5. Other Information
None.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
None.
(b) Reports on Form 8-K
Form 8-K, dated January 26, 1999, filed on January 27,1999,
containing the following items:
Item 5. Press release announcing second quarter and first
half results, including special charges, and other information
concerning these periods and future periods.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
(Registrant)
DATE: February 16, 1998 BY: /s/ Bernard A. Girod
----------------------
Bernard A. Girod
President, Chief
Operating officer
and Secretary
DATE: February 16, 1998 BY: /s/ Frank Meredith
-----------------------
Frank Meredith
Vice President of
Finance and
Administration and
Chief Financial Officer
18
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