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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, 1999
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 September 10, 1999, was $704,395,599.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 17,258,112
shares of Common Stock, par value $.01 per share, as of September 10, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended June 30, 1999, 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
1999 Annual Meeting of Stockholders are incorporated by reference in
Part III, Items 10 (as related to Directors), 11, 12, and 13.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................ 5
Item 2. Properties.......................................... 23
Item 3. Legal Proceedings................................... 24
Item 4. Submission of Matters to a Vote of
Security Holders................................ 24
Executive Officers of the Registrant............ 24
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder
Matters......................................... 27
Item 6. Selected Financial Data............................. 27
Item 7. Management's Discussion and
Analysis of Financial Condition and
Results of Operations........................... 27
Item 7A. Quantitative and Qualitative
Disclosures about Market Risk................... 28
Item 8. Consolidated Financial Statements
and Supplementary Data.......................... 28
Item 9. Disagreements on Accounting and
Financial Disclosure............................ 29
PART III
Item 10. Directors and Executive Officers of
the Registrant.................................. 29
Item 11. Executive Compensation.............................. 29
Item 12. Security Ownership of Certain
Beneficial Owners and Management................ 29
Item 13. Certain Relationships and Related
Transactions.................................... 29
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.29
List of Financial Statements and
Financial Statement Schedules................... 33
Independent Auditor's Report.................... 35
Index to Exhibits............................... 37
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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 manufacture of high-quality
high-fidelity audio products targeted at the consumer and professional
audio 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 its principal markets. The objective of the Company's
development efforts has been to secure engineering, manufacturing and
marketing leadership and to strengthen the Company's ability to provide
total audio system solutions to its customers.
The Company's businesses are organized by the end-user markets they
serve. The Consumer Systems Group manufactures loudspeakers and
electronics for high fidelity audio reproduction in the home, with
computers and in the car. The Professional Group manufactures
loudspeakers and electronics used by audio professionals in concert hall,
recording, broadcast and cinema applications.
Harman's primary manufacturing facilities are located in California,
Indiana, Utah, Germany, the United Kingdom, Denmark, Mexico, France
and Austria.
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Consumer Systems Group
The Consumer Systems Group manufactures loudspeakers and electronics
for high fidelity audio reproduction in the home, with computers and in
the car. These products are marketed under brand names including JBL,
Infinity, Harman Kardon, Mark Levinson, Proceed, Revel and
AudioAccess. 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 products bearing the
Mark Levinson, Proceed and Revel brands are acclaimed for their
superior build quality and state-of-the-art sound reproduction.
The Consumer Systems Group offers premium, branded audio systems to
retail automobile purchasers through OEM supply agreements with
DaimlerChrysler, BMW, Toyota, Mitsubishi, Porsche, Saab, Range
Rover, Peugeot and Ferrari, complemented by non-branded loudspeaker
supply agreements with other automakers including Audi, Volvo, VW,
Ford and Fiat.
The Company's largest automotive OEM customer, DaimlerChrysler,
offers Infinity branded audio systems in the majority of its Chrysler,
Dodge and Plymouth car, truck and sport-utility vehicle platforms, and
offers Becker head units and navigation systems in a substantial number
of its Mercedes Benz automobiles. Becker also supplies head units to
BMW and Porsche. Toyota offers JBL branded audio systems in many of
its models, and in the year 2001 we expect the JBL brand to be offered
across the entire Toyota product line.
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 through the automakers 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.
The Consumer Systems Group offers branded audio systems to personal
computer users through OEM supply agreements with Compaq, IBM and
Dell. These audio systems provide high-quality sound and thus enhance
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the appeal and capability of the personal computer as an entertainment
device. The JBL, Infinity and Harman Kardon brand names are all
employed in this market.
The Company believes the maturation and broadened acceptance of DVD
and digital television will provide growth opportunities for its consumer
brands. In addition to the contribution of its new Proceed and Harman
Kardon DVD machines, the Company 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 Company believes excellent growth opportunities are available in the
automotive OEM channel 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 supply agreements with additional
automakers.
Professional Group
The Company's Professional Group manufactures 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 Professional, 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 Professional is a leader in the vibrant cinema market, 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
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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 market 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, Digitech and Spirit serve the music instrument support
segment of the professional audio market. JBL manufactures and markets
loudspeakers, monitors and amplifiers. DOD and Digitech sell sound
effects and other signal processors, portable mixing consoles and guitar
amplifiers. Spirit markets portable mixing consoles. Music instrument
support products are sold through music retail stores such as Guitar
Center and Sam Ash.
Operating and Geographic Segment Information
Financial information about operating and geographic segments required
to be included hereunder is incorporated by reference to Note 10 of Notes
to Consolidated Financial Statements contained in the Company's Annual
Report to Shareholders for the fiscal year ended June 30, 1999.
Description of Business
The Company's business is conducted through its wholly owned
subsidiaries which include:
<TABLE>
<CAPTION>
Name Principal products
- ------------------------------ ----------------------------------------
<S> <C>
AKG Acoustics GmbH Professional electronics
Audax Industries, SNC Consumer home and automotive
loudspeakers
Becker GmbH Automotive OEM and automotive
aftermarket electronics
</TABLE>
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<TABLE>
<CAPTION>
Name Principal products
- ------------------------------ ----------------------------------------
<S> <C>
Harman Audio Electronics
Systems GmbH Automotive OEM loudspeakers
Harman Music Group, Incorporated Professional electronics
Harman Consumer Europe A/S Consumer home and automotive
electronics
Harman Consumer Manufacturing A/S Components, cabinets and
loudspeaker systems
Harman France, S.N.C. Consumer home and automotive
audio products
Harman International Industries, Automotive OEM loudspeakers and
Limited electronics and professional
audio products
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, professional and
automotive loudspeakers and
electronics
Lexicon, Incorporated Professional electronics
Madrigal Audio Laboratories, Inc. Consumer electronics
Oxford International Ltd. Automotive OEM loudspeakers
Studer Professional Audio AG Professional electronics
</TABLE>
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Markets for Products
Based on its knowledge of the audio industry, the Company believes that
the consumer and professional audio markets have grown in recent years.
In 1997 and 1998, the consumer and professional audio markets slowed
somewhat due to uncertainty associated with technology transitions and
weakness in Asia. The transition from analog to digital audio technology
has changed 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 unsettled markets due to customer confusion
and hesitancy, management believes that the new digital technologies and
standards are stabilizing and Harman's market position will help the
Company to capitalize on the release of pent-up demand as confusion and
hesitancy abate.
The multimedia audio systems market has been a growth market for
Harman. The Company has developed branded audio systems for
personal computers marketed by Compaq, IBM and Dell. The Company
also produces branded aftermarket audio systems for multimedia
applications. The Company believes that the number of personal
computers equipped with multimedia capabilities will continue to
increase.
We believe significant growth opportunities exist within the automotive
audio market to increase sales by increasing product penetration in
platforms currently supplied on an OEM basis, increasing per-vehicle
content through the provision of systems with additional functions,
expanding the number of automobile models offering our systems and
adding new OEM partners. 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 multimedia systems through its automobile manufacturing
partners. During fiscal 1999, the Company received its first commitments
for integrated systems on future models from Audi, BMW and Porsche,
and we believe that these will be followed by commitments from other of
the world's leading automakers.
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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.
Products
The Company designs, manufactures and markets worldwide a broad
range of high-quality, high-fidelity audio loudspeakers and electronics for
the consumer audio market (in the home, in the car and with computers)
and the professional audio market (sound reinforcement, broadcast and
recording, and musical instrument support).
CONSUMER PRODUCTS. The Company manufactures loudspeakers
under the JBL, Infinity and Revel brand names for the consumer market.
These loudspeaker lines include models designed for two-channel stereo
and multi-channel surround sound applications in the home in a wide
range of choices, including floorstanding, bookshelf, powered, low
frequency, in-wall, wireless and all-weather, in styles and finishes ranging
from high gloss lacquers to genuine wood veneers. The JBL and Infinity
product lines also include car loudspeakers, amplifiers and crossovers.
The Company manufactures a broad range of consumer audio electronics.
The Company's consumer electronics products facilitate the marketing of
complete home, car and multimedia systems incorporating the Company's
loudspeakers, such as surround sound home theater installations. The
Company's Harman Kardon home electronics line includes audio-video
receivers featuring Dolby Digital and DTS surround sound processing
capabilities and multi-channel amplifiers. DVD machines in the final
stages of 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 electronics, including
amplifiers, pre-amplifiers, digital signal processors and compact disc
transports and players and a new DVD transport. Madrigal markets its
products under the renowned Mark Levinson and Proceed brand names.
The AudioAccess product line is also part of the Madrigal Group.
AudioAccess products provide in-home, multi-source, multi-zone sound
system controls, serving home theater and multi-room applications.
JBL, Infinity and Harman Kardon branded premium audio systems are
offered with personal computers manufactured by Compaq, IBM and
Dell, respectively. Harman participates in this market through design and
brand name licensing as well as direct sourcing. These audio systems
provide high-quality sound and thus enhance the appeal and capability of
the personal computer as an entertainment device.
Harman is a leading global manufacturer of premium branded automotive
audio systems offered by automakers as an option to their customers. In
its offering of loudspeakers, head units, amplifiers and other audio
products through 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. Harman engineers are engaged by the automobile manufacturers
early in the cabin design process to develop systems that optimize
acoustic performance and minimize weight and space requirements.
Harman has developed the technical competencies to offer complete
multimedia systems to automobile manufacturers incorporating audio,
video, navigation, communications, security and cabin quieting. Today,
the Company primarily supplies car audio, video and navigation systems
products separately. However, the Company has received its first
commitments for integrated systems on year 2002 and 2003 models from
Audi, BMW and Porsche in Europe. We believe that this could be
followed by integrated system commitments from other of the world's
leading automakers. The Company's Infinity-branded car audio systems
are offered by DaimlerChrysler's Chrysler, Dodge, Plymouth and Jeep
lines and by Mitsubishi. JBL-branded audio systems are offered by
Toyota, Peugeot and Hyundai. Harman Kardon systems are offered by
BMW, Jaguar, Saab and Land Rover (Range Rover). Becker supplies
head units, navigation systems and other electronics to DaimlerChrysler,
BMW and Porsche.
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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 Professional, Soundcraft, Allen & Heath, DOD,
Digitech, 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 Theater
in Copenhagen and Abbey Road Studio in England. Harman professional
equipment is used on tour by performing artists throughout the world.
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.
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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
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 produce sound effects
and refine final mixes. Additionally, Lexicon manufactures and markets a
series of high-end home theater surround sound processors and amplifiers.
AKG is a leading manufacturer 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. AKG has leveraged its
engineering and manufacturing expertise to enter the telecommunications
market, supplying miniature transducers to mobile phone makers Nokia
and Qualcomm.
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.
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.
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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 computer
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, development and
procurement resources.
The Company's principal domestic manufacturing facility in Northridge,
California, manufactures JBL and Infinity loudspeakers and audio
electronics for home, car, multimedia and professional applications. The
Company manufactures car loudspeakers and assembles car sound
systems in Martinsville, Indiana. Harman Music Group manufactures
professional electronics products at its facility in Salt Lake City, Utah.
Lexicon manufactures professional electronics products at its Bedford,
Massachusetts facility. Madrigal manufactures consumer electronics at its
Middletown, Connecticut facility.
The Company has established a strong manufacturing presence in Europe
to better respond to customer demands in that market. European
automotive loudspeaker and electronics manufacturing includes the
production of loudspeakers and amplifiers in the United Kingdom,
Germany, Sweden and Hungary, and car radios, navigation systems,
amplifiers and other electronics at Becker in Germany. Audax
Industries SNC ("Audax"), a manufacturer of high-quality, high-
performance tweeters, woofers and car loudspeaker systems, is located in
France, and the Company's Harman Consumer Manufacturing A/S
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).
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Marketing and Distribution
The Company's products are sold domestically and internationally in the
consumer and professional audio markets. The consumer market for
audio entertainment systems consists of car, home and multimedia. 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 Company primarily markets its home and automotive aftermarket
audio products through audio and audio-video specialty stores and certain
audio-video chain stores, such as Circuit City and Best Buy 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. Sales and marketing activities for these
products include dealer education programs, point-of-sale displays,
participation in consumer audio trade shows, comprehensive product
literature and mass-media advertising.
The Company's Consumer Systems Group markets its branded OEM
audio products through automobile and personal computer manufacturers
and dealers. Automobile manufacturers offering Harman systems include
DaimlerChrysler, Toyota, BMW, Ford, Mitsubishi, Volkswagen, Volvo,
Audi, Jaguar, Porsche, Range Rover and Saab. Personal computer OEM
customers include Compaq, IBM and Dell. Sales and marketing activities
for these products include dealer education programs, point-of-sale
displays, participation in consumer audio trade shows and mass-media
advertising.
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. Professional audio sales and
marketing activities include dealer education programs, point-of-sale
displays, participation in professional audio trade shows and professional
audio media advertising.
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Suppliers
Products designed by Harman Kardon in the United States are
manufactured by several suppliers. In fiscal 1998, Harman Kardon's
largest supplier, based in Korea, experienced difficulties associated with
the crisis in Asia. Production delays at this supplier negatively affected
Harman Kardon's results. Harman Kardon terminated its relationship
with this supplier and other sources were secured to manufacture
Harman Kardon products. The loss of any of Harman Kardon's primary
suppliers would not have a material impact on the consolidated earnings
or consolidated financial position 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 consolidated earnings or consolidated financial
position of the Company.
The Company utilizes third-party suppliers to manufacture personal
computer audio systems sold to Compaq, Dell and IBM bearing the JBL,
Harman Kardon and Infinity brand names. Production difficulties at these
third-party suppliers would not have a material impact on the consolidated
earnings or consolidated financial position of the Company.
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, BSS, Sound-Web, 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, 1999, the Company held
approximately 354 United States and foreign patents covering various
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products, product designs and circuits, and had approximately 229 patent
applications pending around the world. The Company vigorously
protects and enforces its trademark and patent rights.
Seasonality
The Company experiences seasonal fluctuations in sales and earnings.
The first fiscal quarter is the weakest due to the automotive model
changeovers and the July and August holidays in Europe. Variations in
seasonal demands among end-user markets may cause operating results to
vary from quarter to quarter.
Customers
Sales to DaimlerChrysler for fiscal year 1999 accounted for 23.4% of the
Company's consolidated net sales. The loss of sales to DaimlerChrysler
would have a material adverse impact on the sales and earnings of
Harman Motive, Becker and the Company as a whole.
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 $35.3 million at June 30, 1999.
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, and 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.
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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 distributed through
a variety of channels. Consumer products are offered through various
channels including audio specialty stores, discount stores, department
stores, mail order firms and internet merchants. Consumer products are
also offered as OEM options on automobiles and personal computers
through the automotive and computer dealer channels. Professional
products are offered through music instrument retailers, professional
audio dealers, contractors and installers and on a contract bid basis. The
Company concentrates on the higher-quality, higher-priced segments of
the audio market.
The Company believes that it currently has a significant share of the
consumer market for loudspeakers (home, automotive and computer),
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
market position and complements our Mark Levinson and Proceed high-
end electronics lines. The Company competes based upon its strong
brand names, the breadth of its product lines, and its comprehensive
marketing, engineering and manufacturing resources.
The Company's principal competitors in the consumer loudspeaker
market include Bose, Boston Acoustics, B&W, KEF, Celestion,
Paradigm, Acoustic Research, Cambridge SoundWorks and Polk Audio.
Principal competitors in the high-end loudspeaker market include
Wilson Audio, Snell and B&W.
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 and Yamaha. The
Company competes in the high-end consumer electronics market with the
19
<PAGE>
Mark Levinson, Citation and Proceed brands. Principal competitors
include Krell, McIntosh, Audio Research, Meridian, Linn and Accuphase.
In the personal computer audio market, the Company's JBL, Infinity and
Harman Kardon brand names are attached to the premium audio systems
offered by Compaq, IBM and Dell, respectively. These audio systems are
provided through licensing and sourcing arrangements. Principal
competitors in this segment include Bose, Altec-Lansing and LabTec.
In OEM automotive audio, the Company's principal competitors include
Bose, Pioneer and Foster Electric in the loudspeaker systems segment and
Alpine, Bosch, Panasonic, Siemens, Delphi, Visteon 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, Range Rover, Saab and Peugeot. The Company also
supplies non-branded loudspeaker systems to Chrysler, Mercedes Benz,
Volkswagen, Audi, Volvo, Ford and Fiat. The Company is a primary supplier
of radio head units to Mercedes-Benz, BMW and Porsche. The Company
competes based upon the strength of its brand name recognition and the
quality of its products together with its technical expertise in designing
loudspeaker systems, electronics, navigation systems, man-machine
interfaces and complete multimedia systems to fit the acoustic properties
of each automobile model.
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 products for
most professional audio applications.
The Company competes in the sound reinforcement market with many of
its brand names, including JBL Professional, AKG, Soundcraft, AMEK
and BSS. Principal competitors in sound reinforcement include the
Electro Voice division of Telex, Eastern Acoustic Works, Crest,
Sennheiser, Tannoy, Peavey, Shure, Audio Technica, Fender, Sony,
Yamaha and Mackie. 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
20
<PAGE>
Sony, Yamaha, Neve, Sennheiser, Denon, SSL, Shure, Tascam, Alesis
and Audio Technica. In the Music Instrument area, competitors for the
Company's JBL, DOD, Digitech, dbx, Lexicon, Allen & Heath and Spirit
products include Yamaha, Peavey, Rane, Roland, Alesis, Marshall,
Fender, Sony, Mackie and T.C. Electronics.
The Professional Group also competes in the industrial and architectural
sound market. Competitors within this market include Siemens, Peavey,
Tannoy and Bose.
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.
21
<PAGE>
Research, Development and Engineering
The Company's expenditures for research, development and engineering
were $76.0 million, $65.9 million, and $66.5 million for the fiscal years
ending June 30, 1999, 1998 and 1997, respectively.
Number of Employees
As of June 30, 1999, the Company had 8,850 full-time employees,
including 3,658 domestic employees and 5,192 international employees,
compared to 10,010 employees at June 30, 1998.
Disclosures about Segments and Related Information
Disclosures about segments and related information to be filed hereunder
is incorporated by reference to Note 10 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 34 and 22, respectively, in the Company's
Annual Report to Shareholders for the fiscal year ended June 30, 1999.
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, labor disputes, competitive products and other risks
detailed herein and in the Company's other filings with the Securities and
Exchange Commission.
22
<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 750,000 Leased 94% JBL, Infinity,
Harman Kardon,
JBL Professional,
Harman Motive
Ittersbach, Germany 550,000 Owned 80% Becker
Worth-Schaitt, Germany 377,500 Owned 75% Becker
Martinsville, Indiana 200,000 Owned 100% Harman Motive
40,000 Leased 100%
Ontario, California 212,600 Leased 100% JBL, Infinity,
Harman Kardon,
JBL Professional
Straubing, Germany 193,000 Owned 95% Harman Audio
Elec. Systems
Ringkobing, Denmark 171,500 Owned 100% Harman Consumer
16,100 Leased 80% Manufacturing A/S
Potters Bar, UK 160,000 Leased 100% Soundcraft, AMEK
BSS, C-Audio
Vienna, Austria 129,000 Leased 100% AKG
Sandy, Utah 122,000 Leased 100% Digitech, DOD, dbx
Bridgend, UK 102,000 Leased 100% Harman Motive Ltd
Regensdorf, Switzerland 86,100 Leased 100% Studer
</TABLE>
The company considers its properties to be suitable and adequate for its
present needs.
23
<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, 1999 Position
- -------------------- ---------------- ---------------------------------------
<S> <C> <C>
Sidney Harman 80 Chairman of the Board of Directors
Bernard A. Girod 57 Chief Executive Officer and
Director of the Company
Gregory P. Stapleton 52 Chief Operating Officer and Director
of the Company
Frank Meredith 42 Vice President - Finance &
Administration, Chief
Financial Officer and Secretary
William S. Palin 56 Vice President - Controller
Sandra B. Robinson 40 Vice President - Financial Operations
Edwin C. Summers 52 Vice President and General Counsel
Floyd E. Toole 53 Vice President - Acoustics
</TABLE>
24
<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 Chief Executive Officer since November 1998
and a Director of the Company since 1993. From March 1994 to
November 1998, Mr. Girod served as President of the Company. From
November 1992 to November 1998, Mr. Girod served as Secretary of the
Company. From March 1993 to November 1998 Mr. Girod served as
Chief Operating Officer of the Company. From September 1986 to
August 1995, Mr. Girod served as Chief Financial Officer of the
Company. From September 1979 to September 1986, Mr. Girod was the
Vice President and General Manager of Permacel, a subsidiary of Avery
Dennison and Vice President of Planning and Business Development for
Avery Dennison. From 1977 to 1979, Mr. Girod was the Chief Financial
Officer of the predecessor of the Company.
Gregory P. Stapleton has been a Director of the Company since
November 1997 and the Chief Operating Officer since November 1998.
From October 1997 to November 1998, Mr. Stapleton served as President
of the Harman OEM Group. 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 the Chief Financial Officer of the Company
since February 1997 and Secretary of the Company since November
1998. Mr. Meredith served as Vice President, General Counsel and
Assistant Secretary of the Company from July 1992 to June 1998. Prior
to that time, Mr. Meredith held other positions within the Company since
May 1985.
25
<PAGE>
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 C. 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
loudspeaker performance.
26
<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, 1999 (Shareholder Information on page 38).
ITEM 6. SELECTED FINANCIAL DATA
Five-Year Summary
(in thousands, except per share data,
for the fiscal years ended June 30)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 1,500,135 $ 1,513,255 $ 1,474,094 $ 1,361,595 $ 1,170,224
Operating income 38,663 100,325 101,973 105,378 87,449
Income before taxes 14,447 75,707 77,901 75,024 61,157
Net income 11,723 50,243 54,832 52,042 41,161
Diluted EPS 0.65 2.67 2.90 3.09 2.53
Total assets 1,065,755 1,130,684 1,014,254 996,209 886,872
Total debt 311,575 333,640 306,150 287,401 306,235
Shareholders' equity 468,187 511,899 466,762 436,477 289,490
Dividends per share 0.20 0.20 0.20 0.20 0.17
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by Part II, Item 7 is incorporated by reference to
the Company's Annual Report to Shareholders for the fiscal year ended
June 30, 1999 (Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 17 through 22).
27
<PAGE>
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 qualitative
information required by Part II, Item 7A is incorporated by reference to
pages 22 and 36 of the Company's Annual Report to Shareholders for the
fiscal year ended June 30, 1999 (Effects of Inflation and Currency
Exchange Rates and Footnote 13, Fair Value of Financial Instruments,
respectively).
The Company's exposure to interest rate changes is primarily related to its
variable rate debt. To assess 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 2000
net income, based on June 1999 positions, by approximately $0.9 million.
Based on June 1998 positions, the effect on fiscal 1999 net income of
such an increase in interest rates was estimated to be $0.8 million.
The Company and its subsidiaries' net unhedged exposure in assets and
liabilities denominated in other than their relevant functional currency as
of June 30, 1999 and 1998 was not material to the consolidated financial
position of the Company.
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.
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, 1999 (Consolidated Financial Statements on pages 16 and 24
through 38).
28
<PAGE>
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
1999 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
a) 1. Financial statements required to be filed hereunder
are indexed on page 33 hereof.
2. Financial statement schedules required to be filed
hereunder are indexed on page 33 hereof.
3. The exhibits required to be filed hereunder are
indexed on pages 37 through 44 hereof.
b) Reports on Form 8-K
Form 8-K, dated September 9, 1999, filed on
September 9, 1999, containing the following items:
Item 5. Announcement of the completion of the
repurchase of approximately 1.5 million shares
of Harman common stock under the stock repurchase
program announced on June 16, 1998.
Announcement of Board of Directors' approval of
the repurchase of an additional 1 million shares of
Harman common stock.
29
<PAGE>
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30
<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/ Bernard A. Girod
-------------------------------------------
Bernard A. Girod, Chief Executive Officer
Date: September 15, 1999
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 15, 1999
- ------------------------------ and Director ----------------------
Sidney Harman
/s/ Bernard A. Girod Chief Executive Officer September 15, 1999
- ------------------------------ and Director ----------------------
Bernard A. Girod
/s/ Gregory P. Stapleton Chief Operating Officer September 15, 1999
- ------------------------------ and Director ----------------------
Gregory P. Stapleton
/s/ Frank Meredith Vice President - Finance & September 15, 1999
- ------------------------------ Administration, Chief ----------------------
Frank Meredith Financial Officer (Principal
Accounting Officer) and
Secretary
/s/ Shirley M. Hufstedler Director September 15, 1999
- ------------------------------ ----------------------
Shirley M. Hufstedler
/s/ Ann McLaughlin Director September 15, 1999
- ------------------------------ ----------------------
Ann McLaughlin
/s/ Edward H. Meyer Director September 15, 1999
- ------------------------------ ----------------------
Edward H. Meyer
/s/ Stanley A. Weiss Director September 15, 1999
- ------------------------------ ----------------------
Stanley A. Weiss
</TABLE>
31
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
32
<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 16 and
24 through 38 of the 1999 Annual Report
to Shareholders herein incorporated
by reference as Exhibit 13.1):
Financial Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Independent Auditor's Reports . . . . . . . . . . . . . . 34 . . . . . . . . . . . . 23
Consolidated Balance Sheets as of
June 30, 1999 and 1998 . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 24
Consolidated Statements of
Operations for the years ended
June 30, 1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash
Flows for the years ended
June 30, 1999, 1998 and 1997 . . . . . . .. . . . . . . . . . . . . . . . . . . . 26
Consolidated Statements of Shareholders'
Equity for the years ended June 30,
1999, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Notes to Consolidated Financial Statements . . . .. . . . . . . . . . . . . . . . . . 28
Schedules for the years ended June 30,
1999, 1998 and 1997:
II Valuation and Qualifying
Accounts and Reserves . . . . . . . . . . . . . . 35
</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.
33
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE
- ----------------------------------------
The Board of Directors
Harman International Industries, Incorporated
Under date of August 12, 1999, we reported on the consolidated balance
sheets of Harman International Industries, Incorporated and subsidiaries
as of June 30, 1999 and 1998, 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, 1999, as contained in the 1999
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, 1999. 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 LLP
Los Angeles, California
August 12, 1999
34
<PAGE>
Schedule II
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
Valuation and Qualifying Accounts and Reserves
Three Years Ended June 30, 1999
($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, 1997
Allowance for
doubtful
accounts $ 9,962 $ 1,977 $ (781) (1) $ 2,042 (2) $ 9,116
Year Ended June 30, 1998
Allowance for
doubtful
accounts $ 9,116 $ 4,904 $ 152 (3) $ 4,100 (2) $10,072
Year Ended June 30, 1999
Allowance for
doubtful
accounts $ 10,072 $ 2,662 $ (129) (4) $ 3,873 (2) $ 8,732
</TABLE>
(1) Deductions due to foreign currency translation and dispositions.
(2) Deductions for accounts receivable written off net of recoveries.
(3) Additions due to acquisitions. Deductions due to dispositions.
(4) Deductions due to foreign currency translation, net of acquisition.
35
<PAGE>
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36
<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>
37
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
38
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
39
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
40
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
41
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
42
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
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
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
</TABLE>
43
<PAGE>
INDEX TO EXHIBITS (cont.)
<TABLE>
<CAPTION>
Exhibit Page
No. Description No.
<S> <C> <C>
10.63 Amended and restated indenture dated as of July 1, 1997
between Harman International Industries, Incorporated
and PNC Bank, National Association (Filed as
Exhibit 10.63 to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998
(File No. 001-09764), and hereby incorporated by
reference.) .......................................................IBR
10.64 SERP vesting agreement between the Company and
Gregory Stapleton dated September 25, 1996......................... 45
10.65 Employment agreement between the Company and
William Palin dated September 1, 1999.............................. 49
10.66 Form of Non-Qualified stock option agreement
between the Company and certain executive officers
of the Company dated August 11, 1998............................... 53
13.1 Pages 16 through inside back cover of Harman
International Industries, Incorporated Annual
Report to Shareholders for the fiscal year ended
June 30, 1999...................................................... 63
21.1 Subsidiaries of the Company........................................... 91
23.1 Consent of Independent Auditors....................................... 97
27.1 EDGAR Financial Data Schedule.........................................101
</TABLE>
44
<PAGE>
EXHIBIT 10.64
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46
<PAGE>
Benefit Agreement Amendment
This Benefit Agreement Amendment is entered into by and between
Harman International Industries, Incorporated, A Delaware corporation
(the "Company) and Gregory Stapleton (the "Employee"), pursuant to
the Harman International Industries, Incorporated Supplemental
Executive Retirement Plan, as amended (the "Plan").
WITNESSETH
WHEREAS, the Company and the Employee have executed a Benefit
Agreement, dated September 11, 1989, pursuant to which the Company
has specifically designated the Employee as a participant in the Plan
(which designation may be terminated by the Company at any time in
its sole discretion) and the Employee has agreed to accept those benefits
under the Plan to which he or his Beneficiary may become entitled, and
to be bound by all of the terms and conditions of the Plan;
WHEREAS, the Plan, and the benefits provided for thereunder, may be
modified or amended by the Company at any time;
WHEREAS, the Board of Directors of the Company have adopted an
amendment to the Plan to accelerate the vesting of Termination Benefits
provided for under the Plan to the Employee, and the Employee has
agreed to accept those benefits, as amended, to which he may become
entitled.
NOW, THEREFORE, the parties agree as follows:
1. Termination Benefit
The "Termination Benefit" as set forth in Section 5.02 of the Plan for
the Employee is amended as follows:
Effective as of July 24, 1996, if the Employee retires, or voluntarily or
involuntarily terminates employment prior to his Normal Retirement
Date, he shall be entitled to a benefit equal to ten percent (10%) of his
Average Compensation plus an additional two percent (2%) of his
Average Compensation for each Year of Service after July 24, 1996, up
to a maximum benefit of thirty percent (30%) of his Average
Compensation. For the purpose of this Section 5.02, and only this
Section 5.02, a Year of Service shall mean a 12-consecutive month
period commencing on July 24, 1996, and anniversaries thereof, during
which the Employee is a full-time employee of the Company.
The termination benefit shall commence on the first date of the month
following the month in which occurs the later of attainment of age 55 or
termination of employment and shall be in the form of benefit specified
in Section 5.05 of the Plan.
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<PAGE>
Benefit Agreement Amendment
September 25, 1996
Page 2
2. Acceptance of Benefits
The Employee hereby agrees on his own behalf and on behalf of his
Beneficiary to accept those benefits under the Plan, as so amended, to
which he or his Beneficiary may become entitled, and to be bound by
all of the terms and conditions of the Plan as amended. The Employee
hereby acknowledges that the Plan, including the above described
termination benefits, may be amended or terminated at any time by the
Company in accordance with the terms of the Plan.
HARMAN INTERNATIONAL INDUSTRIES,
INCORPORATED
Date: 9/26/96 By: /s/ Sidney Harman
----------- -------------------------
Name: Sidney Harman
Title: Chairman
Date: 9/26/96 By: /s/ Gregory Stapleton
----------- -------------------------
Gregory Stapleton
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EXHIBIT 10.65
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50
<PAGE>
harman international
Harman International Industries, Incorporated
8500 Balboa Blvd. P.O. Box 2200
Northridge, CA 91329
(818) 893-8411
September 1, 1999
Mr. W. S. Palin
The White House
Llandyrnog
Denbighshire LL16 4LT
WALES
Dear Bill:
I am writing to confirm our agreement on terms of your employment:
1. Your employment is with Harman International Industries,
Incorporated but for payroll, tax and social security purposes you may
be attached to one of the UK subsidiaries, your residence being in the
UK.
2. Your title is Vice President.
3. You will report to the President of the Company.
4. Your base salary will be 165,000 British Pounds per annum paid
monthly in arrears. It will be subject to annual review the first of such
to be carried out in September 2000.
5. Your employment will be subject to a notice period mutually applied
of 12 months, such notice may not be given prior to June 30, 2001.
During your employment and any notice period you agree not to engage
in any conduct which is competitive with the Company.
6. You will be entitled to participate in the Company's UK health and
life insurance plans at the Company's expense.
7. The Company will provide you with an automobile for both business
and your personal use. The Company will bear all running costs. The
car provided will be selected by you in line with those driven by other
employees of the Company at a similar level to yourself in Europe.
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<PAGE>
8. You will participate in the Company's discretionary bonus scheme.
9. You will be eligible to participate in any General Option Award by
the Company.
10. The Company shall contribute annually to your portable pension
scheme an amount no less than 10 percent of your base salary payable
in January of each calendar year.
11. In addition to public holidays, you will be entitled to 30 business
days annual vacation.
12. Your position will involve a considerable amount of travel to
various Company locations.
13. The Company will reimburse you for all travel and related expense
and for any out-of-pocket expenses reasonably incurred in the
performance of your duties (telephone, equipment, stationery, journals,
etc.).
14. Travel by rail may be first class, and by air up to business class at
your option.
15. Your responsibilities include Internal Audit for all Operations, for
which you will report to the President plus providing me with assistance
as I may direct in any due diligence or operational matter.
Will you please indicate your understanding of and agreement to the
foregoing by signing and returning to me the attached copy of this letter.
Sincerely,
HARMAN INTERNATIONAL
INDUSTRIES, INC.
/s/ Frank Meredith
Frank Meredith
Vice President
AGREED TO AND ACCEPTED:
By: /s/ W.S. Palin
------------------------
W. S. Palin
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<PAGE>
EXHIBIT 10.66
53
<PAGE>
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54
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (the
"Agreement") dated as of August 11, 1998, by and between HARMAN
INTERNATIONAL INDUSTRIES, INCORPORATED, a Delaware
corporation (the "Company"), and _________ (the "Optionee"):
WITNESSETH:
WHEREAS. The Optionee is an employee of the Company; and
WHEREAS, the execution of a nonqualified stock option agreement in
the form hereof has been duly authorized by a resolution of the
Compensation and Option Committee (the "Committee") of the Board
of Directors (the "Board") of the company duly adopted on August 11,
1998 (the "Date of Grant");
NOW THEREFORE, in consideration of these premises and the
covenants and agreements set forth in this Agreement, the Company and
the Optionee agree as follows:
1. Grant of Option. Pursuant to the terms of the Harman International
Industries, Incorporated 1992 Incentive Plan (the "Plan"), the Company
hereby grants to the Optionee an option (the "Option") to purchase
__________ shares (the "Option Shares") of the Company's Common
Stock, par value $0.01 per share ("Common Stock"), at the price of
$39.75 per share, which is the closing price of the Common Stock on
the Date of Grant (the "Exercise Price"), and agrees to cause certificates
for the Option Shares purchased hereunder to be delivered to the
Optionee upon full payment of the Exercise Price, subject to the
applicable terms and conditions set forth herein.
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<PAGE>
2. Type of Option. This Option is intended to be a nonqualified stock
option and shall not be treated as an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of
1986, as amended.
3. Vesting of Option. (a) Unless and until terminated as hereinafter
provided and subject to the provisions of Sections 3(b) and 3(c) below,
the Option shall become exercisable to the extent specified in the
Performance Vesting Table set forth below based on the achievement of
certain targeted market prices for a share of Common Stock.
(i) The first column "Target Price" of the Performance Vesting Table
sets forth a market price per share of Common Stock which must be
achieved and maintained in the manner specified in Section 3(a) (iii)
below.
(ii) The second column "Percentage of Option Shares" of the
Performance Vesting Table lists the percentage of the Option Shares
that will become exercisable upon such achievement of the Target Price.
(iii) The market price of a share of Common Stock shall only be
deemed to have reached a Target Price if the average of the closing
price on the New York Stock Exchange of one share of Common Stock
(as reported in the Eastern Edition of the Wall Street Journal) over any
period of 30 consecutive calendar days beginning after the Date of
Grant shall be at or above the specified Target Price.
Performance Vesting Table
TARGET PRICE PERCENTAGE OF OPTION SHARES
$55 per share 33-1/3% less any amount that previously
became exercisable
$65 per share 66-2/3% less any amount that previously
became exercisable
$75 per share 100% less any amount that previously
became exercisable
-2-
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<PAGE>
(b) The Option shall become immediately exercisable in full (unless
previously terminated as hereinafter provided) upon occurrence of a
change in control of the Company. A "change in control of the
Company" will be deemed to have occurred if the individuals who
constituted the Board at the beginning of any period of two consecutive
years cease to constitute a majority of the members thereof. For this
purpose, no change will be deemed to have occurred in the composition
of the Board by reason of the appointment or election of any director to
fill a vacancy created by (i) the death or disability of a director or (ii)
the resignation or removal of a director, if his or her resignation or
removal is unrelated to a merger or consolidation of the company with
another corporation, an acquisition of a majority of the voting shares of
the Company's stock or a sale by the Company of substantially all of its
assets. In each of these cases described in clauses (i) and (ii) of the
preceding sentence, the director who is appointed or elected to fill the
vacancy will be treated as continuing the tenure of the director whose
death, disability, resignation or removal created the vacancy.
c) The Committee may determine, in its sole discretion, to permit the
Option to become immediately exercisable in full if the Optionee (i)
should die or become permanently disabled while in the employ of the
Company or a Subsidiary or (ii) should retire under a retirement plan of
the Company or a Subsidiary at or after the earliest voluntary retirement
age provided for in such retirement plan or at an earlier age with the
consent of the Board.
4. Manner of Exercise. (a) To the extent that the Option shall have
become exercisable in accordance with Section 3 hereof, the Option
may be exercised by the Optionee at any time, or from time to time, in
whole or in part, during the term thereof, but only in multiples of fifty
(50) shares.
(b) The Optionee shall exercise the Option by delivering a signed
written notice to the Company, which notice shall specify the
number of Option Shares to be purchased and be
-3-
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<PAGE>
accompanied by payment in full of the Exercise Price for the
number of Option Shares specified for purchase.
c) The Exercise Price shall be payable (i) in cash or by check
acceptable to the Company, (ii) by transfer, either actual or constructive
to the Company of Common Stock that has been owned by the Optionee
for more than six months prior to the date of exercise or (iii) by a
combination of any of the foregoing methods of payment.
5. Termination. (a) The Option shall terminate on the earliest of the
following dates:
(i) The date of an Optionee's termination of employment with the
Company or a Subsidiary for any reason other than death or permanent
disability; provided, however, that the Committee may, in its sole
discretion, determine it is in the best interests of the Company and allow
Optionee up to 90 days from the date of termination to exercise the
Option;
(ii) One year after the death or permanent disability of the Optionee, if
the Optionee dies or becomes permanently disabled while an employee
of the Company or a Subsidiary;
(iii) 10 years after the Date of Grant.
(b) During the period of 90 days referred to in Section 5(a)(i) above
and the period of one year referred to in Section 5(a)(ii) above, the
Option may be exercised only to the extent that it shall have become
exercisable pursuant to Section 3 hereof at the time that the Optionee
ceases to be an employee of the Company or a Subsidiary.
(c) In the event that the Optionee commits an act that the Board
determines to have been intentionally committed and materially
inimical to the interests of the Company, the Option shall terminate as
of the time of the commission of that act, notwithstanding any other
provision of this Agreement.
-4-
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6. Share Certificates. All certificates evidencing Option Shares
purchase pursuant hereto (and any certificates for Common Stock
attributable to the shares acquired by exercise of the Option which, in
the opinion of counsel for the Company, are subject to similar legal
requirements) shall have endorsed thereon before issuance such legends
as the Company's counsel may deem necessary or advisable. The
Company and any transfer agent shall not be required to transfer any
such shares unless and until the Company or its transfer agent shall have
received from counsel to the Optionee, in a form satisfactory to the
Company, an opinion that any such transfer will not be in violation of
any applicable law or regulation. Optionee agrees not to sell, assign,
pledge, or otherwise dispose of any shares without the Company first
receiving such an option.
7. Transfer. The Option may not be transferred except by will or the
laws of descent and distribution and may not be exercised during the
lifetime of the Optionee except by the Optionee or the Optionee's
guardian or legal representative acting on behalf of the Optionee in a
fiduciary capacity under state law and court supervision.
8. Compliance with Law. The Company shall make reasonable efforts
to comply with all applicable federal and state securities laws; provided,
however, that notwithstanding any other provision of this Agreement,
the Option shall not be exercisable if the exercise would involve
violation of any such laws.
9. Adjustments. (a) The Committee may make such adjustments in the
number and kind of shares of stock or other securities covered by this
Agreement, or the Target Prices specified in the Performance Vesting
Table, as the Committee may in good faith determine to be equitably
required in order to prevent any dilution or expansion of the Optionee's
rights under this Agreement that otherwise would result from any:
(i) stock dividend, stock split, combination of shares, recapitalization or
other change in the capital structure of the Company;
-5-
59
<PAGE>
(ii) merger, consolidation, spin-off, reorganization, partial or complete
liquidation or issuance of rights or warrants to purchase securities of the
Company, or
(iii) other corporate transaction or event having an effect similar to any
of the foregoing.
(b) In the event that any transaction or event described or referred to in
Section 9(a) above shall occur., the Committee may provide in
substitution of any or all of the Optionee's rights under this Agreement
such alternative consideration as the Committee may in good faith
determine to be equitable under the circumstances.
10. Fractional Shares. The Company shall not be required to issue any
fractional share of Common Stock pursuant to the Option. The
Committee may provide for the elimination of fractions or for the
settlement of fractions in cash.
11. Withholding Taxes. If the Company shall be required to withhold
any federal, state, local or foreign tax in connection with the exercise of
the Option, it shall be a condition of the exercise of the Option that
Optionee pay to the Company the amount of such tax required to be
withheld or make provisions that are satisfactory to the Company for the
payment thereof.
12. Right to Terminate Employment. No provision of this Agreement
shall limit in any way whatsoever any right that the Company or a
Subsidiary may otherwise have to terminate the employment of the
Optionee at any time.
13. Definition of a Subsidiary. For the purposes of this Agreement, the
term "Subsidiary" means any corporation in which the Company
directly or indirectly owns or controls more than 50 percent of the total
combined voting power of all classes of stock issued by the corporation.
14. Communictions. All notices, demands and other communications
required or permitted hereunder or designated to be given with respect
to the rights or interests covered by the Agreement shall be deemed to
have been properly given or delivered when delivered personally or
-6-
60
<PAGE>
sent by certified or registered mail, return receipt requested, U.S. mail
or reputable overnight carrier with full postage prepaid and addressed to
the parties as follows:
If to the Company, at: 1101 Pennsylvania Avenue, N. W., Suite 1010,
Washington, D.C. 20004, Attention: Chief Financial Officer
If to the Optionee: Optionee's address provided by Optionee on the last
page hereof
Either the Company or Optionee may change the above designated
address by written notice to the other specifying such new address.
15. Interpretation. The interpretation and construction by the
Committee of the Agreement shall be final and conclusive. No member
of the Committee shall be liable for any such action or determination
made in good faith.
16. Amendment in Writing. In accordance with its terms, this
Agreement may be amended, but only in a writing which specifically
references this Section and is signed by each of the parties hereto.
17. Integration. The Option is granted pursuant to the Plan, and this
Agreement and the Option are subject to all of the terms and conditions
of the Plan, a copy of which is available upon request and incorporated
herein by reference. As such, this Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the
Option, and supersedes any prior understandings or agreements,
whether written or oral, with respect to the Option.
18. Severance. In the event that one or more of the provisions of this
Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof and the remaining provisions
hereof shall continue to be valid and fully enforceable.
-7-
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19. Governing Law. This Agreement is made under, and shall be
construed in accordance with, the laws of the District of Columbia.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement is executed by the Company
on the day and year first written above.
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
By
-------------------------------------------------
Sidney Harman, Chairman of the Board
The undersigned Optionee hereby acknowledges receipt of an executed
original of this Nonqualified Stock Option Agreement and accepts the
Option subject to the applicable terms and conditions of the Plan and
the terms and conditions hereinabove set forth.
----------------------------------
Optionee
Address:
----------------------------------
----------------------------------
-8-
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EXHIBIT 13.1
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64
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FINANCIALS
65
<PAGE>
Financial Information Table of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Statement of Management Responsibility 23
Independent Auditor's Report 23
Consolidated Financial Statements
Balance Sheets 24
Statements of Operations 25
Statements of Cash Flows 26
Statements of Shareholders' Equity 27
Notes to Consolidated Financial Statements 28
Shareholder Information 38
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, labor disputes, competitive products and other risks
detailed herein and in the Company's other filings with the Securities
and Exchange Commission.
16
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<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations. Net sales for fiscal 1999 were $1.500 billion,
compared to $1.513 billion in fiscal 1998 and $1.474 billion in fiscal
1997. In fiscal 1999, sales of car loudspeakers and electronics to the
automakers increased 15 percent over the prior year, and sales of
loudspeakers and electronics to personal computer manufacturers
increased substantially. Weakness in Asian markets and our decisions to
discontinue marginally profitable product lines and dealers and to
initiate a destocking program with our international distributors offset
these gains. Fiscal 1999 Asian sales were over $60 million lower than
fiscal 1998 levels, and fiscal 1998 Asian sales were over $60 million
lower than fiscal 1997 levels. However, this trend began to turn in the
fourth quarter of fiscal 1999, as we achieved Asian sales gains in excess
of 10 percent compared to last year in both the Consumer Systems
Group and the Professional Group. The sales increase in fiscal 1998 was
primarily driven by increased sales to the automakers, partially offset by
currency translation effects and lower sales to consumer and
professional audio dealers resulting from weakness in Asia and soft
markets for audio products elsewhere.
The Company experiences seasonal fluctuations in sales and earnings.
The first fiscal quarter is the weakest due to automotive model
changeovers and the July and August holidays in Europe. Variations in
seasonal demands among end-user markets may also cause operating
results to vary from quarter to quarter.
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 business and other operations. The
Company implemented a program to: (1) re-align the consumer audio dealer
and distribution structure to strengthen the positioning of our various
brands, (2) significantly reduce the number of marginally profitable
product lines, and (3) significantly reduce overhead as a result of
weakening consumer market conditions. These actions resulted in pretax
charges totaling $66.4 million, as discussed in note 2 to the financial
statements.
The restructuring program is proceeding as planned. The El Paso,
Sunnyvale and Nagoya, Japan, facilities have been closed and other
headcount and cost reductions programs are completed. Products
previously manufactured at the El Paso plant have been discontinued or
transitioned to external suppliers. The North America consumer
business has completed its distribution changes.
The gross profit percentage was 26.5 percent in fiscal 1999, compared
to 26.8 percent in fiscal 1998 and 28.5 percent in fiscal 1997. The
decrease in fiscal 1999 was due to special charges recorded to reduce
the carrying value of inventories of discontinued product lines totaling
$24.3 million. Excluding the charges of $24.3 million, the gross profit
percentage increased to 28.1 percent, resulting from higher margins in
the automotive and personal computer operations, higher margins at
JBL Professional and factory overhead reductions. The decrease in
fiscal 1998 was due to lower 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.
Selling, general and administrative expenses as a percentage of sales
were 21.5 percent in fiscal 1999, compared to 20.2 percent in fiscal
1998 and 21.6 percent in fiscal 1997. In fiscal 1999, selling, general and
administrative expenses included $5.1 million in special charges to
write off marketing assets, including point-of-sale displays, associated
with discontinued product lines and distributors and to record other
costs associated with discontinued product lines. In fiscal 1998, selling,
17
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<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
general and administrative expenses were reduced by $8.9 million of
income recorded on the sale of our German and Japanese distribution
operations. Excluding these items, selling general and administrative
expenses as a percentage of sales were 21.1 percent in fiscal 1999,
compared to 20.8 percent in fiscal 1998. The increase in fiscal 1999 was
due to a $10 million increase in engineering and development costs to
support new business with automakers and personal computer
manufacturers. 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
costs incurred in our consumer and professional businesses to reduce
overhead.
Plant closing and severance costs of $17.0 million were 1.1 percent of
sales in fiscal 1999. Asset impairment costs of $20.0 million were 1.3
percent of sales for the same period. The plant closing and severance
costs 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 full-time positions in Switzerland, the United Kingdom,
Massachusetts, California and New York. The facility closures and the
elimination of approximately 450 positions are projected to result in
annual savings of $24 million, of which $16 million is cash savings.
The asset impairment charge 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 Harman.
Operating income as a percentage of net sales was 2.6 percent in fiscal
1999, compared to 6.6 percent in fiscal 1998 and 6.9 percent in fiscal
1997. The decrease in fiscal 1999 operating income was due to the
special charges totaling $66.4 million discussed previously. Excluding
these charges, operating income was 7.0 percent of sales in fiscal 1999.
The fiscal 1998 decrease resulted from lower gross profit margins.
Interest expense in fiscal 1999 was $23.6 million, compared to $24.9
million in fiscal 1998 and $23.6 million in fiscal 1997. Interest expense
decreased in fiscal 1999 due to lower average interest rates. Fiscal 1999
average borrowings were $397.1 million, compared to $382.4 million in
fiscal 1998 and $317.9 million in fiscal 1997. Fiscal 1999 average
borrowings increased due to the December 1997 acquisition of Audio
Electronic Systems and common stock repurchases in fiscal 1999
totaling $34 million, offset by operating cash flow.
The weighted average interest rate in fiscal 1999 was 6.0 percent,
compared to 6.5 percent in fiscal 1998 and 7.4 percent in fiscal 1997.
The decrease in average interest rates in fiscal 1999 was primarily due
to the December 1, 1998, retirement of $45 million of 11.2% notes,
funded with revolving credit facility borrowings. Additionally, a higher
percentage of the Company's fiscal 1999 borrowings were denominated
in European currencies, which carry lower interest rates than
borrowings in U.S. dollars.
As a result, in fiscal 1999 the Company reported income before income
taxes, minority interest and extraordinary item of $14.4 million,
compared to $75.7 million in fiscal 1998 and $77.9 million in fiscal
1997.
In fiscal 1999, the Company reported income tax expense of $2.7
million, reflecting an effective tax rate of 18.7 percent. This compares
with income tax expense of $21.9 million and an effective tax rate of
28.9 percent in fiscal 1998. Fiscal 1997 tax expense was $23.0 million
with an effective tax rate of 29.5 percent. The effective tax rates for
fiscal years 1999, 1998, and 1997 were below the U.S. statutory rate
due to utilization of tax credits, realization
18
68
<PAGE>
of certain tax benefits for United States exports and the utilization
of tax loss carryforwards at certain foreign subsidiaries. The effective
rate for fiscal 1999 is significantly below the statutory rate because
the above benefits are offsetting a lower pretax income base.
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 1999 or 1997.
Net income for fiscal 1999 was $11.7 million, compared with $50.2
million in fiscal 1998 and $54.8 million in fiscal 1997. Excluding
restructuring charges, fiscal 1999 net income would have been $57.6
million.
The Company's businesses are organized by the end-user markets they
serve. The Consumer Systems Group designs, manufactures and
markets loudspeakers and electronics for high fidelity audio
reproduction in the home, with computers and in the car. The
Professional Group designs, manufactures and markets loudspeakers
and electronics used by audio professionals in concert hall, recording,
broadcast and cinema applications.
Consumer Systems Group sales increased slightly to $1.066 billion in
1999, compared to $1.050 billion in 1998. Sales in 1997 were $993
million. Sales of car loudspeakers and electronics through automobile
manufacturers increased 15 percent in 1999. Sales growth in Europe
was driven by the contribution of AES, acquired December 1997, and
growth at Becker resulting from higher BMW and Porsche volume and
higher navigation system sales. In North America, the success of the
Chrysler LH platform and the Dodge Durango contributed to the
growth. Sales of loudspeakers and electronics through personal
computer manufacturers tripled in 1999 due to new contracts with Dell
and IBM and continuing business with Compaq. Home and automotive
aftermarket loudspeaker sales under the JBL and Infinity labels were
lower due to weakness in Asia, the discontinuance of marginally
profitable product lines and dealers and an international dealer
destocking program initiated in the second half of the year. The
destocking program will continue into fiscal 2000. Home electronics
sales were higher due to the success of new home theater and digital
audio products introduced by Harman Kardon and Madrigal. Operating
income for the consumer segment decreased from $94.6 million in fiscal
1998 to $89.0 million in fiscal 1999, excluding restructuring charges.
The decrease primarily reflects lower home and automotive aftermarket
loudspeaker sales resulting from weakness in Asian markets and the
international destocking program discussed previously.
Professional Group sales decreased 1 percent to $434 million in 1999,
compared to $439 million in 1998. Sales in 1997 were $475 million.
The decrease in 1999 was due to weakness in Asia, the discontinuance
of marginally profitable product lines and lower sales in our mixing
console businesses. JBL Professional reported higher sales due to strong
results in its North American cinema business, and AKG and BSS
produced excellent sales growth. The sale of Harman's broadcast
automation software technology also contributed. Fiscal 1999
professional segment operating income increased to $27.0 million,
excluding restructuring charges, compared to last year's $18.9 million.
The increase resulted from the growth at JBL Professional, AKG and
BSS and the broadcast software technology sale.
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.
19
69
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The Company and certain subsidiaries have a 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, 1999, the Company had outstanding
indebtedness under the revolving credit facility of $41.2 million,
outstanding letters of credit of $0.2 million and unused credit thereunder
of $233.6 million. The indebtedness at June 30, 1999, consists of
committed rate loans, which bear interest at LIBOR plus 0.375 percent,
and swing line borrowings, which bear interest at base rates.
The Company and certain subsidiaries have a term loan with a group of
banks led by Commerzbank committing 150 million German marks to
the Company for cash borrowings through August 30, 2002. At June 30,
1999, the Company had outstanding indebtedness under this facility of
150 million German marks, equal to $79.3 million. The indebtedness at
June 30, 1999, bears interest at LIBOR plus 0.30 percent, equal to 3.3
percent.
At June 30, 1999, certain international subsidiaries of the Company
maintained unsecured short-term lines of credit of $13.9 million and had
outstanding indebtedness thereunder of approximately $12.6 million.
Capital expenditures, net of capital lease financing, were $67.8 million
in fiscal 1999, compared with $57.5 million in fiscal 1998 and $62.4
million in fiscal 1997. Expenditures in fiscal 1999 and 1998 were for
equipment required to increase manufacturing capacity and efficiency,
primarily in our businesses supplying the automotive industry, and new
product tooling.
The Company anticipates capital expenditures of approximately $110
million during the next fiscal year. Firm commitments of approximately
$10.4 million existed as of June 30, 1999, for capital expenditures
during fiscal 2000. The Company anticipates that a portion of these
capital expenditures will be financed through lease financing
arrangements.
Net working capital at June 30, 1999 was $359.8 million, compared
with $367.9 million at June 30, 1998. The decrease primarily results
from lower inventories and other current assets, partially offset by the
December 1, 1998, repayment of $45 million of 11.2% notes funded
with revolving credit facility borrowings.
Excess of cost over fair value of assets acquired was $140.8 million at
June 30, 1999, compared with $161.7 million at June 30, 1998. The
decrease resulted from amortization and the realization of unrecorded
deferred tax assets at Becker.
Shareholders' equity was $468.2 million at June 30, 1999, compared
with $511.9 million at June 30, 1998, and $466.8 million at June 30,
1997. The decrease in fiscal 1999 resulted from common stock
repurchases totaling $34.0 million and negative foreign currency
translation adjustments of $20.4 million due to the weakening of the
Euro against the U.S. dollar. The increase in fiscal 1998 resulted from
net income. A negative foreign currency translation adjustment of $5.2
million was recorded in fiscal 1998 and a negative adjustment of $11.3
million was recorded in fiscal 1997, both due to the strengthening of the
U.S. dollar against most other major currencies.
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 common stock repurchase program was initiated in July 1998. Through
20
70
<PAGE>
June 30, 1999, the Company has acquired and placed in treasury
965,400 shares of its common stock at a total cost of $34.0
million. The share repurchase program was discontinued due to the
restructuring. The Company plans to re-start the share repurchase
program in fiscal 2000. In July 1999, Harman's Board of Directors
authorized the repurchase of up to 1.0 million additional shares of
Company common stock, increasing the total amount authorized to be
repurchased to 2.5 million shares.
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 through the next twelve months.
The Company is subject to various risks, including dependence on key
customers, economic conditions affecting disposable consumer income
and fluctuations in currency exchange rates. A disruption in the
operations of one of our key customers, such as an automotive strike,
could have a material adverse effect on the Company.
Year 2000. The Company and its subsidiaries are evaluating and
addressing risks associated with the Year 2000 problem through a
comprehensive review of computer hardware and software,
communication devices, facilities, operating and manufacturing
equipment, and supplier and customer preparedness. Our Year 2000
readiness programs are on schedule. The Company and its subsidiaries
have completed inventory and assessment in all areas, and are in
varying stages of remediation, testing and contingency planning.
Hardware/Software: As of June 30, 1999, the Company and its
subsidiaries have completed inventory and assessment of computer
hardware and software applications. The majority of the Company's
reporting units have completed remediation and testing. Total Year
2000 compliance costs for computer hardware and software are
projected to be $2.6 million, of which $1.8 million has already been
incurred. All computer hardware and software remediation and testing
efforts are scheduled to be completed by September 30, 1999.
Communications: As of June 30, 1999, the Company and its
subsidiaries have substantially completed inventory, assessment,
remediation and testing of communications equipment and software.
Total Year 2000 compliance costs for communications equipment were
not material.
Facilities: As of June 30, 1999, the Company and its subsidiaries have
substantially completed inventory, assessment, remediation and testing
of facilities infrastructure. Total Year 2000 compliance costs for
facilities infrastructure were not material.
Operating and Manufacturing Equipment: As of June 30, 1999, the
Company and its subsidiaries have substantially completed inventory,
assessment, remediation and testing of operating and manufacturing
equipment. Total Year 2000 compliance costs for operating and
manufacturing equipment were not material.
Suppliers: As of June 30, 1999, the Company and its subsidiaries have
completed issuance of Year 2000 compliance surveys to important
suppliers. Some suppliers have not returned the surveys. Evaluation of
supplier survey results is substantially complete. Most of our important
suppliers have certified current Year 2000 compliance or have projected
compliance by September 30, 1999. Certain of our subsidiaries have
selected and qualified alternate sources for critical components and raw
materials to provide additional assurance of supply continuity.
Customers: As of June 30, 1999, the Company and its subsidiaries have
completed issuance of Year 2000 compliance surveys to customers. The
Company has participated in Year 2000 compliance programs with its
21
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<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
major automotive partners, such as DaimlerChrysler, Toyota and BMW,
including both scheduled and surprise audits. Evaluation of customer
survey results is substantially complete. Most of our major customers
and the electronic interfaces we share have been certified as Year 2000
compliant.
Contingency planning is the final step in our Year 2000 readiness
processes. Contingency plans address Year 2000 related problems that
are unanticipated or outside of the company's control. The objective of
our contingency plans is to provide for rapid response and minimal
disruption of operations in the event of unforeseen Year 2000 related
problems.
As part of its overall contingency plan, the Company has identified a
global Year 2000 Emergency Response team. The Emergency Response
team is staffed with mission-critical IT and operations personnel. The
Company and its subsidiaries are also developing detailed contingency
plans for each critical location. Completion is scheduled for late 1999.
Certain of our critical facilities have final contingency plans in place
which include purchased or leased power generators, alternate supplier
qualification, extra safety stocks and other back-up measures. The Year
2000 Emergency Response team will be on call for the remainder of the
calendar year and through the Year 2000 transition.
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
or that unexpected events will not occur. However, management
believes that its plans should reduce the risk of business interruptions
due to such occurrences.
Effects of Inflation and Currency Exchange Rates. The Company
maintains significant assets and operations in Germany, the United
Kingdom, Denmark, France, Austria, Switzerland, Mexico and Sweden.
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 pronouncement
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is discussed in footnote 1 to the consolidated financial
statements, Summary of Significant Accounting Policies.
22
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<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
Chief Executive Officer Vice President, Finance and
Administration,
Chief Financial Officer and Secretary
- ---------------------------------------------------------------------------
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, 1999 and 1998 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, 1999. 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,
1999 and 1998 and the results of their operations and their cash flows
for each of the years in the three-year period ended June 30, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Los Angeles, California
August 12, 1999
23
73
<PAGE>
Consolidated Balance Sheets
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
June 30, 1999 and 1998
($000s omitted except share amounts)
Assets 1999 1998
------------ -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 2,963 16,204
Receivables (less allowance for
doubtful accounts of $8,732 in 1999
and $10,072 in 1998) 303,371 299,881
Inventories (note 3) 280,115 307,189
Other current assets 60,160 71,929
------------ -----------
Total current assets 646,609 695,203
------------ -----------
Property, plant and equipment,
net (notes 4, 6 and 7) 241,063 248,368
Excess of cost over fair value of assets
acquired (less accumulated amortization
of $25,788 in 1999 and $20,963 in 1998) 140,824 161,712
Other assets 37,259 25,401
------------ -----------
Total assets $1,065,755 1,130,684
------------ -----------
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings (notes 5 and 6) $ 19,411 18,333
Current portion of long-term debt (note 6) 11,750 55,698
Accounts payable 120,116 113,367
Accrued liabilities 135,544 139,890
------------ -----------
Total current liabilities 286,821 327,288
------------ -----------
Borrowings under revolving credit facility
(note 6) 34,375 6,554
Senior long-term debt (note 6) 246,039 253,055
Other non-current liabilities 29,585 31,253
Minority interest 748 635
Shareholders' equity (notes 6 and 8)
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 18,722,735 shares in
1999 and 18,633,322 shares in 1998 187 186
Additional paid-in capital 290,873 288,336
Equity adjustment from foreign currency
translation (41,885) (21,478)
Retained earnings 252,989 244,855
Less common stock held in
treasury (965,400 shares) (33,977) ---
------------ -----------
Total shareholders' equity 468,187 511,899
------------ -----------
Commitments and contingencies
(notes 7, 11 and 13)
Total liabilities and shareholders' equity $1,065,755 1,130,684
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
24
74
<PAGE>
Consolidated Statements of Operations
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1999, 1998, 1997
($000s omitted except per share amounts)
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 1,500,135 1,513,255 1,474,094
Cost of sales 1,102,400 1,107,229 1,053,614
------------- ------------- -------------
Gross profit 397,735 406,026 420,480
Selling, general and
administrative expenses (note 2) 322,008 305,701 318,507
Plant closures and
severance (note 2) 17,010 --- ---
Asset impairment (note 2) 20,054 --- ---
------------- ------------- -------------
Operating income 38,663 100,325 101,973
Other expenses
Interest expense 23,641 24,885 23,640
Miscellaneous, net 575 (267) 432
------------- ------------- -------------
Income before income
taxes, minority interest
and extraordinary item 14,447 75,707 77,901
Income tax expense (note 9) 2,706 21,851 22,962
Minority interest 18 30 107
------------- ------------- -------------
Income before
extraordinary item 11,723 53,826 54,832
Extraordinary item, net of
income tax effect
of $1,610 --- (3,583) ---
------------- ------------- -------------
Net income $ 11,723 50,243 54,832
------------- ------------- -------------
Basic EPS before extraor-
dinary item (note 15) $ 0.66 2.90 2.96
Extraordinary item (note 15) --- (0.19) ---
------------- ------------- -------------
Basic EPS (note 15) $ 0.66 2.71 2.96
------------- ------------- -------------
Diluted EPS before extraor-
dinary item (note 15) $ 0.65 2.86 2.90
Extraordinary item (note 15) --- (0.19) ---
------------- ------------- -------------
Diluted EPS (note 15) $ 0.65 2.67 2.90
------------- ------------- -------------
Weighted average shares
outstanding - basic
(note 15) 17,897 18,574 18,552
Weighted average shares
outstanding - diluted
(note 15) 18,061 18,884 18,894
</TABLE>
See accompanying notes to consolidated financial statements.
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75
<PAGE>
Consolidated Statements of Cash Flows
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1999, 1998, 1997
($000s omitted)
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,723 50,243 54,832
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 60,202 54,801 48,265
Amortization of intangible assets 6,578 7,713 5,921
Special charges, net of cash paid 54,751 --- ---
Tax benefit attributable to
stock options 59 172 522
Deferred income taxes 2,635 15,530 10,449
(Gain) loss on disposition
of assets 942 (6,454) 226
Change in working capital, net of
acquisition/disposition effects:
Decrease (increase) in:
Receivables (10,512) 7,280 (8,898)
Inventories (1,469) (20,644) (14,746)
Other current assets 11,211 (12,900) (3,231)
Increase (decrease) in:
Accounts payable 7,792 (1,855) (4,460)
Accrued liabilities and income
taxes payable (13,336) (10,191) (24,255)
------------- ------------- -------------
Net cash provided by
operating activities $ 130,576 83,695 64,625
------------- ------------- -------------
Cash flows from investing
activities:
Payment for purchase of
companies, net of cash
acquired $ (568) (98,210) ---
Proceeds from asset
dispositions 2,861 66,529 3,666
Capital expenditures (67,830) (57,528) (62,417)
Issuance of loans, net (11,600) --- ---
Other items, net (1,655) (4,486) (305)
------------- ------------- -------------
Net cash used in investing
activities $ (78,792) (93,695) (59,056)
------------- ------------- -------------
Cash flows from financing
activities:
Net repayments (borrowings)
under lines of credit $ 645 2,264 (10,559)
Proceeds from issuance of
long-term debt 35,206 236,640 28,714
Repayments of long-term debt (65,789) (216,890) (6,062)
Repurchase of common stock (33,977) --- ---
Dividends paid to shareholders (3,589) (3,715) (3,709)
Exercise of stock options 2,479 3,675 974
Stock retirement --- --- (11,000)
------------- ------------- -------------
Net cash flow provided by
(used in) financing activities $ (65,025) 21,974 (1,642)
------------- ------------- -------------
Net increase (decrease) in cash
and cash equivalents $ (13,241) 11,974 3,927
Cash and cash equivalents at
beginning of year 16,204 4,230 303
------------- ------------- -------------
Cash and cash equivalents
at end of year $ 2,963 16,204 4,230
------------- ------------- -------------
Supplemental schedule of
non-cash investing activities:
Fair value of assets acquired $ 1,672 160,164 ---
Cash paid for the capital stock 568 98,210 ---
------------- ------------- -------------
Liabilities assumed $ 1,104 61,954 ---
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
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<PAGE>
Consolidated Statements of Shareholders' Equity
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Years ended June 30, 1999, 1998 and 1997
($000s omitted)
Accumulated
foreign
Common Additional currency Net
Stock $.01 paid-in translation Retained Treasury shareholders'
par value capital adjustments earnings stock equity
----------- ------------ -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
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
Common stock
retirement (2) (10,998) --- --- --- (11,000)
Dividends ($.20
per share) --- --- --- (3,709) --- (3,709)
Comprehensive income --- --- (11,334) 54,832 --- 43,498
----------- ------------ -------------- ----------- ---------- -------------
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
Dividends ($.20
per share) --- --- --- (3,715) --- (3,715)
Comprehensive income --- --- (5,238) 50,243 --- 45,005
----------- ------------ -------------- ----------- ---------- -------------
Balance,
June 30, 1998 $ 186 288,336 (21,478) 244,855 --- 511,899
----------- ------------ -------------- ----------- ---------- -------------
Exercise of
stock options 1 2,478 --- --- --- 2,479
Tax benefit
attributable
to stock
option plan --- 59 --- --- --- 59
Common stock repurchases --- --- --- --- (33,977) (33,977)
Dividends ($.20
per share) --- --- --- (3,589) --- (3,589)
Comprehensive income --- --- (20,407) 11,723 --- (8,684)
----------- ------------ -------------- ----------- ---------- -------------
Balance,
June 30, 1999 $ 187 290,873 (41,885) 252,989 (33,977) 468,187
----------- ------------ -------------- ----------- ---------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
77
<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 1999 consolidated financial statement presentation.
Cash Equivalents. Cash equivalents of $13.3 million with
maturities less than three months were included in cash and
cash equivalents at June 30, 1998.
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 30
years. Buildings and improvements are depreciated over 3 to 30 years or
the term of the lease, whichever is shorter. Machinery and equipment
are depreciated over 5 to 10 years and furniture and fixtures are
depreciated over 3 years.
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 has not provided U.S. federal or foreign withholding
taxes on foreign subsidiary undistributed earnings as of June 30, 1999,
because such earnings are intended to be permanently invested.
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. These translation gains and losses are the only component of
comprehensive income in addition to net income.
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, 1999, totaled $6.7
million, net of accumulated amortization of $1.1 million. 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 $76.0 million, $65.9 million and $66.5 million for
the fiscal years ending June 30, 1999, 1998 and 1997, 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 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 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, as amended, is effective for
financial statements issued for periods beginning after June 15, 2000.
28
78
<PAGE>
Adoption of SFAS No. 133 should not have a material effect on the
Company's results of operations, liquidity or financial condition.
2. Restructuring and 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 business 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, the El Paso
manufacturing facility was closed, facilities located in California, Japan,
Brazil and France were closed, and jobs were eliminated at facilities in
Switzerland, the United Kingdom, California, New York and
Massachusetts. Approximately 450 full-time positions were 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 pretax charges totaling $66.4 million. Of the
$66.4 million in charges, total cash costs were projected to be $15.3
million and non-cash costs were projected to be $51.1 million. Through
June 30, 1999, cash payments charged against the provision totaled
$11.7 million, including $4.8 million of severance payments. 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.
The components of the charges were:
Original Charges Remaining
Provision To Reserves Balance
-----------------------------------
Plant closures and severance $ 17.0 14.7 2.3
Asset impairment 20.0 18.7 1.3
Inventories 24.3 11.9 12.4
Other 5.1 5.1 0.0
--------- ------- -------
Total $ 66.4 50.4 16.0
--------- ------- -------
Charges totaling $17.0 million were recorded for plant closures 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 sold at auction. The property, plant and
equipment at closed facilities, primarily consisting of leasehold
improvements, furniture and office equipment, has been scrapped and
written off. Other exit costs accrued of $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.
3. Inventories
Inventories consist of the following:
June 30 ($000s omitted) 1999 1998
- ------------------------------------------------------
Raw materials and supplies $137,566 120,905
Work in process 37,317 28,816
Finished goods and inventory
purchased for resale 105,232 157,468
--------- ---------
Total $280,115 307,189
--------- ---------
29
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<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
4. Property, Plant and Equipment
Property, plant and equipment are composed of the following:
June 30 ($000s omitted) 1999 1998
- -----------------------------------------------------
Land $ 3,949 3,966
Buildings and improvements 95,567 89,965
Machinery and equipment 320,759 312,806
Furniture and fixtures 40,849 35,684
--------- ---------
461,124 442,421
Less accumulated depreciation
and amortization (220,061) (194,053)
--------- ---------
Property, plant and
equipment, net $241,063 248,368
--------- ---------
5. Short-Term Borrowings
At June 30, 1999, the Company had unsecured short-term lines of credit
for certain international subsidiaries aggregating $13.9 million with
outstanding borrowings of approximately $12.6 million. Interest rates
based on various indices ranged from 3.2 percent to 7.0 percent. At June
30, 1998, the Company had outstanding borrowings of approximately
$16.5 million and interest rates ranging from 1.9 percent to 8.6 percent.
The Company utilizes the swing line feature of the revolving credit
facility to meet its short-term borrowing requirements. At June 30,
1999, the Company had $6.8 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 5.5 percent in the United Kingdom. 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.
6. 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, 1999, the Company had
borrowings of $41.2 million on the revolving credit facility (including
swing line, competitive advance and revolving credit borrowings) and
outstanding letters of credit of $0.2 million. The unused credit under the
revolving credit facility at June 30, 1999, was $233.6 million. Interest
rates, at LIBOR plus 0.375 percent, ranged from 3.1 percent in Belgium
and the Netherlands to 5.4 percent in the United States. 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, 1999 and
1998.
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, 1999 and 1998.
Under the most restrictive provisions, limited amounts of dividends may
be paid as of June 30, 1999.
Interest paid for both short- and long-term borrowings was $25,288,000,
$27,576,000, and $24,579,000 during the fiscal years ended June 30,
1999, 1998 and 1997, respectively.
30
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<PAGE>
Long-term debt is composed of the following:
June 30 ($000s omitted) 1999 1998
- ------------------------------------------------------------
Senior subordinated notes,
unsecured, due December 1,
1998, interest payments due
semiannually at 11.2% $ - 45,000
Borrowings under revolving
credit facility, due September
30, 2002, with variable rates
ranging from 3.1% to 5.4%
at June 30, 1999 34,375 6,554
Senior notes, unsecured,
due July 1, 2007, interest
due semiannually at 7.3% 150,000 150,000
Borrowings under Deutschmark
facility, due August 30, 2002;
variable rate was 3.3% at
June 30, 1999 79,321 82,935
Obligations under
capital leases (note 7) 24,214 24,349
Other unsubordinated loans
due in installments through
2012, some of which vary
with the prime rate, bearing
interest at an average
effective rate of 6.6%
at June 30, 1999 4,254 6,469
--------- ---------
Total 292,164 315,307
Less current installments (11,750) (55,698)
--------- ---------
Long-term debt $280,414 259,609
--------- ---------
Long-term debt, including obligations under capital leases, maturing in
each of the next five fiscal years (000's omitted) is as follows:
- ---------------------------------
2000 $ 11,750
2001 8,402
2002 1,969
2003 114,531
2004 886
Thereafter 154,626
- ---------------------------------
7. Leases
The following analysis represents property under capital leases:
June 30 ($000s omitted) 1999 1998
- ----------------------------------------------------------
Capital lease assets $ 42,462 35,022
Less accumulated amortization (14,557) (7,919)
--------- --------
Net $ 27,905 27,103
--------- --------
Capital lease obligations of $7.4 million, $12.9 million and $7.3 million
were incurred to fund equipment additions during the fiscal years ended
June 30, 1999, 1998 and 1997, respectively. At June 30, 1999, the
Company is liable for the following minimum lease commitments under
terms of noncancelable lease agreements:
Capital Operating
($000s omitted) Leases Leases
- ----------------------------------------------------
2000 $ 11,580 $30,904
2001 8,093 27,532
2002 1,859 22,860
2003 947 19,160
2004 983 16,535
Thereafter 3,812 77,551
--------- ---------
Total minimum lease payments 27,274 $194,542
---------
less interest (3,060)
---------
Present value of minimum
lease payments $24,214
---------
Operating lease expense net of subrental income under operating leases
having noncancelable terms of greater than one year for the years ended
June 30, 1999, 1998 and 1997 was $35,072,000, $33,288,000, and
$30,154,000, respectively.
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<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
8. 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.
Stock appreciation rights allow the holders to receive a predetermined
percentage of the spread between the option price and the current value
of the shares. A grant of restricted stock involves the immediate transfer
to a participant of ownership of a specified number of shares of
Common Stock in consideration of the performance of services. The
participant is entitled immediately to voting, dividend and other share
ownership rights. A transfer of restricted stock may be made without
consideration or in consideration of a payment by the participant that is
less than current market value, as the Compensation and Option
Committee may determine. A performance unit is the equivalent of
$100 and is granted for the achievement of specified management
objectives.
No stock appreciation right, performance unit or restricted stock grants
have been made through June 30, 1999. 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.
In August 1998, the Company granted performance-based stock options
to a group of employees that only vest as Harman's common stock price
achieves specified target levels and the average closing stock price
remains at or above those levels for at least 30 consecutive calendar
days. These options were granted at a price of $39.75 per share, equal to
the market price on the date of grant, and expire in August 2008. The
Company plans to measure the cost of these performance-based options
as the difference between the exercise price and market price required
for vesting and to recognize this expense over the period to the
estimated vesting dates and in full for options that have vested.
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 1999 and fiscal 1998: annual dividends
consistent with the Company's current dividend policy, which resulted
in payments of $0.20 per share in the last two years; expected volatility
of 33 percent in fiscal 1999 and 34 percent in fiscal 1998; risk free
interest rate of 5.7 percent in fiscal 1999 and 5.2 percent in fiscal 1998;
and expected life of 2.3 years from the vesting date. The weighted
average fair value of options granted was $19.74 in fiscal 1999, $16.56
in fiscal 1998 and $16.43 in fiscal 1997. Pro forma compensation cost
for grants under the stock option program since July 1, 1995, recognized
in accordance with SFAS No. 123, would reduce the Company's net
income from $11.7 million (diluted EPS of $0.65) to $9.5 million
(diluted EPS of $0.52) in fiscal 1999, from $50.2 million (diluted EPS
of $2.67) to $47.9 million (diluted EPS of $2.54) in fiscal 1998, and
from $54.8 million (diluted EPS of $2.90) to $52.9 million (diluted EPS
of $2.80) in fiscal 1997. 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, 1999, a total of 2,083,546 shares of Common Stock were
reserved for issuance under the 1992 Plan.
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<PAGE>
Stock Option Activity Summary: Years ended June 30
Weighted
Average
Shares Exercise Price
- -----------------------------------------------------------
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
-----------
Granted 590,250 $41.46
Canceled (160,839) $40.48
Exercised (89,413) $27.73
-----------
Balance at June 30, 1999 1,814,331 $36.95
-----------
Options Outstanding at June 30, 1999
Weighted
Average Weighted
Range of Number of Remaining average
exercise prices options life in years exercise price
- ---------------------------------------------------------------
$ 7.38- 7.38 77,300 2.37 $ 7.38
$ 11.31-16.43 9,503 3.04 $ 11.64
$ 19.76-28.01 241,478 4.29 $ 24.59
$ 30.17-45.19 1,398,800 7.74 $ 39.96
$ 46.13-53.25 87,250 7.23 $ 51.87
- ---------------- -----------
$ 7.38-53.25 1,814,331 7.00 $ 36.95
- ---------------- -----------
Options Exercisable at June 30, 1999
Weighted
Range of Number of average
exercise prices Options exercise price
- ----------------------------------------------
$ 7.38- 7.38 77,300 $ 7.38
$ 11.31-16.43 9,503 $ 11.64
$ 19.76-28.01 241,058 $ 24.59
$ 30.17-45.19 480,053 $ 36.93
$ 46.13-53.25 63,850 $ 52.12
- ---------------- ---------
$ 7.38-53.25 871,764 $ 31.74
- ---------------- ---------
At June 30, 1998, options with an average exercise price of $30.10 were
exercisable on 801,251 shares. At June 30, 1997, options with an
average exercise price of $27.56 were exercisable on 844,518 shares.
9. Income Taxes
The tax provisions and analysis of effective income tax rates are
comprised of the following items:
Years Ended June 30
($000s omitted) 1999 1998 1997
- -------------------------------------------------------------
Provision for Federal income
taxes before credits
at statutory rate $ 5,056 26,497 27,265
State income taxes (182) 1,878 1,226
Difference between Federal
statutory rate and foreign
effective rate (3,863) (8,335) (409)
Permanent differences
between financial and
tax accounting income 654 831 (475)
Tax exempt foreign sales
corporation earnings (1,483) (1,575) (1,427)
Change in valuation
allowance - (6,609) (2,809)
Change in other
tax liabilities 966 5,919 -
Losses without
income tax benefit 3,158 3,984 1,582
Federal income
tax credits (1,500) (1,500) (950)
Other (100) 761 (1,041)
--------- -------- --------
Total $ 2,706 21,851 22,962
--------- -------- --------
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<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
Income tax expense (benefit) consists of the following:
Years Ended June 30
($000s omitted) 1999 1998 1997
- ----------------------------------------------
Current:
Federal $ (2,847) 12,860 11,513
State 305 1,864 609
Foreign 14,638 10,556 7,345
-------- -------- --------
12,096 25,280 19,467
-------- -------- --------
Deferred:
Federal (8,903) (4,079) 2,878
State (487) 650 617
-------- -------- --------
(9,390) (3,429) 3,495
-------- -------- --------
Total $ 2,706 21,851 22,962
-------- -------- --------
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 (1998 adjusted as per income tax return)
are recorded:
Assets/(liabilities)
June 30 ($000s omitted) 1999 1998
- --------------------------------------------------------
Inventory costing differences $ 4,139 4,727
Valuations and other allowances 14,059 4,471
--------- --------
Total gross deferred tax asset $ 18,198 9,198
Less valuation allowance - -
--------- --------
Deferred tax asset $ 18,198 9,198
Total gross deferred tax liability
from fixed asset depreciation (12,650) (13,040)
--------- --------
Net deferred tax asset $ 5,548 (3,842)
--------- --------
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. 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 at
Becker, in German marks, was 22.9 million in fiscal 1999, 28.1 million
in fiscal 1998 and 8.1 million in fiscal 1997.
Cash paid (refunded) for Federal, state and foreign income taxes was
($1,985,000), $17,299,000, and $15,597,000, during fiscal years ended
June 30, 1999, 1998 and 1997, respectively.
10. Business Segment Data
The Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," in fiscal year 1999. SFAS No.
131 establishes new standards for reporting financial and descriptive
information regarding our enterprise's operating segments.
The Company's predominant business is the design, manufacture and
distribution of high fidelity audio products. Our businesses are
organized based on the end-user markets served-consumer and
professional.
The Consumer Systems Group designs, manufactures and markets
loudspeakers and electronics for high fidelity audio reproduction in the
home, with computers and in the car. Home applications include two-
channel audio, multi-channel audio/video and personal computer audio.
Consumer products are marketed worldwide under brand names
including JBL, Harman Kardon, Infinity, Revel, Mark Levinson and
Proceed. In the consumer segment, car audio sales to DaimlerChrysler
accounted for approximately 23.4%, 20.1% and 16.0% of
consolidated net sales for the years ended June 30, 1999, 1998 and
1997.
The Professional Group designs, manufactures and markets
loudspeakers and electronics used by audio professionals in concert
halls, cinemas, recording studios, broadcasting operations and live
music events. Professional products are marketed worldwide under
brand names including JBL, AKG, Studer, Lexicon, Soundcraft, DOD,
Digitech and dbx.
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<PAGE>
The following table reports external sales, operating income, assets,
capital expenditures and depreciation and amortization by segment.
Segmentation
Years ended June 30
($000s omitted) 1999 1998 1997
- ------------------------------------------------------------
External sales:
Consumer $ 1,066,358 1,050,169 993,358
Professional 433,744 439,474 474,985
Other 33 23,612 5,751
------------ ---------- ----------
Total $ 1,500,135 1,513,255 1,474,094
------------ ---------- ----------
Operating income:
Consumer $ 89,011 94,603 78,272
Professional 27,005 18,862 28,148
Other (10,907) (13,140) (4,447)
Restructuring
charges (66,446) - -
------------ ---------- ----------
Total $ 38,663 100,325 101,973
------------ ---------- ----------
Assets:
Consumer $ 770,270 795,018 693,496
Professional 267,274 267,660 290,772
Other 28,211 68,006 29,986
------------ ---------- ----------
Total $ 1,065,755 1,130,684 1,014,254
------------ ---------- ----------
Capital expenditures:
Consumer $ 53,057 40,757 44,957
Professional 14,010 16,121 16,281
Other 763 650 1,179
------------ ---------- ----------
Total $ 67,830 57,528 62,417
------------ ---------- ----------
Depreciation and
amortization:
Consumer $ 48,345 43,706 37,167
Professional 15,574 15,753 15,371
Other 2,861 3,055 1,648
------------ ---------- ----------
Total $ 66,780 62,514 54,186
------------ ---------- ----------
The following table reports net sales and long-lived assets by
geographic area for the years ended June 30, 1999, 1998 and 1997.
Geographic Segmentation
Years Ended June 30
($000s omitted) 1999 1998 1997
- --------------------------------------------------------
Net sales:
U.S. $ 593,004 627,516 602,586
Europe 652,446 580,857 536,603
Other 254,685 304,882 334,905
------------ ---------- ----------
Total $ 1,500,135 1,513,255 1,474,094
------------ ---------- ----------
Long-lived assets:
U.S. $ 161,476 183,142 144,689
Europe 233,947 243,959 186,137
Other 4,326 3,481 1,226
------------ ---------- ----------
Total $ 399,749 430,582 332,052
------------ ---------- ----------
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.
Common stock purchases in fiscal 1999 totaled 965,400 shares. The
share repurchase program was discontinued due to the restructuring.
The Company plans to re-start the share repurchase program in fiscal
2000. Future repurchases are expected to be funded through operating
cash flow. In July 1999, Harman's board of Directors authorized the
repurchase of up to 1.0 million additional shares of Company common
stock, increasing the total amount authorized to be repurchased to 2.5
million shares.
35
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<PAGE>
Notes to Consolidated Financial Statements continued
Harman International Industries, Incorporated and Subsidiaries
12. Employee Benefit Plans
Under the Retirement Savings Plan, domestic employees may contribute
up to 12.0% of their pretax compensation. Highly compensated
employees are limited to a 6 percent maximum deferral subject to
review by the Corporate Executive committee each year. With the
approval of the Board of Directors, each division may make a basic
contribution equal to 2.0% of a participant's eligible compensation; 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, following three full years of
service. Expenses related to the Retirement Savings Plan for the years
ended June 30, 1999, 1998 and 1997 totaled $5,654,000, $5,448,000
and $2,516,000, 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,
1999, 1998 and 1997 were $737,400, $668,000 and $683,000, respectively.
Additionally, certain non-domestic subsidiaries maintain defined benefit
pension plans. These plans are not material to the accompanying
consolidated financial statements.
13. 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, 1999, the Company had
contracts maturing through June 2000, to purchase and sell the
equivalent of approximately $40 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, 1999.
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 $263.7 million and
$266.1 million, respectively, at June 30, 1999.
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.
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<PAGE>
15. Earnings Per Share Information
<TABLE>
<CAPTION>
Years Ended June 30
($000s omitted except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
Basic Diluted Basic Diluted Basic Diluted
------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary item $11,723 11,723 53,826 53,826 54,832 54,832
Extraordinary item, net of taxes - - (3,583) (3,583) - -
------- ------- ------ ------- ------ -------
Net income $11,723 11,723 50,243 50,243 54,832 54,832
------- ------- ------ ------- ------ -------
Shares of Harman common stock
outstanding 17,897 17,897 18,574 18,574 18,552 18,552
Employee stock options - 164 - 270 - 342
------- ------- ------ ------- ------ -------
Total average equivalent shares 17,897 18,061 18,574 18,844 18,552 18,894
------- ------- ------ ------- ------ -------
Earnings per share before
extraordinary item $ 0.66 0.65 2.90 2.86 2.96 2.90
Extraordinary item, net of taxes - - (0.19) (0.19) - -
------- ------- ------ ------- ------ -------
Earnings per share $ 0.66 0.65 2.71 2.67 2.96 2.90
------- ------- ------ ------- ------ -------
</TABLE>
16. Quarterly Summary of Operations (unaudited)
The following is a summary of operations by quarter for fiscal 1999 and 1998:
Three months ended: ($000s omitted except per share amounts)
<TABLE>
<CAPTION>
Fiscal 1999 Sept 30 Dec 31 Mar 31 Jun 30
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 315,896 387,518 374,904 421,817
Gross profit $ 83,735 84,447 104,961 124,592
Net income $ 8,491 (30,562) 12,817 20,977
EPS-basic* $ .46 (1.73) .72 1.18
EPS-diluted* $ .45 (1.73) .72 1.17
Note: Quarter ended December 31, 1999, includes
special charges totaling $66.4 million,
equal to $2.59 per share.
* Quarters do not add to full year due to
changes in shares outstanding.
Fiscal 1998
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
</TABLE>
37
87
<PAGE>
Shareholder Information
Harman International Industries, Incorporated and Subsidiaries
<TABLE>
<CAPTION>
Market Price Fiscal 1999 Fiscal 1998 Fiscal 1997
- ---------------------------------------------------------------------------------------------
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First quarter ended September 30 $42.125 32.500 $50.063 39.000 $50.625 40.250
Second quarter ended December 31 44.500 31.500 57.063 35.250 55.875 48.000
Third quarter ended March 31 42.688 35.813 46.813 38.250 56.125 33.250
Fourth quarter ended June 30 47.500 34.250 46.438 36.750 43.250 33.250
</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, 1999, the Company's
Common Stock was held by approximately 189 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,
1999, 1998, and 1997.
The Company paid dividends during fiscal 1999, 1998 and fiscal 1997
of $.20 per share, with a dividend of $.05 paid in each of the four
quarters.
38
88
<PAGE>
Corporate Officers Directors
Sidney Harman Bernard A. Girod
Chairman Sidney Harman
Shirley Mount Hufstedler
Bernard A. Girod Ann McLaughlin
Chief Executive Officer Edward H. Meyer
Gregory Stapleton
Gregory Stapleton Stanley Weiss
Chief Operating Officer
Frank Meredith Annual Meeting
Vice President - Finance and The annual meeting of
Administration, Chief Financial shareholders will be held
Officer and Secretary on November 9, 1999, at
Chase Manhattan Bank,
Erich Geiger 270 Park Avenue,
Chief Technical Officer New York, NY 10017
At 11:00 am EST. A
William S. Palin proxy was sent to
Vice President - Controller shareholders on or about
September 17, 1999, at
Sandra B. Robinson which time proxies for the
Vice President - Financial Operation meeting were requested.
Edwin Summers Registrar and Transfer Agent
Vice President and General Counsel ChaseMellon Shareholder
Services
400 South Hope Street,
Floyd E. Toole 4th Floor
Vice President - Acoustics Los Angeles, CA 90071
213-553-9720
Securities Traded
New York Stock Exchange
Symbol: HAR
Corporate Headquarters Independent Auditor
1101 Pennsylvania Avenue, NW KPMG LLP
Washington, DC 20004 725 South Figueroa Street
202-393-1101 Los Angeles, CA 90017
www.harman.com 213-972-4000
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, labor disputes, competitive products and other risks detailed
herein and in the Company's other filings with the Securities and Exchange
Commission.
89
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90
<PAGE>
EXHIBIT 21.1
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<PAGE>
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92
<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
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 A/S Denmark
Harman Consumer Manufacturing -
El Paso, Inc. Delaware
Harman Consumer Netherlands BV Netherlands
</TABLE>
93
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------ --------------
<S> <C>
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
JBL Europe A/S Denmark
</TABLE>
94
<PAGE>
HARMAN INTERNATIONAL INDUSTRIES, INCORPORATED
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary Jurisdiction
------------ --------------
<S> <C>
JBL Incorporated Delaware
Lexicon, Incorporated Massachusetts
Madrigal Audio Laboratories, Inc. Connecticut
Orban, Inc. Delaware
Oxford International, Ltd. Delaware
Precision Devices, Ltd United Kingdom
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>
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96
<PAGE>
EXHIBIT 23.1
97
<PAGE>
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98
<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, 1999, relating to the consolidated balance sheets of
Harman International Industries, Incorporated and subsidiaries as of June
30, 1999 and 1998, 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, 1999, which report appears
in the June 30, 1999 annual report on Form 10-K of Harman International
Industries, Incorporated.
/s/ KPMG LLP
Los Angeles, California
September 15, 1999
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100
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 2915
<SECURITIES> 48
<RECEIVABLES> 312103
<ALLOWANCES> 8732
<INVENTORY> 280115
<CURRENT-ASSETS> 646609
<PP&E> 461124
<DEPRECIATION> 220061
<TOTAL-ASSETS> 1065755
<CURRENT-LIABILITIES> 286821
<BONDS> 280414
<COMMON> 187
0
0
<OTHER-SE> 468000
<TOTAL-LIABILITY-AND-EQUITY> 1065755
<SALES> 1500135
<TOTAL-REVENUES> 1500135
<CGS> 835654
<TOTAL-COSTS> 1102400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2662
<INTEREST-EXPENSE> 23641
<INCOME-PRETAX> 14447
<INCOME-TAX> 2706
<INCOME-CONTINUING> 11723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11723
<EPS-BASIC> 0.66
<EPS-DILUTED> 0.65
</TABLE>
